Are you being prevented from becoming financially prosperous? A false belief system about money can seriously affect both short- and long-term fiscal worth. But there’s a way out! Throw away these six money myths, and you’ll be on the path to prosperity.
Do you hold any of these common, erroneous beliefs?
1. If I get a raise that moves me into a higher tax bracket, I’ll actually take home a smaller paycheck.
Thankfully, this isn’t true! Being moved into a higher tax bracket only increases the tax rate on the income you earned in that tax bracket. Here’s how it works:
Filing Singly, 2011:
o 10% on taxable income from $0 to $8,500
o 15% on taxable income over $8,500 to $34,500
o 25% on taxable income over $34,500 to $83,600
o 28% on taxable income over $83,600 to $174,400
o 33% on taxable income over $174,400 to $379,150
o 35% on taxable income over $379,150
o So, if you earn $25,000, the first $8,500 is taxed at 10%. Your income earned between $8,500 and $25,000 is taxed at 15%.
2. Renting is analogous to throwing money in the garbage.
Compare renting to other necessities of modern living:
- Do you regard the money you pay out on gasoline to be the same as throwing it away? How about what you spend on electricity? These expenses are both examples of consumables without lasting value that you consistently purchase. However, these things are required for daily living in our society. Rent falls under the same heading.
- Even homeowners have to “throw away” money on items like property taxes and mortgage interest, quite possibly more than you’re using to pay your rent. In fact, for the first several years of most mortgages, you’re essentially paying primarily interest with your payments.
- For example, on a 30-year, $150,000 mortgage at 7% interest, your first 5 years of payments would total approximately $60,000. Of that $60,000, you “throw away” approximately $51,000 on interest payments.
3. Higher price means higher quality. More expensive items are not always of greater quality.
For example, generic drugs are generally regarded to be just as beneficial as their name-brand alternatives.
- When determining an item’s value, look beyond the price and examine the true value to you. Does that generic brand pain reliever help your aching back? Don’t be so sure that paying extra is really getting you something extra. Spend your money wisely.
4. You need a lot of money to start investing.
It’s true that some brokerage companies require a minimum amount of money to open an account. However, there are also many online brokers now that have no investment requirements to open an account. You can get started immediately, if you want to.
5. Keeping a balance on my credit card will help my credit rating.
One of the factors that go into a credit score is the percentage of available credit that’s being utilized. So, you’re better off without carrying a balance. That’s not to say you shouldn’t use it; just pay it off monthly. There’s no benefit for you to pay interest to the credit card companies.
6. Home ownership is a guaranteed investment strategy.
One only needs to look at what’s been going on in the housing market the last couple of years to see that’s not necessarily true. As with other investments, home ownership carries a risk that your investment may decrease in value.
- Although commonly reported data say that housing appreciates somewhere between the rate of inflation and 5% per year, this is not always true. In reality, your home can certainly lose value over time.
Did you believe any of these financial myths before you read this article? What’s most important is that you’re on the right track now. Continue educating yourself and always be open to learning more about money. It’s never too late to get on the path to real wealth.