Personal finance myths you should ignore!

Do not have EMIs more than 30 per cent to 40 per cent of your income, save at least 20 per cent of your income, are some of the pointers that personal finance advisers often tell people. However, there are certain myths that are present in the markets but should be conveniently ignored. Below are such myths:

Myth 1: One cannot invest and pay off debt at the same time

This is one of the common myths-You cannot start saving before you pay off high-interest debts, namely, credit card debt. However, you should ignore this myth as saving is equally important to paying off high-interest debt. Here, time value of money comes in to play. The more delay you do in investing, the more you need to invest to get the similar corpus at the same rate. Therefore, it would be wise to save and invest along with paying off debt. This will not just help you to pay off your debt but also to take the advantage of time value of money.

Myth 2: Renting home is always better than buying one

This might seem foolish but is a myth. Many financial planners will argue on this but rent is not always an option, at least in India. Like property comes with its own downsides, renting also come with its own set of negatives. Although on paper and working out financially, long-term renting might be better than owning a home. However practically, renting home might come with some non-cooperative landlords, some frequent shifting, etc owning your home does not come with such a hassle. Therefore, having your own home is better than renting. But here, you need to evaluate your personal situation before deciding on the same.

Myth 3: Park your entire emergency fund corpus in liquid funds

When you build your retirement corpus, it is always recommended that you park that money in liquid funds to earn over savings bank account. However, that won’t be the ideal way. Rather than parking the complete amount in liquid fund, have 15 days of expenses in cash, one month of expenses in savings bank account and remaining expenses to be divided 50:50 among liquid funds and ultra-short duration funds. Even while selecting liquid funds and ultra-short duration funds, never invest in funds giving higher returns. Higher the returns, higher are the risk undertaken. And the intention of investment in these funds is to protect capital and not to generate higher returns.