Tuesday, March 18, 2014

7 Money Myths That Will Blow Your Mind

Surprisingly, money can’t buy everything. Yes, money can buy a new car, a lavish house, or even your own island, but it can’t buy everything. You can’t purchase a sense of humor — although you might be able to pay people to laugh at your jokes — and money won’t force someone to fall in love with you, or make you younger. People love to say that money can’t buy happiness, but while happiness itself can’t be bought, you can certainly purchase many things that will make you happy. People love to talk about money; that’s why there are so many talk shows, movies, and even books dedicated to the subject. However, there are many money myths out there that are just not true.

1. You should keep a balance on your credit card to build your credit score

This is a very popular belief, but maintaining a balance won’t improve your credit. In addition, by maintaining a balance, you may end up paying interest charges. A better idea is to pay your bill on time every month. In addition, keep your credit utilization low; avoid using too high percentage of your max credit limit very often. As 30 percent of your credit score is actually based on how much of your available credit you are using, so long as you are paying your bills regularly and avoiding maxing out your cards, you will build your credit score. If you need to regularly use a large percentage of your limit, you can consider asking for your limit to be raised so that the credit utilization percentage will go down.

2. Remodeling your home is a good investment

Like the myth that owning your own home is a good investment — which it sometimes is and sometimes isn’t — remodeling your home isn’t always a good investment either. Like owning a home, when you remodel, you have to live in your home for a certain amount of time before you recoup the majority of the cost. In addition, some remodeling jobs are better for resale value than others. Buyers of certain price points will expect certain upgrades, so depending on the price of your home, you might have to do some updates.
According to MSN, some of the best remodeling jobs include replacing exterior siding, replacing an entry door, a mid-range kitchen remodel, and a new wood deck. If you are planning to sell soon, try looking around at similar homes in your area. If you won’t be able to sell your house for enough to cover the cost of the remodel, then you should probably not do it because many people remodel and then can’t recoup enough to break even.

3. Banks are the best place to keep your money safe

In a literal sense, this is true because banks have to insure your money to at least $250,000, but if the bank fails, you may not get all of your additional money back. While your money might be safe in the bank, you will actually be losing money because the interest rates for most savings accounts and CDs are so low. If you’re lucky, you might be staying on track with inflation, but most likely you will actually be losing money and would be better off investing if you don’t need the money in the near future. While most people feel it’s necessary to maintain a checking account in order to pay bills, several checking accounts come with fees, so research your bank to find out if you are losing too much in unnecessary fees.

4. You should always diversify your investments

Yes, diversifying your investments can help you avoid financial ruin if you place all your money in one stock and then the stock plummets. Diversifying investments can help limit financial risk, but according to INVESTOPEDIA, there are several times when diversifying is not the best idea. In order to properly diversify your portfolio, you will need at least $10,0000 to invest in different stock sectors. Maintaining a diversified stock portfolio also requires a large time commitment and make your taxes more complicated. Diversifying investments is often a good decision, but it isn’t the right decision for everyone.

5. Moving to a higher tax bracket will leave you with less money

Moving to a new tax bracket should be something to celebrate, not something to worry about. Tax rates are progressive, so the entirety of your income won’t be tasked higher just because your new income puts you in a higher bracket. Only the amount of your income that goes over the previous tax rate will be taxed at the higher rate. For example, if you are filing your 2013 taxes as a single taxpayer, and you make $80,000 annually, your first $8,925 of income will be taxed at 10 percent, your income up to $36,250 will be taxed at 15 percent, and only the difference between $36,250 and your $80,000 income will be taxed at 25 percent. Plus, if you are making more money but living on the same budget, you can save more, which means you have more cash to contribute to tax-advantaged accounts, which can actually reduce your tax bill.

6. You get what you pay for

Do we ever really get what we pay for? Sometimes, but paying more money isn’t a guarantee that this will happen. For example, if you buy a brand new tablet for $300 dollars, it won’t necessarily be any better than a lightly used one for $100 on eBay (NASDAQ:EBAY). Yes, the more expensive one has never been used, but new items ship with problems all the time. Store brand items at grocery stores often have the same exact ingredients as brand name products, but many consumers pay more for the brand names anyway. Purchasing items at garage sales can often save you a lot of money, and you aren’t necessarily sacrificing quality. Of course, sometimes you do get what you paid for. As an example, you might want to avoid clothing that is priced cheap regularly (as opposed to cheap on sale) because it probably isn’t made as well.

7. Using cash will help you save money

Sometimes it is best to pay with cash. A Dunn & Bradstreet study found that customers spend an average of 12-18 percent more when using credit cards. Using cash can often help you stay on a budget, but sometimes when you have cash, it disappears quickly and you don’t know how you spent it. In addition, you can set your credit or debit card up to pay regular monthly bills, which will help you to avoid late fees; you can’t do that with cash. Credit cards often provide cash-back incentives, points, or other perks, that you will never get by using straight cash. With a credit card, you also have some protection from the credit company or your bank, whereas if you lose a wad of cash, no one will be paying you back.
There are many other money myths out there, some of which have changed over time and now are just old money lessons that used to be true. Since there are so many ways to store and carry your money, you have to figure out what is right for you right now.


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