There are several well developed myths regarding finances that have prevented many people from becoming financially successful by enhancing their false beliefs about money and personal finance. This article explores some of the most commonpersonal finance misconceptions and explains how, by debunking these myths you can start on your path to financial freedom.

Myth #1: Save for College first- then retirement.

It is easy to borrow money or take out loans for you or your children’s education, but you can’t borrow for your retirement. Opening a retirement account, such as a 401(k) or IRA, at an early age will help you to take advantage of more years of compound interest (practically free money).All else being equal, someone who starts saving and earning interest when they are young won’t need to deposit as much money to end up with the same amount as someone who starts saving later in life.

Myth #2: Always invest some of your savings in securities like stocks and mutual funds.

Don’t base your financial strategies on what your friends and coworkers are doing; that is the quickest way to get in over your head and spiral out of control. Implement a saving and investing strategy that takes into account your financial goals, your tolerance for risk and your stage of life. You may be better off with lower-risk, lower-yield investments such as CDs and money market funds, especially if you will need the money soon.

Myth #3: Always pay off high-interest bills first to reduce credit card debt.

Chipping away at a massive bill can be quite daunting and may leave you discouraged rather than inspiring you to keep paying down your debts. Paying off a few credit cards with small balances first will not only encourage you to keep paying down your debts even further, but it will also improve your utilization ratio- the amount of your total debt divided by your total available credit.

Helpful hint: freeze your credit card in a small block of ice; that way, while you are inconveniently melting the ice you have more time to recognize if the purchase is necessary or just another impulse buy.

Myth #4: Buying a house is always better than renting, because renting wastes money.

Depending on your circumstances, it may be better to keep some flexibility in your lifestyle, especially if the economy is in a down turn. If you are worried about your future plans when it comes to finances, then buying a home can create a lot of psychological pressure. Many would rather invest in a home because they don’t want to “throw away” money. But even if you own a home, you still have to “throw away” money on expenses like property taxes and mortgage interest. In actuality, for the first five years you are basically paying only the interest on your mortgage.

For example: on a 25-year, $200,000 mortgage at 5% interest, your first 60 payments would total about $105,000. Of that you “throw away” about $71,000 on interest payments and you only put $34,000 into equity of your home.

Myth # 5: Pay off all your credit card debt before you put money in savings.

If you have zero savings, then you are putting yourself in a precarious position that may force you to acquire even more debt in the event of an emergency. Although it may be a slower process, paying your debt while simultaneously building your savings may be the best option to ensure that you have sufficient cushion against unexpected expenses.

Everyone has the ability to be successful when it comes to personal finance, you just have to be responsible and figure out what’s best for you. Understanding your situation coupled with continuous planning and maintenance will help you meet financial goals and assist in dispelling other personal finance myths in the future.

About the author:

Reggie Britt is the President and CEO of Compass Technologies the company behind Kwik-Loan consumer finance software and Kwik-Dealer indirect lending software.