Managing money effectively is a crucial life skill that can significantly impact one’s financial well-being and overall quality of life. What are a few known misunderstandings that a lot of people have about the financial world?
Misconception 1. Credit cards means unlimited spending
This is not true.
Most people have a maximum that they can spend on their card on a monthly basis. Banks will look at your credit score, income, and monthly expenses to determine your maximum spending allowance.
Depending on how much you spend and if you make your payment on time every month, your credit limit may rise. Remember, spending on a credit card should be considered a loan. You should only spend the amount you can repay at the end of the month.
Misconception 2. If you can’t buy something now, it’s fine, you can get pay for it in installments
While this scheme, buy now pay later (BNPL) is getting more and more popular, it should not be one that you turn to for every expensive purchase. We talk about it more in another blog post, but you need to ensure that you have the money to pay the installments. At the moment, the BNPL seems like it makes expensive items more affordable, but it can add stress as you will have to pay an installment every month until the full amount is paid.
Misconception 3. Credit scores do not really affect me
Credit scores are really important if you plan on getting a loan at any point. Depending on where you live, you might be asked to show your credit score to get insurance, sign a rent agreement, and get another credit card.
Misconception 4. I’ll start saving when I earn more
Many people believe that they should wait to start saving until they have a higher income. This delay in saving can be detrimental to long-term financial goals. You should start saving early and putting money in a savings account from the get-go. You can automate this and have a certain amount that you are willing to part with put in a saving account for you every month.
Misconception 5. Investing is risky gambling
Yes, investing your hard-earned money in stocks, real estate, or a company is going to be risky. But we wouldn’t say to write out investing as a strategy to build your wealth. In 2022, over 4 million Saudis invested in the stock exchange. With proper research and a diversified portfolio, you can lower the risk.
Understanding that misconceptions are just that will help you be more informed. Money management is a skill that requires education, discipline, and a willingness to challenge common misconceptions. By dispelling these myths and adopting sound financial practices, individuals can pave the way to financial security and achieve their long-term goals.