Believing something untrue is what we all have done – Santa Claus, Tooth fairies, Nigeria’s 100-goal defeat to India are some of the myths we have outgrown. But Adulthood has not insulated us from many false assumptions about money.
Some of the biggest money myths you likely still believe cost you money, and they include the following:
Myth 1: Saving money makes one rich
Economists have argued that the above assertion is untrue. A concept called “The Paradox of Thrift” explains how an economy could actually get poorer if everyone saved and nobody consumed especially around a recession.
The same theory doesn’t apply to an individual but the conclusion is valid because nobody gets rich saving money alone.
Imagine setting aside N10,000 monthly from after an initial N10,ooo deposit in January 1, 2000. Assume the interest on saving is 10 percent per annum, you might be heading to the bank to cash your N7.55 million after 20 years but the fact is that you might in fact be poorer after all those years.
While saving money is better than spending all your income on consumption, in Nigeria inflation beats interest on bank savings so that if you had saved any amount at the beginning of the millennium, you have lost more than 50 percent of the value today.
This is definitely not a way to growth wealth and the implication is that saving your money in assets that beat inflation and can deliver good returns is the way to go.
Also purchasing properties with value that appreciate and doesn’t involve high-maintenance cost over time can be good investment decision e.g. land, art works, jewelleries.
Myth 2: Buying cheap to save money
Another myth is that you can save yourself money by buying cheap. Nothing could be further from the truth!
Cheap items are often of low quality and would require replacement in as little time as possible.
For instance, if you bought a shoe that cost N10,000 but lasts two months instead of N100,000 shoe that lasts two years, in about a 20 months (I year and 8 months) you would have spent the equivalent amount that could have bought you the better shoe. This means the quality shoe would save you N40,000.
Myth 3: Money is the root of all evil
This misconception, which was borne out of a misinterpretation of the original reference that has “the love of ” suffix, has been accepted generally by people who believe there is piety in being poor.
If you find yourself in that category, it might be difficult to grow your wealth as it contradicts your belief or value.
Money is not inherently bad or good. Money is money-it doesn’t change one’s character.
Realising this and using your money to promote good cause will definitely be a plus to you and everyone else.
Myth 4: Debt is bad
This is a matter of context. Debt is one of many ways companies around the world raise money to do business, make money and expand. This answers the question.
Many of the world’s richest people are indebted too because for people and corporations, debt is a relatively cheap capital.
This doesn’t mean you should go around borrowing because debt can also be a burden especially if used for wrong and unproductive purposes.
“Ideally, lenders prefer a debt-to-income ratio lower than 36 percent, with no more than 28 percent of that debt going towards servicing a mortgage or rent payment,” says Investopedia.
