You can get money advice from pretty much anyone. Family, friends, coworkers, random people on the street -- everyone has an opinion on the best credit card, how much you should pay for rent and the percentage of your paycheck that should go toward retirement.
As a result, there are a number of "rules" out there -- some of them totally made up and others no longer relevant to modern society. If you're still taking money advice from Grandpa, make sure you're not living by these rules that may not apply to how money works today.
Myth 1: You should spend no more than 30 percent of your income on rent.
You may have heard this one from your grandparents, as the idea originated from the United States Housing Act of 1937 -- a law that set income limits for receiving housing subsidies from the government. In 1937, the rule dictated that people could only be eligible for a subsidy if their income wasn't more than five or six times their rental payments.
By the 1980s, the rental-payment-to-income threshold had evolved to 30 percent, and it's become a commonly accepted rule for general personal finance today.
However, this rule was created for an entirely different economic environment, not to mention it doesn't take your individual situation into account. What if you live in a city with soaring housing prices? Or what about the impact of being single versus married?
Bottom line: If you're spending more than 30 percent of your income, don't fret, and rest assured that you're not alone. With that said, it probably wouldn't hurt to try to cut costs if you're having trouble making ends meet. To cut rental costs, consider living with housemates or moving to a different neighborhood.
Myth 2: You have to be good at math to be financially responsible.
While being good at math can be an advantage, it doesn't mean you're automatically good with money. Just ask John and David -- two professionals in the financial services industry who ended up with $51,000 of credit card debt.
What really matters is your mindset when it comes to money. Whether you're a risk-taker or a planner, Jason Young, a tech entrepreneur with a focus on financial literacy, says it's important to be willing to grow.
How do you do that exactly? "Be open to new information," Young says. "When you don't know something, don't be afraid to ask experts who do know."
Figure out how your personality meshes with your approach to money, then set goals based on that.
Myth 3: Investing is for the old and rich.
New services like Wealthfront, Betterment and Acorns make investing possible for anyone who meets basic qualifications and has a smartphone and a bank account. No longer do you need a ton of spare money to invest -- Wealthfront's account minimum is $500, and Betterment has no minimum.
These automated investing services can help you set savings goals and recommend the right mix of stocks and bonds to help meet your goals. They also make investing easier -- there's no need to make an appointment or talk with a person to manage your account.
On the flip side, automated investing isn't for those hoping to manage their investments closely, as they typically won't allow you to change how much is invested in a particular fund or choose a different fund. If you're looking for financial help beyond automatic investments, a financial advisor may be your better option.
Investing can be a great way to make money on your money. The sooner you educate yourself and start investing, the more returns you may earn over time.
Once you've built an emergency fund of three to six months' expenses, consider putting your extra cash into an investment account, where the yields have the potential to be much greater than what you'll get from a typical cash savings account.
Myth 4: Credit cards aren't worth it.
Credit cards can be detrimental to your finances if you carry a balance on them month after month. With APRs as high as 30 percent on some cards, it can be easy to accumulate debt that'll be very expensive to pay off.
However, if you're smart about how you use your cards, you can help build your credit score and might even earn rewards.
One good strategy is to always make each payment on time (and in full if possible) and keep your credit utilization rate low, ideally under 30 percent.
Myth 5: Paying off your smallest debt first will save you money.
If you have multiple sources of debt, prioritizing which one to pay down first -- and when -- can save or cost you a lot of money.
Some people believe that paying off their smallest debt first is the smartest way to tackle their debts. The reasoning is that the psychological "win" of paying off that smaller account will motivate you to follow through with paying off the rest. But when you do the math, the interest rate is what really determines which method will cost you the most.
The most economical payoff strategy involves paying off your highest-interest debt first. If you're sure you can tackle the emotional drag of a potentially long payoff period, you're probably better off paying your higher-interest, higher-balance debt first. However, in the end, the most important thing is that you take the approach that works best for you.
Prior to that, Catherine spent a decade in journalism with jobs at Associated Press, Wall Street Journal, and Huffington Post. She graduated from Stanford University and studied journalism at the Columbia University Graduate School of Journalism. Her passion is for consumer advocacy and empowerment through better information and technology. You can read more of Catherine's work on Earnest's blog.
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