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You are here: Home / Alternative / Separating financial fact from fiction

Separating financial fact from fiction

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A huge proportion of the population believes in at least one common misconception about their finances that simply isn’t true, and usually many more. But how can you separate the fact from the fiction? Reading sites like Investopedia and Experian’s Google+ page can help to cure people of these misconceptions, but if you don’t know that you are wrong about something then why would you look it up? Read on to find out if something you believe about your finances is completely wrong.

1) When the stock market dips I should take my money out
This is a widely held belief. In fact, you are better to keep your money in stocks when the market goes down in value. A lot of people regard this as a good time to start buying stocks as they will be sold at bargain prices. In the long run, a lot of people who kept buying stocks following the Wall Street crash in 1929 actually ended up doing very well.

2) Keeping a balance on my credit card will improve my credit score
In actual fact, all you’re doing by maintaining a balance on your credit card is handing interest payments to the credit card company. Your credit score will be improved by paying off your balance in full at the end of each month. It also helps to only use a small amount of your available balance. Experian offers a handy service that allows you to check your credit score and can give you additional advice on improving it.

3) I need more money to start investing
While few current accounts offer anything approaching a reasonable rate of return there are online banks who will offer you some return on your investment if you open a savings account with them. Online savings accounts can be opened with as little as £1, so there is no excuse to put off starting your nest egg. Once you’ve built up some money you can then start transferring it into higher return investments like stocks and shares.

4) When you rent you throw away money
This is a very common misconception that leads people to try and get on the ownership ladder as quickly as possible. In actual fact, you “throw away” as much if not more money when you buy a house due to the fact that you’re paying back interest on your mortgage. If your first 60 mortgage payments total around £50,000 then upwards of £40,000 could consist of interest payments. Whether you own or rent your home, you are effectively paying for current consumption of a good in exactly the same way as you do when you buy food or electricity.

5) If my salary increases into a higher tax bracket I’ll take home less money
This isn’t the way the tax system works. You only pay the higher rate of tax on money that is earned over the tax threshold. You’ll pay more of the money that you earn over that threshold in tax than you do on the money under the threshold, but you’ll still have more money in your pocket.

 

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Julie Cheung / Finance Girl

Manchester blogger with an interest in personal finance, investing and mental health.




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