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Tuesday, November 25, 2014

Three Insanely Stupid Things People Think Are True About Finance

Tuesday, November 25, 2014 Posted by Unknown , No comments
An important step into becoming a function adult is knowing how to manage your money. That's why I subscribe to a Reddit thread called Personal Finance. It's a great way to share your stories, ask for help, and learn from others.

One of my favorite posts is about the ridiculous things people think are true when it comes to money. One because it's simultaneously hilarious and frustrating because you realize that there are a lot of people out there who need a few finance myth demystified. You can check out the original post here, but for those that don't want to comb through the thread, here three of the most insanely stupid things that people say and why no one should ever think these are true:

When debating  how to compensate a wage reduction: "A coworker of mine had been getting about 15 hours of overtime pay weekly for about a year. Once overtime was stopped he couldn't financially handle the cut. He started reading books on gambling and thought he could make up the difference at the casino."

This one is pretty obvious, but if you need it spelled out, then let me make it very clear. Gambling is not a good source of supplemental income. There are many different ways to boost your total annual earnings--get a second job, get paid to take surveys, or go on and offer your services, but gambling should never be one of them. If things get so bad where you need to find a way to make more money, never ever think you can make that money back through winning games of chance.

When arguing about 401k contributions: "Yeah, I opted out of that, by the time we're all 65 there isn't going to be anything left anyway."

401k is not social security, and it isn't a pool of money that we all dip into. It is a way for you to allocate a certain portion of your paycheck to invest in your future. You can even elect the percentage you want taken out each pay period so that you have enough money in the present while also giving your future self a bit more income. If your employer has a 401k program, opt in for it. Although it'll make things a bit tighter for you right now, you'll start investing in the market, which will allow you to take advantage of compound interest. In doing so, you'll be way better off when you retire. Plus, if your employer is willing to match your contributions, you're basically getting a free bonus to invest in your future. So don't be like this idiot and start investing in your future!

When asked how credit cards work: "Doesn't my credit card balance reset to zero at the end of each month?"

This is definitely the most insane thing I've ever read and #1 in the list of stupid things people think are true about finance.

In case there's any confusion, credit card balances do not reset to zero. Credit cards are not free money that you get from the bank. Credit cards are a means to pay for something now that you will have to eventually pay off in the future. It is always advisable to pay your cards off in full whenever possible so you limit your total debt, and it is also advisable to never spend more money than you have. That way, when it comes time to pay for your bills, you know you'll be covered.