Personal Finance Myths: Reasons Buying Your Daily Latte is Not Really the Problem

Today we have a guest post for you from Aimee. Aimee Pope works as a financial advisor. She loves to help people with their money issues by posting her insights and experiences on a number of financial and family websites.

It’s a sensible strategy to decide not to go through life believing everything you are told but sometimes it is hard to make a distinction between the sort of advice you should be paying attention to and what you can happily dispel as a myth or not worth knowing.

It seems that opinions and advice are not hard to find when it comes to personal finance and you might have been given a well-meaning warning that your daily coffee habit will make you broke or some other money habit you have should be avoided if you know what’s good for you.

Here is a look at some of the more prominent personal finance myths around and whether they are more hot air than good sense, plus some tips to adopt some healthy financial habits that are not expected to be bad for your financial health.

You might be surprised to find out how millionaires REALLY live: The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

Are they lying about your latte?

One of the most common pieces of personal financial advice you are likely to hear is that spending on regular small indulgences like a latte are adding up to a heap of financial woe when you work out what you spend annually on these small treats.

The bare facts seem to stack up. If you manage to spend $5 per day on your favorite coffee on the way to work or when you are out and about that will soon add up to a large amount of money over the year.

The fact that Americans buy in excess of 4 million lattes and other versions of their favorite coffee every day will tell you that you are not alone if this is something that has become a daily habit for you too.

Spending $5 per day amounts to somewhere in the region of $2,000 per year, so the argument goes that if you invested that money in the stock instead of drinking that cash value in caffeine form, you would actually be a millionaire by the time you reach a retirement age of 65.

Several skeptical financial gurus have crunched these numbers and didn’t manage to come up with a future figure that came anywhere close to the magic million dollars. Fair enough, that $5 per day added up to an estimated $185,000 by the time you reached 65 if you managed to achieve an annual return of 11%, but if you dip below the 11% return, which is likely in some years, the number gets even lower.

The verdict on this one is that yes you can put your cash to better use but a few simple pleasures help you to achieve a more positive outlook on life, so you could argue that there are bigger things to worry about, than whether your coffee treat is costing your the chance of making a million on the stock market.

Debt should be avoided at all costs

This pearl of wisdom seems to make a lot of sense at first glance as the idea of being in debt for any sort of amount doesn’t seem to be a good one, but the fact of the matter is that not all debt has to be considered bad.

If you are applying to get a loan online you will no doubt have a perfectly valid reason for wanting to borrow some money but you are creating a debt at the point you accept the loan offer and have the money transferred into your bank.

If you take the suggestion that debt should be avoided at all costs, you would be missing out on the opportunity to better yourself and increase your earning capacity, for example.

Taking out a student loan to get your degree could turn out to be a sound long-term financial strategy despite the fact that you are taking on a debt. Provided you manage your borrowings responsibly and look to borrow money at low-interest rates that are paid back over a short period of time, you could definitely argue that not all debt is bad for you.

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Credit cards are bad news

Another common myth that needs to be debunked is that credit cards are detrimental to your wealth.

Fair enough, if you rack up a string of credit card debts at high-interest rates that would be bad news and a very expensive form of borrowing, but if you use it wisely and clear the balance there are at least a couple of positive factors in their favor.

Managing a credit card responsibly improves your credit score which could make it easier to get approved for a mortgage, plus there are some useful rewards schemes attached to some cards which means you could get free flights and hotel stays.

The next time you hear someone tell you not to do something that is related to money take a moment to decide whether it is worthwhile advice or just another myth.

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