Eight Most common Money Myths

In no particular order or priority the 8 common myths I have come across among friends or acquaintances on money:

1. Money is safe in savings account or fixed deposit : The most common and dangerous myth I have ever heard from anyone,  savings account gives you interest of 3-4%( except 3 banks give up to 5-7% ), fixed deposit give you around 9%, post tax it will be 6-7% depending on your tax bracket. If your money is not giving better return than inflation, actually you are losing your money every day. Better you spend that money today than keeping in such instruments resulting lower buying power in future.

2. Investing in stock market is risky : Unfortunately very few people have made money from stock market in last five years, so every one is convinced its not possible to earn money. But in long term this is the only instrument which can beat inflation with highest margin( may be gold or real estate can also beat inflation but very less chance for FD or RD). Its risky If you invest in stock market with your limited knowledge, the next best option available is mutual fund where your money is managed by professionals.

3. You can never go wrong with investing in real estate( or gold for some people): Only in special cases you may get a bumper profit in real estate(or gold) investment, otherwise the annualized return on investment from real estate(or gold) won't be more than 10-12% PA. If you consider yourself to be lucky to catch the special situation, check the top 5 weekly or monthly gainer list published in any financial site or news paper :  you can find many (penny)stocks giving more than 100% return weekly/monthly, you have better chance of catching them.

4. Buy a house to stay and save tax : The tax savings(interest up to Rs 1.5 Lakhs per year currently) on your first house is almost same as the HRA exemption you would be claiming which you can not claim anymore (at least legally) once you occupy your own house. You get more tax benefit If both husband and wife own the house and contribute for the loan equally or when you buy your 2nd house as mentioned in my previous post.
5. Money in SBI( read the nationalized banks) are the safest: All the private or nationalized banks have to follow RBI guidelines(same for both) to operate in India. So all are same and equally regulated just the difference is : The nationalized bank has sovereign guarantee(Government of India) and private banks have their owners or share holders.

6. I'll start saving when I have higher salary and more surplus income : Here you are missing the most amazing concept of investing - The power of compounding. Check this below:

For same investment for minimum 8% ROI(return on investment) annualized for saving Rs 1000 per month your total capital can multiply more than 8 times higher If you start early(investing for 30 years) than starting late say for 10 years and two and half times If you start mid way like invest for 20 years. So start as early as possible and increase the savings as you earn high. Investing Rs 1000 every month with total investment of (1000 X 12 X 30) Rs 3.6 Lakhs in 30 years with just 8% ROI can become 15 Lakhs.

7. Taking loan is not good: It depends on how you are using the loan and repaying. Taking loan for buying an appreciating asset like land or house or education is not bad. But loan to buy any consumer product like mobile phone or even car or to invest in stock market(even though its appreciating) is definitely a bad idea.

8. Using Credit card is not good: Again it depends on how you are using and repaying. It gives you around 50 days of interest free money instantly. You get numerous offers for cash back, free movie tickets and discounts. But If you don't pay on time the charges and interest is very high, If you use it carefully you can definitely benefit but careless usage will be very costly, just like any financial instrument discipline is the key. 


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