I remember being terrified when I got my first credit card at 20 years old. And I was reluctant to get a second one a few years later.
Won’t this derail my credit score and make me look irresponsible with money?, I wondered, even though I never came close to the credit limit and paid off my balance in full every month. It scared me to have the power to spend money I didn’t technically have.
Then a friend told me she had six credit cards and no debt. Turns out, having multiple credit cards is actually a smart move, despite my believing for years that it would kill my financial stability.
Below, Business Insider breaks down more common personal finance myths — good news: you’re not “wasting money” if you’re renting — so we can all stop believing some things are terrible for our money when they really aren’t.
1. Conquering smaller debts first
Strictly looking at the numbers, it’s smartest to pay down the accounts that carry the highest interest rates first. That way, you’re staving off as much interest as possible and don’t end up owing even more. But HBR researchers concluded after a series of experiments that it was more motivating for participants to see small balances disappear.
“Focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress — and therefore their motivation to continue paying down their debts,” writes Remi Trudel, one of the HBR researchers.
“I suggest that people pay off their debts from smallest to largest and ignore the interest rates entirely,” he writes on his blog. “Sure, that 18% credit card debt might freak you out like crazy. But if you tackle the smaller debts with intensity like I know you want to, you’ll get to it sooner than you think — and then bust it out sooner than you ever thought possible!”
2. Keeping finances separate from your partner
One of the most important conversations to have before marriage is the money talk. What’s the status of your partner’s financial life? Are they overcome with debt? How much do they have saved? Are they investing? For some couples, these questions are the preamble to merging finances, but that’s not the case for everyone.
A conscious decision not to share a bank account is perfectly fine, as long as you’re not hiding anything from your partner. As Business Insider’s Shana Lebowitz reports, there are many cases where it could be smarter to keep finances separate in a relationship, like if one partner is much better with money than the other or if you’re blending families. But regardless of whether you share an account or not, it’s crucial to have an ongoing open and honest discussion about your money habits and goals.
Another option, suggests Sophia Bera, CFP and founder of Gen Y Planning, is setting up a “yours, mine, and ours” system. That is, a joint account for household expenses and separate accounts to maintain some individual freedom.
3. Renting rather than buying
Although many financial experts laud the long-term benefits that come with homeownership, don’t think you’re wasting money if you’re renting.
“I think for young people, renting is underrated,” wealth manager and blogger Ben Carlson told Business Insider. “When you’re young, renting gives you more options. People say they don’t want to pay someone else’s mortgage, but I think especially when you’re young and not tied down, it gives you the ability to pick up and move to another city for a job — a little leeway. A house is much more expensive than people think. It’s more than just a mortgage.”
Indeed, unlike homeowners, renters don’t pay real estate taxes, HOA fees, mortgage interest, or maintenance costs. But keep in mind that real estate markets vary greatly from city to city, so it could be cheaper to buy than rent in some cities, and vice versa. Ultimately, whether you buy or rent, you’ll want to aim for a total monthly payment that’s less than 30% of your income.
If you’re grappling with the decision to rent or buy, check out this flowchart to help you figure out what makes the most financial sense for you.