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Personal Finance Myths

Baby boomers are often described as a golden generation that benefited from low house prices and big pensions.

As with most things, personal finance has its share of misinformation. We put to bed some of the myths regarding your finances.

But research from the Ready for Ageing Alliance, shows that many of this group, born between the Second World War and 1960s, are hit by soaring interest rates and poor health and pension support.

This is one of many financial myths and getting behind the truth of personal finance can help you make better decisions about your money.

We have busted five more myths about personal finance.

Myth: I need a massive deposit to get a decent mortgage

Reality: There have been several government schemes introduced in recent years, such as the Help-to-Buy mortgage guarantee, which supports mortgage borrowing for just a 5% deposit.

Low interest rates have made mortgage pricing fall. The average fixed rate for a 95%loan-to-value mortgage in July 2014 was 5.33%, and it has since fallen to 4.33%.

You should shop around for the best rates, not just on the high street but use comparison websites or consult a broker who may have expert knowledge on the best deals.

Myth: Paying my bills by direct debit is cheaper

Reality: Paying your gas or electricity bill by direct debit is cheaper as it reflects what you have used and can spread the cost.

But this isn’t the case when it comes to car insurance. Providers will offer to let you pay either upfront or by monthly.

Often if you pay monthly there will be an interest rate added to your payments.

Myth: I am too young for a pension and I can use the state pension anyway

Reality: Retirement saving can be easy to put off, especially if you have other costs such as a mortgage deposit or bills to pay.

But where will you get your income from when you are no longer working?

Starting your pension as early as possible could ensure you have a bigger pot invested in the markets and will hopefully ensure a happy and wealthy retirement.

Investing early also gives you a better chance of making up for losses over time and you could start with small contributions and build them up over time.

Your workplace should offer a pension and employers will also contribute.

Myth: It is illegal to avoid tax

Reality: Big banks and businesses are constantly in the news for failing to pay enough tax or any at all.

This is known as tax evasion, not avoidance.

There are perfectly legal ways to avoid tax.

Everyone has a personal allowance they can earn before paying tax. You can also save and invest money in a cash or investment individual savings account (ISA) tax-free up to a set limit, £15,240 in 2015/16.

Putting money into a pension also gets tax relief and there are other more sophisticated products such as Venture Capital Trusts and Enterprise Investment Schemes.

Myth: I have never had a loan or credit card so my credit rating is fine

Reality: Whether you are applying for a phone, mortgage or credit card, a provider will want to know about your ability to repay.

The first port of call is your credit rating. This is a record of all your debts, borrowings and financial products such as cards, savings accounts or broadband contracts.

Providers need to see evidence that you can manage debt sensibly, so if you have no credit or debts, your rating may be low.

It may be worth taking out a credit card, spending some money and ensuring you repay fully each month to build up your rating.


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