The Telegraph recently published a fantastic article dispelling 50 (yes, count them, 50!) myths about money. It’s quite a long read, but it’s well worth taking the time, as there is some brilliant advice.
If you can’t be bothered to read it, here’s a run down of some of the most interesting points, with my own thoughts. Read the full article.
- I’m too young for a pension – yes, we know that in your twenties and thirties, it’s really uncool to think about your retirement in 40 years time, but the earlier you start saving in your pension, the better provision for your retirement you should get.
A 21 year-old paying £75 a month into a stakeholder pension could retire at 65 with a fund of £337,000, which could buy a pension of £12,700 a year. If he failed to start contributions until he was 30, his fund would only grow to £171,000, buying a £6,470 pension.
- Interest-only mortgages make homes more affordable – many first-time buyers in particular believe that homes are more affordable when you’re only paying off the interest on a mortgage. However, as you are only paying the interest, you’re not actually buying the house – you need something to repay the capital. So you should be saving/investing alongside the mortgage payments, such as with an ISA, so that at the end of the term of the mortgage, you have a sufficient lump sum to pay off the capital. ISA savings can easily be dipped into at any point during the term of the mortgage, which has its own pros and cons.
- Active funds outperform tracker funds – whilst actively managed funds might be able to outperform trackers on a regular basis, the charges that these funds make are generally larger, and therefore eat into any gains much quicker.
- You can’t lose money with premium bonds – premium bonds are, in my opinion, a very outdated lottery. Whilst it is true to say that you can’t lose money with them, as you can withdraw your original stake at any point, over time inflation will eat into the value of your bonds, unless you’re lucky enough to win a big prize. The general concensus is that it’s better to invest the money in a high interest savings account if you’re looking for stable long-term growth.
- I’ll start saving when I have enough money – I don’t know about you, but for me, my spending just seems to expand to take up any increase in earnings, leaving little leftover for saving. One good idea is to setup an automatic transfer to a savings account on the day you get paid, starting with an amount that you think you won’t miss too much. That way, you won’t have to go out of your way to save. The earlier you start, the more you’ll benefit from compound interest.
- Buying in the sales saves you money – one of my pet hates – “but it was only £40, and it should have been £100, what a bargain” – yes, but you don’t need it, so it’s just a waste of money. Only go to sales when you know there might be something you actually need at a lower price.
- Paying my bills my direct debit is cheaper – it might be more convenient, but paying for your car insurance by Direct Debit is rarely cheaper. It’s useful to be able to spread the cost over the year, but insurers see direct debit payments as giving you a loan, which you must pay back with interest.
- If my bank or building society goes bust, 90%of my savings are protected – this has been in the news a lot recently with the Northern Rock debacle.
If a building society or bank collapses, the first £2,000 will be returned in full, plus 90 per cent of the next £33,000. These limits apply across the board, not to individual savings accounts. If the bank is part of a group – for instance, Halifax, Bank of Scotland and Intelligent Finance are all part of the HBOS – you may also find that the compensation limits apply to all accounts held with any members of the group.