Money Myths

Money myths you should stop believing

There’s never a shortage of myths in circulation; “chewing gum stays in your stomach for years”, “cracking knuckles leads to arthritis”, and “sex burns lots of calories” just to name a few.

And you probably believed them because you heard it from your friend who heard it from their sister’s boyfriend’s cousin. Right?
Unfortunately, money myths have also found their way into your consciousness. To help you separate fact from fiction, here are four myths about investing money that get thrown around far too often.

Myth: Only the rich can afford to invest

Many mistakenly believe that you need to be wealthy to invest, not realising that the rich often achieve their wealth through investment. Everyone has to start somewhere. Investors come in all shapes and sizes, and they’re not limited to one social class. People earning an average income can invest too. According to Ray Morgan, over 1.31 million Australians now have an investment property loan.

Myth: Property will only go up in value

The real estate market is not always predictable. Though we like to think that bricks and mortar are a solid investment that will continue to grow, it’s not the case. There is always an element of risk involved with property investment, so you should approach it with a degree of caution. Do thorough research on the local area and economy beforehand, and be prepared to experience peaks and troughs that affect the real estate market. Property should be seen as a long-term commitment.

Myth: Buying a property will reduce your taxable income

An investment property will only reduce your taxable income if it actually costs you money to own and maintain it. Every year 1.2 million people Australians take advantage of negative gearing, which means they deduct losses on investments, such as mortgage interest and property maintenance, from their overall income. But if your investment is positively geared, meaning it earns more in rental income than it costs you to own the property, then you will have to pay tax on the profits.

Myth: The worst house on the best street is always a winner

Just because you’ve bought a ‘renovator’s dream’ on a great street doesn’t mean you’re going to see a solid return on your investment. Buying and renovating for profit isn’t easy, and underestimating the cost of renovation has caught out many a would-be developer. Overcapitalising is another common mistake. If you buy a house for $500,000 and invest another $100,000 to renovate the property, will the finished value be $600,000 or greater? It pays to find out. If not, you could be pouring money into a financial black hole with no chance of seeing a return.

Financial myths are everywhere, so it’s hard to know what to believe. Just because you’ve heard the same advice from multiple people doesn’t mean its true. The secret is to approach with a degree of caution, and question it if you think it may be false.

 

Article supplied by: By Melissa Cortes, Yahoo7 Moneyhound

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