Madison County Extension Service: Misconceptions About Money May Be CostlyOct 17th, 2013 | By Admin | Category: Editorials
Spending habits are influenced by personal values and attitudes about money. Some people develop behaviors that may not be in their best interest. According to the Institute of Consumer Financial Education, misconceptions about money practices can end up causing financial problems. Let’s explore some common misconceptions about money that can lead to financial ruin. The first misconception some consumers have is that credit cards are money. Because that plastic lets you purchase something without paying cash, it may easily be confused to be the same as money. Credit purchases are actually a debt that you will have to pay later and if it isn’t paid in full when the bill is due, interest is added. Ideally, you should charge only what you can pay off when the bill is due. Extension family financial specialists recommend you charge no more than you are able to pay off within three months. A second misconception which is related to the first, is to pay the minimum payment on a credit card. A consumer might justify the practice by thinking it leaves more money for other purchases during the month. In reality, the true cost of credit adds up quickly. If you just pay the minimum amount due, you end up paying much more over time. For example, if you charged $1,000 on a credit card with an 18% interest rate and made the minimum payment each month without adding another purchase; it would take six years to pay off the balance and cost $1,040 in interest! Yes, you would pay more in interest than the cost of the original purchase. Now, think about the fact that most people continue to buy and leave a balance on their credit card all of the time. The cost of credit is expensive and will keep you in debt for years. A third misconception about money is not having a savings account. You might think interest rates on a savings account are so low, it isn’t worth the effort. Reframe your attitude and think of savings as an emergency fund. You need money set aside to pay for unexpected expenses like a car or home repairs. If you have no cash in a savings account, unexpected bills will have to be added to a credit card which increases your debt load. So, having an emergency fund will give the money to pay for unexpected expenses and keep credit debts down. Another misconception people have is to use the equity in their home to increase personal buying power. It isn’t wise to pull out the equity in your home to pay off bills or go on vacation. Equity in your home increases your net worth, so leave it alone. Common sense goes a long way to keep you on track with the way you handle money. Develop a spending plan that helps you live within your income and save for emergencies. You can take a proactive role and direct money where you want it to go. A good financial start is to live on 70% of your income, save and invest 20%, then dedicate 10% for giving. For more information on managing your income contact the Madison County Extension Service. The University of Florida Extension – Madison County is an Equal Employment Opportunity Institution.