Some common myths about money

Today, let me share some myths that most of us have about money.I will highlight a few:

Myth 1: Thinking that financial security is largely about a steady paycheck and a pension. But the world doesn’t work that way anymore. Instead, the true source of financial security is you: the unique skills you have, the experience you have, and the connections you have to others. If you can provide genuine value to others, you will always find work—if you can’t, you won’t be finding work any time soon.

Myth 2: Thinking that money is power. Money is not power. Money is just an expression of the value created by people for people. Power lies in people who create value leading to accumulation of more money. You do not need to have money to make money, you just need to be able to produce value on your own with your skills, connections, experience, hard work, and creativity. If you have the talents and skills it takes to make money and know how to use them, then you surely have power.

Myth 3: Thinking that taking high risks without taking the time to careful researching will ensure high returns. Please, always take calculated risks, knowing a lot about the investment you want to venture into. Never confuse volatility and risk. Volatility means that over a certain period of time, an investment might go up and down. The stock market is volatile and you know it isalways going to be. Risk centers around the as-of-yet-unknown outcome of a future event, you take on a risk when you assume the outcome. A well-researched investment lowers the risk (because you increase your actual knowledge and reduce the unknowns about it) but does not change the volatility (it will still be somewhat volatile, no matter how much you know). If you assume a lot of uncalculated risk, it just means you are investing in something you know little about and that’s more or less akin to gambling. Only take calculated risks by researching first.

Myth 4: Insuring all tour assets. Others believe insurance is a must-have. Insurance is there to decrease the risk in your life, nothing more, nothing less. Yes, the less insurance you have of various kinds, the more risk you expose yourself to. It is indeed highly recommended to buy a wide variety of insurance because usually the financial cost of the insurance is low compared to what it protects you against. However, I think it tends to come down to your personal situation, if you don’t have many assets or resources to protect, there is not much need for insurance. If you are driving a better-than-walking car which can actually park-up om its own, for example, comprehensive insurance is pretty much overkill.

Myth 5: Always avoid debt. It is important to distinguish between good and bad debt. In general, bad debt is that which is often used to buy stuff that does not help you generate additional income, usually high interest rates are linked to bad debts too. Good debt is that used to generate additional revenue in your life. Student loans, for example, would be “good debt.” The problem with this dichotomy is that the line in the middle is blurry – there is a giant grey area in this dichotomy. What about a car loan? Some car loans might be “good debt” – like a used-car loan to help you get back and forth to work – but a car loan to buy a Mercedes for its own sake when you don’t have much means of repayment, is likely to be a “bad debt.”

Myth 6: A penny saved Is a penny earned. I agree strongly with the argument here but if you find an item that actually provides you with a deep personal value then don’t be afraid to spend money on it because you may not find it at that cost anytime soon. The challenge here is doing enough personal reflection and self-analysis so that you clearly understand what things provide value in your life and which things do not. What things are critical needs presently and which ones can be postponed.

I hope this has been thought-provoking enough. It will make you think about your money. Having said that, I wouldn’t advise you follow all of the advice in my column as gospel truth – apply your ingenuity.

Blessed weekend to you and yours. n

Feedback : tbmunthali@yahoo.co.uk