Financial advice abounds all around you. Financial ‘gurus’ on the internet will have you believe their best ways to retire young and rich. Financial ‘advisers’ will tell you which investments can give you your dream life. And an abundance of personal finance blogs exist that give mixed advice on different aspects of handling money.
Despite the wealth of information you can find these days, money myths still exist. Even a registered money lender will tell you that. And people still believe in them, causing problems in their finances.
Here are five of the most common money myths in Singapore to watch out for.
All debt is bad
This is simply not true. While debt is generally not good for your financial health, there is such a thing as good debt. This is the kind of debt that eventually earns money, pays for itself, and keeps on earning more for you.
One example is taking out a loan to purchase a property, which you then lease. The income you get from rent is what you can use to pay down the loan. Soon enough, you will be able to fully repay your loan. The property will then continue earning as long as someone is renting it.
If you purchase property and other assets with debt, it’s not as bad as you may think. In fact, assets will help you build wealth in the long run.
Credit cards can ruin you financially
In keeping with the principle above, credit cards can also be put to good use. To attract clients, many banks offer perks and rewards tied in with their credit cards, such as rebates, air miles, and special discounts. Take advantage of these perks and you can actually save money.
Just remember to stay below your credit limit and to always pay your monthly bills in full.
Save up to buy a home first and foremost
Having your own home is a great prospect, but it’s not the first thing you should pile money on. Other things are equally important, such as your emergency fund and retirement plan. It’s no good having a home but lacking the money to finance your other needs.
Instead, make saving for a home part of your long-term financial goals. It should tie in with similar goals like building a retirement fund. Also, consider that you have to spend a good deal of money for repairs, renovation, and maintenance of the home. Anticipate those expenses and prepare for them as well.
Attend trading seminars to get rich
Trading seminars can cost you a fortune, but their returns can be much less than what you paid for. Stock trading, for instance, is a high-stakes game, and not everyone can win big. Those promises of high returns and lavish lifestyles are only there to attract more people to buy tickets.
Save your money and stay away from these events. Invest your money in something better instead, like real estate or actual stocks.
Get investment-linked insurance as your retirement plan
These insurance plans only seem good because insurance agents frame them as having high returns. That way, more people will buy these insurance policies, and the agents get more commissions.
But looking at the actual figures, the long-term returns from investment-linked insurance are actually much smaller compared to the STI or the CPF. This means two things. First, investing in companies listed in the SGX will yield higher returns in the long term. And second, you are better off increasing your CPF contributions as much as your budget will allow.
By the time you retire, you will have more substantial funds for the rest of your life.
It pays to be wise about the financial advice you take. Make sure the advice is sound before applying it. If it falls under any of these, run away right away. Save your money and put it in places where it will really grow.