Many people are being prevented of achieving their financial success due to their own misconceptions about money. These affect their personal finances and it’s important for them to prevent the bad consequences. As an example, many people think than mortgage is always a better option than renting. In reality, renting is similar to spending money on food and gas. It can be considered as a consumption-based expense. Renting, like gas and food, don’t have lasting value; but they are essential to carry about our daily activities. Unless we are transiting each day, we would need a place to sleep and do other daily activities. When we choose mortgage, we could also “throw money” on utility bills, repair, mortgage interest and property taxes. The monthly expenses are always higher than the amount of rent. During the first years of payments, we actually put much more money on interest, instead the actual equity of our home. Another misconception is that we always get what we pay for. It is important to know that expensive items don’t always provide us with higher quality. It is true that there’s a correlation between quality and price. However, we should know that the correlation isn’t always linear or predictable. As an example, a $10 pizza is tastier than a $5 pizza. Even so, a $30 pizza may not be three times tastier than the $10 pizza.
We should check the actual and true value of the item. If we want to have real benefits from things that we buy, we should look past their price tags. There are other true indicators of value that we should consider. It’s important that we do the proper analysis, so we will be able to get real benefits from our purchases. As an example, a house may be offered at relatively low price, but we should know whether it is in a good neighborhood and whether it’s well-maintained. In fact, there’s a possibility that the house isn’t worth its cheap price. Another mistake that people do is that they are reluctant to start investing, because they think that they don’t have the money. In reality, with only very little money, it is already possible for us to invest. As an example, we may invest on penny stocks and some trading companies allow us to open an account with limited amount of funds. We may also think that we could improve our credit rating by carrying balance on our credit card. It’s true that credit cards are able to improve our credit worthiness, if we pay our balance off slowly. However, we should know that managing credit card can be quite difficult and there’s no guarantee that we won’t have late payments. Using credit cards is related to a lot of responsibility and we could end up losing a lot of money.
So, it is important for us to be careful when using credit cards. There are many psychological elements related to money usages. Using money requires a lot of discipline and we may actually fail if we don’t know how to properly manage our finances.