It’s hard to believe that misconceptions about money is so common, more so it seems, with people who suppose to know better.
I mean, you would expect people who have good paying jobs are well on their way to retiring comfortably or are they?
Well regardless of where your finances are at, tighter budgets and struggles just to make ends meet have certainly taken a toll on many, even those who do earn a decent income.
There seems to be no end to the virus and if you anything like me, you don’t want to take your head out of the sand. But life does go on and it waits for no one.
So, what exactly are our misunderstandings about money….let’s take a look!
1. A good paying job means financial security
Our biggest misconception about money is that, once I get a good paying job, I am financially secure. Now I have been there, you start working the temptation of going out, buying nice things and having a good time, takes over.
Worse, if you start off with no budget. It’s easy to spend more than you earn and before you know it, you sit with credit card debts, clothing accounts and whole lot of other stuff you owe on because “I earn a good salary”.
Even if you earn a good salary, you still need a solid financial plan. A meaningful plan that should outline your long- and short-term financial goals. Things like how long it will take to pay off debt, saving up for a car or a home or whatever you want to achieve. How will I invest for my retirement? (yes, even if you just turned 20!) Not forgetting saving toward that emergency fund in case you lose your job.
2. Everything works itself out in the end
If you are not actively planning and saving for life’s big events, then you will not be ready for them. So no, everything does not work out in the end. You do have a part to play especially with regards to how you are spending your money. To make matter worse, if you have a large amount of debt and don’t have a plan on how to pay this off, you will likely find yourself in even more debt in the future.
That’s why you need to be proactive and have a financial plan that is realistic. This plan will make it possible for you to still enjoy your twenties, thirties and retirement while moving forward financially.
3. What’s the point of a budget anyway, I don’t earn enough
Another common misconception is that budgeting takes too much work and may not even help you change your situation. Personally, it just may be that “head in the sand” thing again. We know it needs to be done, but we fearful of what we will find.
This excuse, that we have more expenses than income, so nothing I do will change it, is not something you can hang onto for much longer.
So, what if you in a bit of a financial predicament at the moment. The aim here, is to sit down and make a start to get yourself out of it. Know what you are doing with your money and make an effort to spend it more wisely.
While it’s true that the first few months of budgeting can take extra effort, you will eventually start seeing the rewards. It also takes time to create a budget that works for your situation. So, adjust it as you go along and stick to it to see the results.
Most people give up budgeting after a month or two, so they never get to see the success that is possible by following a budget. A budget can help you stop worrying about money all the time, and help you reach your goals much more quickly. It can also help you stay out a debt, a key to long-term financial stability.
4. I am young, I can start saving for retirement later
While saving for retirement is probably the last thing on your mind when you’re 20-something years old and working your first full-time job, it shouldn’t be.
In short, the sooner you start saving for retirement the better off you will be financially. In fact, the more money you put away in your 20s, the less you’ll have to save later, due to compound interest.
Something for you to think on: –“Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it. Compound interest is the most powerful force in the universe.”
Even if it’s just R200 a month, start off small and review it as you go along especially at salary increase times. You will be amazed at the effects of compound interest. You just need to start sooner rather than later.
While you may think you have all the time in the world or may justify putting it off by saying you’ll have a larger salary later, keep this in mind: Although your income will increase as you get older, so will your expenses. You may not have the money available to save in the future.
A key tip to use: Pay yourself first. So, as an expense this item will represent your savings. Open a separate interest yielding bank account for saving or invest in a retirement annuity or unit trust. Just like your normal debit orders for regular monthly expenses, this too should be set aside automatically. Before you know it, the habit is created, and you will be better off for it.
5. My debt is being paid, so why worry?
Another common misconception is that you do not need to worry about the amount of debt you have if you are able to make your minimum payments each month.
However, only making your minimum payments each month doesn’t always put a dent in your debt, especially if you have a high interest rate.
Your debt-to-income ratio can show you how serious your situation is. Divide your monthly debt payments by your income and multiply by 100 to determine the percentage of your debt-to-income ratio.
This percentage will tell you how much of your income you are spending on debt. If 50% or more of your income is being spent on debt, this is extremely high, and you should immediately make plans to aggressively start paying off your debt.
I know money is tight regardless of our individual circumstances, but if you just took out the time, I promise you will see the advantages of having some sort of plan.
Its always a sobering exercise to put pen to paper. You will be amazed to see where you spending, or dare I say, wasting your money on.
Being a mum of two teen daughters we have over the last more than two years said “no we can’t afford it” more often than not. And yes sometimes you just want to throw caution to the wind and live a little.
But I love them too much not to make a concerted effort to stay on track with our financial goals. It’s not easy, but over time our patience has yielded good results. The key is to be consistent and to keep at it.
On that note, we are happy to advise we have partnered up with two of South Africa’s largest long-term insurers to assist with getting you started on your financial planning.