This can make talking about money difficult, which has allowed some potentially harmful money myths to gain momentum and be treated as the truth – so, in order to make money easier to navigate and more inclusive, we need to get to the bottom of these myths and bust them once and for all.
How we manage our money is a really personal thing, and there’s no one-size-fits-all way to do things; it depends on your circumstances, your plans and your priorities.
Checking your credit rating makes it go down
Someone seems to have got this wrong a little while ago, and told ALL of their friends, because it’s really permeated the collective consciousness, leaving lots of people terrified to check their credit score for fear of damaging it. This is absolutely not the case – in fact, it’s a really great idea to keep track of your credit score with all three UK credit reference agencies: Equifax, Experian and Transunion.
Checking your score gives you the opportunity to challenge any mistakes that might be affecting your score, such as an incorrect address or linked person, and most credit score apps will tell you what you need to do to improve your record, from paying down debt to getting on the electoral register.
What will affect your score is applying for new credit, even if you’re accepted – so if you’re about to apply for a mortgage or loan, keep a lid on other credit applications for as long as possible beforehand. You can use Clearscore to access your Equifax Score, either the free Experian app or Moneysavingexpert.com’s Credit Club to access your Experian score (the latter gives you heaps more information), or Credit Karma to access your Transunion score – and it’s a great idea to keep tabs on all three.
Something that won’t affect your credit rating but may cause issues when applying for a mortgage is sending and receiving money transfers with silly or rude references. When you apply for a mortgage, you’re often asked for 3-12 months’ worth of bank statements, and frequent £20 transfers for ‘boobs’ might not work in your favour. It’s a bit silly, but to give yourself the best chance, it’s best to stick to real references.
You don’t need to start saving for your pension until you’re older
When you’re in your twenties and thirties, how you’re going to afford retirement is probably one of the last things on your mind. You’re probably still on your way up the career ladder, with more pressing financial goals. But being mindful of your pension as early as possible can really help you to reap huge rewards later on, because your pension is basically an investment – and probably the biggest one you’ll make, apart from perhaps property.
My biggest tip here, if you’re employed by someone else, is to ask your HR department, to get your company pension provider in to the office (or on Zoom) to talk to you about how your pension is being invested, making sure that you’re auto-enrolled, and finding out how much both you and your company are contributing each month.
Some companies have a pension-matching scheme, while others offer other benefits, and you should be able to use this information to find out how you can maximise the effect of your pension at the least financial cost to you. If you have space in your budget, you might consider upping your pension contributions by a percentage point or two, which will make a huge amount of difference to your final pot without costing too much in the short term.
Investing and financial advisors are just for rich people
The democratisation of investing and financial advice through fintech and apps has been one of the biggest changes in the financial industry over the last few years. It used to be that investment companies and financial advisors were not interested in you unless you had a large amount of money to invest, because of the model used to make their profit, but now things are different. You can invest in funds via apps like Wealthify, Tickr and Clim8 without having to know about which individual stocks and shares to buy and sell at any given time.
You can also access financial coaching through a number of employment-based schemes, and new financial coaching and investing app Claro launches this week, too. Banking app Ikigai allows you to have both a current account and an investment account with them – the options are endless now, and it’s worth sitting down in front of your finances, looking at your goals and researching which of these new services might work for you.
If you do have a significant windfall, from a win or an inheritance, for example, it may still be a good idea to talk to a traditional financial advisor about the best way to invest and grow that money – but for slowly building wealth through your earned salary, there are so many different options.
A mortgage deposit is always 10%
This is the percentage that we all seem to have firmly etched into our minds for getting a mortgage, and it’s still a fairly good rule of thumb. A 10% deposit will give you access to lots of different options at decent rates – but it’s not the only way to get a mortgage. For those finding this amount daunting – after all, it is tens of thousands of pounds in most areas of the UK – there are a whole suite of different options for getting onto the housing ladder, from government-backed 95% mortgages to shared ownership and Help to Buy.
For those who may have received a financial gift or inheritance, or managed to save more than that golden 10%, a deposit of 15 or 20% will unlock even better rates, and give you more equity in your home, meaning more security. Again, this is a great thing to chat to a financial advisor or coach about, if you’re not sure.
All credit is bad
Credit and debt often occupy a strange place in our relationship with money, as we are taught to fear them, but often still end up using them. This can lead to shame and secrecy, which can get us into further trouble. But the truth is, it’s entirely possible to use credit safely and effectively in order to spread the cost of expensive items and build your credit score.
The most important thing is not to over-commit, and not to over-complicate. Try to stick to one or two credit accounts, and make sure that you make payments on time and keep track.
Staying engaged with your finances and making sure that you know what’s true and what’s myth is so important for a healthy relationship with money. Are there any beliefs you have about money that you might need to double-check?
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