Top 5 Financial Myths

In a world where we are constantly bombarded by advertisements, it can sometimes become difficult not to see certain things as normal. The lending agencies have marketed their products to the point that we assume that debt is a normal way of life. And with so many people falling for this every day, debt has indeed become a normal part of life for many. But it doesn't have to be that way. By falling for their ploys, you and millions of other Americans are actually sabotaging your future. These banks will have you believe that they are there to help you. In reality, they are just trying to help themselves. Here are the top five most common financial myths fed to us by this industry and how we can avoid them.

Myth #1: You have to get a credit card to establish a credit record and get a credit score. The truth is you don't need a credit card at all. Ever. You can establish credit simply by paying your utilities or your rent on time. By opening a credit card you are setting yourself up for a lifetime of debt. Studies have shown that people spend twelve to eighteen percent more when they use a credit card than if they pay with cash. Add to that the fact that most people do not pay off their cards each month and carry a balance with an average rate of 12% interest. For us, this can spell financial disaster. For the credit card company, it spells profits. Why take the risk?

Myth #2: You need a credit card in case of emergency. Fact is, most "emergencies" cost under $1000. If you don't owe money to anyone, it is easy to save up the thousand, but just in case catastrophe does strike, save up even more. Most experts agree that 3-6 months of living expenses will cover just about anything life throws your way.

Myth #3: You should pay off your credit cards with a debt consolidation or home equity loan to lower your monthly payments. Fact: You didn't pay off the debt. You moved it. The majority of people who consolidate their credit cards rack them right back up again, on top of the debt they had to begin with. This is because they have not changed their behavior. Behavior needs to change in order to get rid of the debt. This means increasing monthly payments to get rid of it, and not going further into debt.

Myth #4: You should get whole life insurance to protect your family and invest for the future. Actually, you do need life insurance. But you can get term insurance for less than one-tenth the cost of whole life. Also, whole life insurance is a very poor investment, barely keeping up with inflation. If you purchase term insurance and invest the difference in mutual funds, you will have a lot more to show for your money.

Myth #5: Financial advisers are there to help you. OK, I am not saying they are out to get you, but these people need to make a living too. They make a living off of selling you a product, whether whole life insurance or mutual funds. It is important to realize that they are going to try to sell you the product that makes them the most money, whether or not that is what is best for you and your situation. Instead either do your own research or hire an adviser that charges a flat fee and does not work on commission.

If you can avoid falling for just these five myths, you can be well on your way to building your own wealth, instead of a company's.