Information overload is a recurring obstacle in the personal finance world. But the real problem is all of the misinformation out there. My job over at ModMoney is to edit down the universe of financial planning opinions to create approachable money tips that anyone can incorporate into their lives. That includes dispelling all of the “fake news,” if you will. On that note, keep scrolling for three common money myths you should avoid as you work on improving your finances this year.
Myth: Carrying a credit card balance is good for your credit score.
This is one of those money myths I simply can’t stand! Carrying a credit card balance month to month is a sure way to build up sky-high interest payments and snowball your way into a debt burden.
The credit bureaus will reward your credit score for responsible use of your credit cards, but that does NOT mean carrying a balance. To avoid this common blunder, make sure you set all of your credit cards to autopay the full balance (not the minimum balance) every month.
Myth: You have to be wealthy to invest.
Investing is one of those personal finance topics that sends people running for the hills. Plus, it generates an unnecessary stigma that you have to be rich or knowledgeable about the markets in order to participate. That’s simply not the case, and even beginners can start investing without a large nest egg or a load of financial knowledge.
The whole point of investing is to grow your money. So consider this. The average savings account at a large bank offers less than 1% in interest per year. Now overlay the fact that inflation (general price increases) grows at around 3% per year. That means prices are increasing faster than your savings are! In other words, you’re losing money in the long run. On the other hand, the average stock market return over a 10-year period is 10-12%. Our beginner’s guide to investing is the perfect launchpad to get you started.
Myth: Your bank is the best place to keep your savings account.
For simplicity’s sake, most people keep their checking accounts and savings accounts at the same bank. It’s easy, it’s convenient, and it’s safe. What more could you want, right? Now here’s the issue. Savings accounts at large brick-and-mortar banks like Chase, Wells Fargo, or Bank of America usually offer a low, 0.01% interest rate on your savings. That’s nothing!
Online banks like Synchrony Bank, Marcus by Goldman Sachs and Ally Bank offer high-yield savings accounts with a 2.25% interest rate and no minimum balance. These banks have less overhead than brick-and-mortars and can pass some of those cost savings onto customers in the form of higher yields. Let’s put it this way. If you put $10,000 in savings today at a 0.01% rate, you would earn about $10 in interest over 10 years. If you put that same pool of cash into a 2.25% account, you would earn over $2,500 in interest over that same time period. And you didn’t even have to lift a finger.