Personal finance knowledge can be applied to all areas of money management, including saving and investing. And it all varies depending on your income, spending, living needs, and personal ambitions.
To make the best use of your money and time, it’s vital to know what is good versus bad money advice.
Let’s clear up some common misconceptions people have about money.
Misconception #1: You need millions to retire
There are many retirees who are living on a million or less and making it work. Some of these retirees have even retired much earlier than the usual age of 65. How, you ask? By being knowledgeable about the concept of FIRE, which stands for Financial Independence, Retire Early.
There are several types of FIRE:
Fat FIRE: This option is for someone who leads a certain lifestyle and wants to save significantly more than the typical worker without sacrificing his or her existing way of living. To make it work, you’ll need a huge salary plus aggressive savings and investing tactics. It’s basically living in luxury depending on where you live, as people who opt for this option spend upwards of $100k or more per year to fund their lifestyle during retirement.
Lean FIRE: This necessitates a considerably more constrained lifestyle, requiring a tight commitment to minimalist living and high savings. Many lean FIRE supporters generally live on $25k to $35k per year.
Barista FIRE: Perhaps you have enough money to retire on lean FIRE, but you’d like to stay a bit safer and have some part-time income coming in whenever possible. This allows you to have the safety net of your retirement savings while also being able to do work you love. Additionally, you won’t be stuck in a traditional 9 to 5 job.
Coast FI: Coast FI is not a complete FIRE strategy, but it’s a way to save aggressively for a shorter amount of time and then “coast” along the rest of your journey towards full FIRE. The way it works is you save enough money until you have enough that’ll grow (when properly invested) to the amount you need to retire at the traditional age of 65. Once you’ve hit that milestone, you can have a bit more peace of mind knowing that you’re set for retirement when it comes. From now on until the age of 65, you just need to make enough money to cover your expenses. If you make enough plus some to save, even better!
Misconception #2: You need to spend a lot of time monitoring your finances to succeed
Fortunately, in this day and age, there are plenty of apps to help you run your finances more efficiently. A couple of these apps are:
These apps help you not only to budget, but actively look for ways to reduce your current expenditures. They do this by scanning your bills and subscriptions and seeing where you’re paying needlessly for services you possibly no longer use or need.
If you’re overpaying for data on your phone bill, subscribed to a streaming service you forgot about, or aren’t getting the best rates on your internet, these apps will not only identify them, but will negotiate with the company for a better price on your behalf.
Misconception #3: It’s always about saving money and depriving yourself
We know saving money is important, but it’s not for everyone. Some would rather make better use of their time by earning additional income, and we’re all for that.
There’s always something for everyone to earn a side income. Here are some examples of side hustles you can do on weekends or at home:
- Fitness Instructor/Trainer
- Retail Sales Person
- Graphic Designer
- Web Designer
- Freelance Writer
- Social Media Manager
- Delivery Driver
- Uber/Lyft Driver
- Data Entry
- Virtual Assistant
- Weekend Receptionist
- Tax Preparer
- Wedding/Event Photographer
- Language Tutor
Misconception #4: You need to spend a bunch of money on credit to boost your credit score
If you’re a college student, you’ll be glad to know that you’ve got alternative ways to start building your credit without all the dangers and temptations that come with a credit card.
We recommend looking into the Fizz debit card.
Fizz allows students to build their credit score without the need for a credit card; that is, they allow you to build your score using a debit card. Debit cards are safer since you typically can’t spend beyond what’s in your account. And this is especially important since the majority of college students graduate with $3,000+ worth of credit card debt.
In addition, Fizz rewards purchases that are typically made by college students at stores and restaurants that students go to and care about. Fizz debit card rewards can potentially be up to 15% cash back at select merchants, which is ridiculously high. Yes, please.
Misconception #5: You’ve got to be a genius to invest your money
There are many different types of investments out there. People simply get stopped in their tracks due to the fear of making the wrong choice in their investment products.
The truth of the matter is, the majority of index trackers and total stock market funds will suffice. Plus, time in the market is the most important factor that’ll contribute to your financial success.
If you want it spoon-fed to you, invest your money in a 401(k) and/or Roth IRA if available to you, and the rest of it in VTI. Sit back, relax, and call it a day. No need to monitor fluctuations on a day-to-day basis.
It’s important to know good money advice from bad money advice. To recap, here are some common misconceptions when it comes to money:
- Misconception #1: You need millions to retire
- Misconception #2: You need to spend a lot of time monitoring your finances to succeed
- Misconception #3: It’s always about saving money and depriving yourself
- Misconception #4: You need to spend a bunch of money on credit to boost your credit score
- Misconception #5: You’ve got to be a genius to invest your money
Hopefully, armed with this knowledge, you’ll be well on your way to financial success. If you’ve got any questions or comments, feel free to let us know. We’d love to hear from you!