Kolkata, November 15: Like in any other subject, myths exist in personal finance as well. It is important to identify these myths and bust them. We take a look at five common personal finance myths.
Kolkata, November 15: Like in any other subject, myths exist in personal finance as well. It is important to identify these myths and bust them. We take a look at five common personal finance myths.
If this is your excuse for not saving, here is to tell you that it is the biggest personal finance myth that exists. Your ability to save and invest has nothing to do with your income. Whatever your income is, you need to save at least 10 per cent of it every month. As we all know, investments in SIPs can be started for as little as Rs 500 every month. So start saving today, irrespective of your income.
This is some element of truth in this, but having a credit card improves your credit rating only if you pay back all your dues every month. Only then credit cards can be used as a tool to improve your credit rating.
On the other hand, if you have a credit card and are unable to pay your bills on time or make the minimum payment, your credit score will be severly damaged. Just having a credit card is not enough to improve your credit score.
When planning for retirement it is often believed that your expenses will decrease once you retire. The common logic is that children move out, you save on transportation expenses and so on. However, times have changed. People lead more active life post retirement nowadays. They may have a hobby like playing golf or travelling, which requires money. Moreover, one of the biggest costs in retirement is the cost of healthcare. So, when planning for retirement, do not go by the belief that expenses decrease post retirement.
Again, this is a myth that is half true. Having health insurance is of course very important.
However, with the rising costs of healthcare, health insurance you have might not be enough. Plus health insurance schemes come with deductibles and exclusions. Some illnesses may also fall under the waiting period. So it is important to have an adequate medical corpus, especially as you grow older.
Buying a house is thought to be a good investment decision. However, that may not always be the case. With the EMI to rent ratio being sky high in major cities and relocation a common reality, it may not be a wise decision to take up the burden of high EMIs, especially in an economy where job security is not very strong. This would, of course, depend on the individual situation, but one needs to do a thorough analysis before buying a house and not buy a house just because it is said to be financially a wise thing to do.