Throughout childhood, it is common to have various misconceptions about the definition of money and how it is managed. The language of finance doesn’t come naturally to most and is often learnt and corrected when we become adults ourselves. Only when we become responsible to take financial matters into our own hands do we realise how impactful and relevant money is to our daily lives. Here are 5 money misconceptions that you learned from your parents and ways to break free from them.
- It’s easy to find a home loan
You may have grown up thinking that taking out a home loan was a relatively straightforward process – simply a matter of going to your bank, filling in a few forms and receiving the money. However, you need to do a lot of research before taking out a mortgage, otherwise, you might get an excessively pricey mortgage that costs you tens of thousands of dollars of extra interest over the life of the loan. Websites such as RateCity are an effective way to compare loans and find the loan that is most suitable to your situation.
2. Renting is bad
Some people grow up believing that if you want something you should buy it, and pay in full and up front. However, with some items, you might be better off renting. For example, with cars, computers and smartphones, the beauty of renting is that it means you’re not investing in a depreciating asset. That, in turn, means you don’t have to sell at a loss when you want to upgrade. Even with housing, renting can be a superior option. For example, if you live in a market where prices are falling, it might be best to rent until the market bottoms out. Also, renting is almost certainly a better option if you think you’d struggle to make the mortgage repayments.
3. Money doesn’t grow
Although we have been taught that money doesn’t grow on trees, it doesn’t necessarily mean that money can’t grow. By strategically investing your money in property or shares or other assets, you can grow your money passively. This allows you to have one or several additional income sources outside your day job.
4. The price of goods never changes
When you’re a child, it’s easy to believe that the lollypop you buy at the corner store will be that price forever. But as you get older, you discover that the lollypop gradually increases in price. One reason prices can change is because of general inflation throughout the economy. Prices are also influenced by the law of supply and demand. Prices can also be affected by promotional partnerships made by companies and retailers. The lesson is to do your research before making any major purchases.
5. More work means more money
It’s a simple mistake to make – that if you want to make more money, you need to work more hours. Sometimes, it may be true – but not always. Generally speaking, it’s more profitable to focus on working smarter rather than harder. If you find ways to become more productive at work and to spot areas of opportunity for your company, you can expect promotions, raises and bonuses to come your way.
Looking back, it’s easy to laugh when we think about how naïve and innocent we were as children. But it’s no laughing matter to realise that many of the attitudes we form as children can remain with us long into adulthood. The key is to recognise these misconceptions, learn from them, and make better financial judgements for our future.