You know when you were little and your mother made you wear a coat even though it was only slightly cool? Remember how that was supposed to stop you from getting a cold?
Your mother’s heart was in the right place, but there’s little evidence that getting cold makes anyone more likely to catch a cold or flu. The whole myth probably started when people noticed that we are much more likely to end up sick during winter. There’s a number of reasons why this is true, including spending more time indoors, because our immune systems aren’t quite as effective in the cold, and because cold and flu viruses like cooler weather.
Falling for something like that isn’t such a big deal when all you’re doing is putting on a jacket when you probably should be wearing one anyway. It’s when you start falling for myths that end up costing you money is when the big problems start.
Here are five financial myths that are making your wallet lighter.
Although it’s not nearly as prevalent as it used to be — thanks to new cars that tell you when to get your oil changed — there are still thousands of people out there who blindly believe that nice sticker in the window that suggests they get their oil changed every 3,000 miles (or 5,000 kilometers for the Canadians in the house).
Modern engines are much more efficient than the last generation of gas guzzlers. Depending on your car, you can easily get away with going 7,000 miles without changing the oil. That adds up to twice as many oil changes in a car’s life. At $40-$50 per shot, this is not an insignificant cost.
Buying the best
Often, I’ve seen the argument that buying the best model of something is the most cost effective over the long run, since it’ll end up lasting longer.
Reality is far more complicated. Beats headphones are $200 for a cheap pair, which should indicate they’re pretty good quality. But according to many experts in the field, it’s easy to get $50 headphones that sound better. Many humans can’t even hear well enough to tell the difference between good and great headphones anyway.
Headphones are just one example. There are dozens more. Price and quality aren’t necessarily a direct relationship. Too many people believe they are.
Keeping a balance helps your credit
The inner workings of credit are a secret to everyone except a select few employees at the Equifax Corporation. Apart from following a few basic rules, we’re all basically guessing at how much we affect our credit.
I’ve seen advice telling people not to pay off installment loans because having an active and up-to-date loan helps out your credit score. That might be true, but what a silly thing to do. It’s essentially the equivalent of paying to have slightly better credit.
Unless the loan is at 0%, just pay down the debt. Don’t worry, your credit will still survive.
You need life insurance
Most adults should have some sort of life insurance, especially if they have dependents.
But at the same time, taking the advice of a life insurance agent to determine how much insurance you need is dangerous. To an insurance agent, every potential problem needs to be insured. These people even recommend getting insurance now not because you need it, but because you might not be able to in the future. Essentially, that’s just buying insurance on the ability to get insurance. What a waste.
Getting life insurance is fine, assuming you need it. If not, hold off. The chances of you qualifying now and then not qualifying five years from now are slim.
Buy what you know
One of the most common pieces of advice for rookie investors is to buy stock in companies they use regularly. Thus, portfolios are stuffed with names like Coca-Cola, Microsoft, and Loblaws.
There are a number of issues with this advice. Your portfolio will likely be overweight with consumer stocks. And it likely won’t have much growth, since big companies can no longer count on double-digit revenue increases.
It also doesn’t consider valuation. A great company can still be a crummy investment if you buy it when it’s overvalued.