Even though most people claim to understand the concept of Financial Freedom, their actions suggest otherwise. They have a lot of myths regarding the concept. The concept is as old as the existence of money. The concept of Financial Freedom has always been the same irrespective of the era, the concept of investment (putting money somewhere with the purpose of growing it) existed even before the existence of a formal investment market. People have always been saving in view of being free of money worries in the future.
Myths seem very harmless until you make major financial decisions based on them. These myths can cause you some financial distress. So let us look at few of the most common myths that we have :
- Buying a home is better than renting
Buying a home is one of the biggest goals for a lot of people in India and this is mainly based on the assumption that staying in a rented property does not give that sense of a “Home”. But is it actually true? Well, it depends. Owning a home or living on rent is an individual’s personal decision and no option can be straight away said to be a better option.
But factually speaking, your house is not really an asset which you might have been considering so far, it actually is your biggest liability. There is no income coming out of it if you have not rented it out and you are not even going to sell it because you live there so any increase in the value of your house does not really matter.
Spending your life earning in buying a home will only give you emotional security not a financial one.
- Save half of your earnings
Saving money is the basic step towards financial freedom as that will turn into investment leading to an increase in value of money. How much to save is still a big question to a lot of people who are planning it all. Many people say that one must save half of one’s savings in order to save enough which is not true. There is no thumb rule as to how much to save, at least not in terms of percentage. It totally depends on how much you need to spend on your needs and how much is left after this. The amount left should entirely be saved, no matter what percentage that amount accounts for.
There are a lot of wealthy people who save more than 90% of their earnings as they only expend money on their needs not their wants.
- Retirement Planning should be done after 40
Retirement period is supposed to be your golden period and everyone plans to enjoy their life to the fullest. In order to do that, you must certainly be free of money worries. Retirement planning is basically saving enough to take care of your retirement period when there is very few or no income coming in. Most people wait till their 40s to plan their retirement which may or may not be a sufficient time period to save the corpus we need. Retirement Planning should ideally be done as early as one joins the workforce. Ideally in your 20s. One can determine the total corpus needed in their retirement period and divide it over the years which makes the burden very less.
Most people depend on only government schemes to plan their retirement, which is why they retire poor.
- FD, Property and Gold are the safe investment
More than 6 banks have failed in the last 12 months while RBI only guarantees deposits up to Rs 5lc per account. The Property markets are illiquid and dropped as much as 50% in the last 10 years. Gold in USD terms is still negative in global prices (compared to 2011 peak prices). Yet, people lack awareness of other assets and overconfidence on their limited understanding of FD, property and Gold gives them a false sense of security on the above.
Wise investors don’t get rigid with their past limited experiences and knowledge of the assets, they look at every opportunity to make money using better research and a deeper understanding.
- Share market is pure Gambling
Many people think that investing in Equity Market is like Gambling as there is no way to know which stocks would go up or down which is absolutely true. Even though there is no thumb rule of finding out which stocks to invest in, the equity market is certainly not like gambling as there are various ways to make close predictions based on valuation and technical analysis of stocks. This is something they can delegate to experts or do themselves as well. If Warren Buffet, Rakesh Jhunjhunwala can make consistent money from the stock markets without speculations, so can you.
Stock markets can be a simple way to make lots of money or a complicated time consuming way to lose a lot of money depending on your strategy of investments.
- Only Rich people can do Investment
This is one of the most common myth that only people with large corpus can invest and make money out of it. One can invest with as low as Rupees hundred in SIP. Investment needs intention to grow money and not necessarily a lot of money. Change your way of looking at the word “Investment” and aim to seek Financial Freedom.
The power of compounding has the potential to turn hindreads into crores only if used properly.
- Money can be made overnight
If this was true then it wouldn’t have taken Warren Buffet to start investing from the age of 11 and slowly grow his wealth from a few hundred dollars to billions today. Money cannot be made overnight with sustainability. The word sustainability should be noted as any one can speculate and make money in the short term, this is more about luck than skill. But the skill is when you are able to do it over and over again. Which is why there are no overnight miracles, but just rigorous daily effort in making money sustained over a long period of time which comes with the perks of windfall gains every now and then. This is the longer but the surest way to your Financial Freedom.
Making overnight gains is really a matter of luck, while sustainably making money over a longer period of time is the real skill.
These were 7 of the most common myths existing in the society today. Deleting these myths from your memory can help you download the software of Financial Freedom without any barrier making your finances virus-free.