5 Financial myths debunked.

Myth #1: You must keep a credit card balance to build your credit. This is perhaps one of the oldest myths. This is, fortunately, false. You do not need to carry a balance on your credit cards to build credit. As someone with an over 800 credit score, I can assure you my credit score was much lower when I carried credit card debt. Your credit score is calculated by the amount of debt you owe, payment history, the mix/type of lines of credit (mortgage, car loans, student loans, etc), length of credit, and your credit history. Ideally, you should pay off all your credit card debt. Otherwise, you're living beyond your means.

Myth #2: Renting is throwing money away. Renting is not throwing money away. Renting provides you with shelter and a place to call home. Renting also provides you the freedom to move easily. As a renter, you defer the cost of ownership and management to the owner. If anything breaks in your apartment, you are not responsible for fixing it. Lastly, owning a home costs money. As a renter, you save on any added costs of home ownership such as taxes, home insurance, increase in utilities, and landscaping.

Myth #3: You want a big tax refund. If you receive a large tax refund as a W2 earner, you loaned the federal government an interest-free loan for 14 months. You need to rework your W-4 to ensure you pay no more taxes than you owe. You will have more of your paycheck over the year to invest and maximize compounding interest in your favor.

Myth #4: Debt is bad. I agree everyone can't be trusted with debt. However, when used correctly, debt can lead to significant financial success. For instance, using debt to finance your education, if this will provide you with a higher income, is a great use of debt. I always say a student loan is a mortgage on your brain. Most businesses use debt to grow. Using debt to buy your first home or an investment property is a good use of debt. If you go into debt to buy liabilities like clothes, that is a poor use of debt.

Myth #5: You need a lot of money to invest. This is not the case. You can begin investing with just $50 every month. However, the amount you invest will determine your future nest egg. I suggest you begin with your 401K and then move to your Roth IRA, HSA, and taxable accounts. For example, investing $50/month in an S&P 500 index fund over 25 years will yield $66,944. However, investing $500/month over the same 25 years in an S&P 500 index fund will yield $669,445.

What are other financial myths you are aware of? Share them below.