(This article is the last one in the series aimed at dispelling some of the popular financial myths. Please refer to the full index for myths related to other financial topics. Oh, and a quick disclaimer: I am not a financial advisor. I have made every effort to research the facts before presenting them here. But, if you have a reason to believe any of the statements are incorrect, please feel free to correct me.)
- Myth: “If everyone unites and does not fill gas on any one day, we can bring the gas companies to their knees and lower the gas prices.”
- Myth: “If I buy a vehicle that is defective the lemon law is there to protect me.”
- Myth: “When I contribute to a charity, my entire contribution will be used for the charitable cause that they mentioned.”
- Myth: “I am too poor to travel.”
- Myth: “I don’t need an emergency fund.”
- Myth: “Buying a hybrid car will save me money over the long run.”
This started out as a chain email in the 90’s and to this day, every year I get one of these mails stating that on some particular date (“No gas day”) if I do not fill gas, then we could all benefit from a fall in gas prices of 30 cents to a gallon. The problem however is, if people do not fill gas on one particular day, they just will on the next couple of days or the previous couple of days. From the gas companies’ perspective, this probably doesn’t even make a ripple in the profit pool. Here is an article from MSNBC that explains in detail why one day gasoline boycott won’t work. If you really want to make a difference I would side with Stephanie’s idea of making every day a low gas day, instead of aiming for one no gas day.
Lemon laws are regulations that protect customers from defective vehicles. However, different states have different sets of rules when it comes to lemon laws – so be aware of what the rules are in your state. Here is a website that lists the lemon law statutes by state. For instance, in South Carolina defects that do not occur within the first 12 months or 12,000 miles are not covered (source). On the other hand, in Texas a consumer is protected under the lemon law provided the defects occur anytime within original manufacturer’s warranty. Even if the warranty is currently expired, if the problem initially started to appear while the vehicle was in the warranty period, you will be covered (source).
This is not quite true. Few charities use the entire 100% of the contribution to the cause mentioned. The norm is that most charities use a part of the contribution for administrative purposes. At the extreme end of the spectrum, a few of them end up using more money for administrative purposes than actual charitable causes as indicated in this list. So before you commit to a charitable cause, it may be worth while to spend a little time to investigate the charity a little bit using websites such as The BBB Alliance for Wiser Giving or Charity Navigator.
The abundance of consolidation fare finders (eg. Orbitz, Expedia, Travelocity), discount airfare sites (e.g. Priceline, Hotwire) and aggregators (e.g. Mobissimo, kayak, sidestep) has made it easy for anyone to find cheap airfare, rental car rates and hotel rooms. In addition, the abundance of hostels, bed and breakfasts and cheap motels, make it easy for even people on a very tight budget to travel. There are several online discussion boards (e.g. virtualtourist, tripadvisor) and forums that you can use to find the details of the cheap eats and entertainment and also be aware of common local scams well ahead of taking the trip. Overall, if you really want to travel, there has never been a better time than the current information age to find the cheapest way to do it! If you find this topic interesting, you might want to look into this article about budget traveling myths.
Unless you are an oracle who knows exactly how life will turn out in the next week, month or year, please don’t fall for this myth! Everyone needs an emergency fund – how much or how little you should save in this fund is of course debatable. Personally, we don’t believe in stashing away huge amounts in an emergency fund. Our strategy is to rely on a small amount to tide us through small emergencies. In case of large emergencies, we will tap into the home equity line of credit. Not many people agree with this line of thinking but since we are just starting out, we would prefer to have our money in investments that can collect a higher rate of interest than the emergency fund which sits in an online savings account earning about 5% APY. There are others though who prefer to have 6 months to 1 year cost of living in a liquid fund to tide them over during emergencies. If you are interested in reading about emergency funds, I highly recommend these articles by fellow bloggers - article 1, article 2 and article 3.
Don’t get me wrong – I am all for buying hybrid cars (which were serious contenders during our recent car purchase). That said don’t buy a hybrid car for the wrong reasons. Environmentally, buying a hybrid car is a great decision – something that you should be proud of and something that more of us should consider more seriously. But financially, hybrid cars don’t necessarily save you a lot of money. According to this article on CNN Money, “A hybrid Honda Accord costs about $3,800 more than the comparable non-hybrid version, including purchase, maintenance and insurance costs. Over five years, assuming 15,000 miles of driving per year, you'll make up that cost in gasoline money if the price of gas goes up immediately to $9.20 a gallon and averages that for the whole period.” The difference could be less stark for other cars though. Also, consider the cost of replacing batteries in hybrid cars. According to this article battery replacement can cost in the tune of thousands of dollars, but will not be an issue for most drivers since the batteries will last for over 100K miles.
That myth just about completes the series on financial myths. There are a lot more myths out there, but I hope I have covered some of the most popular ones. You will soon be able to navigate easily through all the myths listed in this series via this index.