Personal Finance Myths that are Absolutely False

6 mins read
by Angel One

Personal Finance: What Is It?

Personal finance is a broad phrase that encompasses both money management and saving & investing. Banking, budgeting, insurance, mortgages, investments, retirement planning, and tax and estate preparation are all included in this category. The phrase is frequently used to refer to the entire industry of providing financial services to individuals and households and advising them on financial and investment prospects.

Personal finance is about achieving personal financial goals, whether fulfilling immediate financial obligations, budgeting for retirement, or saving for a child’s college education. It all depends on your income, spending, necessary living expenses, personal goals and desires—and on devising a strategy to meet the needs within your financial limits. To make the most of your income and savings, it’s critical to develop financial literacy. This will assist you to differentiate between good and bad advice and make sound financial decisions.

Financial planning is analogous to traversing a minefield of money fallacies. Although many of these incorrect notions have been debunked in the personal finance world over the years, some misinformation survives and has become so entrenched that even a few personal finance specialists spout fallacies unaware of their errors. Here are five such money myths that, if disregarded, might jeopardize your cash and your ambitions.

Myth 1: SIPs are risk-free in the long run

Certain finance professionals go too far in presenting SIPs as the panacea for risk elimination. SIPs can be invested in any asset class—equity, debt, gold, and so on—but most investors begin with equity funds. Since the returns from a few intense years more than compensate for the losses from a few terrible years, equity investors end up with respectable historical average returns. However, if the stock market enters a prolonged bad period, SIPs may provide negative returns. This is not to say that SIPs are unimportant; instead, the illusion that SIPs make stock investments risk-free has to be dispelled.

Myth 2: Retirement planning is solely financial

While accumulating a substantial corpus until the end is critical for retirement planning, it is also critical to address other concerns. Depending on your perspective, time on hand is the most valuable asset (or liability) in retirement. Taking care of health-related difficulties is the next primary duty in retirement. Retirement planning should be divided into two phases: the period you intend to maintain good health and the period after that. Retirement planning should also include a clear strategy for the second stage when you will require assistance. If you are uncertain about your children’s support, it is prudent to identify retirement homes immediately. While selecting retirement homes, specific essential needs such as medical care must be met.

Myth 3: A household budget must be detailed

Dispel the misconception that a precise budget is a must-have. Choosing not to create a budget because you cannot create a detailed one is a rash. Create a comprehensive budget for your household. Divide your income and expenses into three basic categories: expenses, repayment, and savings and investments. What is included in each bucket varies according to life stage and income level. To identify how much money should be allocated for each bucket, start by identifying your major expenses. The majority of monthly expenses, such as the power bill, telephone bill, and so on, as well as the majority of groceries and other household expenses, are simple to track. You need to establish a budget for discretionary spending such as dining out, movies, and so on, as well as annual expenses such as travel. Additionally, budget for unforeseen expenses such as equipment replacement and sudden medical expenses.

Myth 4: Deviating from the budget can jeopardize plans

Your budget is designed to be broad in scope, and overspending every few months is expected. If there is a budget breach, determine which bucket you overspent. Was it a luxury purchase or an emergency issue that forced you to dive into your savings? It is OK to spend funds from your contingency reserve to cover unexpected expenses. Alternatively, you can alleviate immediate cash pressure by temporarily suspending SIPs. This is a far superior choice to using a credit card to make cash withdrawals. However, some individuals are hesitant to restart a stopped SIP, which might generate complications. If you fall into this category, maintain a flexible budget.

Myth No. 5: Your financial adviser will take care of everything

The majority of investors believe that financial planning will be taken care of once they employ an adviser. What you must realize is that financial planning is only the beginning of your financial journey. Additionally, it is risky to trust financial advisers blindly. Transferring logistical responsibilities to them is acceptable, but decision-making must remain your responsibility. Appointing a financial planner is a significant decision in and of itself, and you must exercise due investigation. Even after that, continue to interrogate them and conduct portfolio reviews with them regularly. According to Sebi regulations, the client’s active participation is required.

Personal Finance Fundamentals

After establishing some fundamental procedures, you can begin considering philosophy. The answer to regaining control of your finances is not to acquire a new set of abilities. Rather than that, it’s about realizing that the ideas that contribute to company and career success also apply to personal money management. Prioritization, appraisal, and constraint are the three guiding principles.


This entails examining your finances, determining what keeps the money coming in, and ensuring that you remain focused on those activities.


This is the critical skill that prevents professionals from becoming overworked. Ambitious individuals are constantly brainstorming new methods to succeed, whether a side business or investment opportunity. While taking risk has its place and time, managing your money as a business requires taking a step back and honestly examining any new endeavour’s prospective costs and rewards.


This is the final large-scale corporate management skill that must be applied to personal money. Financial advisers frequently meet with wealthy individuals who spend more than they earn. Earning $250,000 per year does little good if you spend $275,000 per year. It is critical to learn to delay spending on non-wealth-building items until after meeting your monthly savings or debt reduction goals.