Busted! 5 Common Money Myths Debunked

Ever heard that phrase? Of course you have. How about this one: “If you rent, you’re throwing your money away!” Or this one – “Just pay with cash, forget credit cards.”

 

These myths have unfortunately burrowed their way into our collective financial consciousness. What’s worse, the devotees of money superstitions are everywhere, from the credulous grandpa who’s never owned a credit card in his life, to the mother that’s always dropping hints about how you should “wait to buy it on sale!”

 

We’ve decided to take a look at the facts and burst some of these money myth bubbles. Check out our top five money myths debunked below.

 

 

The granddaddy of money superstitions, this myth has been around as long as money has. In recent years several studies have delved into this age-old question and what they’ve uncovered may surprise you.

 

A Princeton University study by Nobel laureate Daniel Kahneman and former American Economic Association president Angus Deaton found that money does make people more satisfied with their lives – but only up to a point. People who made more money were usually happier, up until the $75,000 mark. A household income of more than $75,000, said Kahneman and Deaton, doesn’t increase emotional satisfaction. 

 

And while it’s true that splurging on ultra luxury items only leaves us with a fleeting sense of happiness, spending money on life experiences and giving to charity actually does make us happy, according to Harvard Business School professor Michael Norton. Even small life experiences, like going out for a meal, can bring people more happiness, “because experiences are more emotionally involving than simply buying ‘stuff’ ” says Norton.

 

 

Despite what the naysayers would have you believe, credit cards are almost a necessity. There are some circumstances where credit simply beats cash every time, like making large purchases, shopping online, and booking a flight.

 

When it comes to large purchases like appliances or electronics, most credit cards offer warranty protection and some even give you extra coverage beyond what’s offered by the manufacturer. Shopping online with cash is impossible, and while you technically could show up at an airport with a stack of $20s to pay for your flight, that makes about as much sense as paying for your coffee in pennies.

 

If you use your credit card wisely and pay those balances on time month after month, this little piece of plastic can turn into a powerful friend – opting for credit rather than cash helps you develop a credit rating so that you can get a loan or mortgage down the road.

 

The cherry on the credit card cake is the rewards you can get simply for using your card. If you opt for a rewards or cash back credit card, you’ll be reimbursed for every purchase – and that’s something that a George Costanza-esque wallet full of cash just can’t do.

 

 

This is one instance where an old saying actually holds true – when it comes to saving, every little bit does count. The small, everyday savings that you make now can have a big impact down the road. A Loonie here and a Toonie there really does add up!

 

If you tell yourself “I don’t make enough money to save,” you’re buying into another myth that may be cheating you out of some serious future savings.If you buy yourself a $2 coffee every day at work, you’re spending $500 dollars on coffee over the course of one year. Why not opt for the office coffee machine for a couple days of the week instead, and save $200 a year. The office coffee maker doesn’t look so bad now, does it?

 

 

Since the financial crisis, the choice between buying or renting has become an even more difficult one for consumers across Canada. Just this past Monday, Fitch Ratings announced that home prices in Canada are overvalued by 20%, and that Canadians have incurred “dangerously high levels of household debt-to-income ratios.”

 

Buying a home rather than renting one won’t necessarily translate to big savings either – there are still taxes, maintenance, and other costs to consider. Plus, interest payments on a mortgage really add up over time. Many homeowners will end up spending tens of thousands of dollars on interest alone every year.

 

 

If you were raised by bargain-hunting parents, you may have the idea drilled into your head that you can buy everything cheaper on sale. While you’ll obviously spend less money on something if you buy it on sale rather than buying it at full price, if you make a bee line for the sales shelf and ditch your shopping list in the process, you may end up overspending rather than saving.

 

Many people focus on how much they could save by “getting all this stuff on sale!” rather than how much they’re about to spend, and end up going over their intended budgets. To keep from falling into this red-ticket trap, buy the items that you know you’re going to need when they’re on sale, including necessities like deodorant, shampoo, and toilet paper.  Don’t go broke saving money!