Top Money Myths – Know the Truth About Money and Make Better Decisions for Your Future
Sometimes, it’s hard to know what’s the truth about money.
Whether it’s our friends, our family, or the media everyone seems to say something different.
That’s why I’m going through 9 of the top money myths you need to stop believing.
Here’s a look at them…
Myth #1: Money won’t make you happy.
Money will make you happy if you have a money problem. The distinction here is that money won’t solve non-money problems. So, when someone says money won’t make you happy, ignore them and decide for yourself.
How do you know if your problem is a money problem or something else? Analyze what the problem is really about.
For example, if you have trouble coming up with rent money every month, then you have a money problem. However, if you are fighting with your significant other about things (one of those things being money), it may be something else and money is just part of a bigger issue.
Your budget will tell you if you have a money problem.
If money is your problem, then more money may solve that problem and relieve you of the stress and unhappiness money is causing you.
I’m a perfect example. I have a money problem. I have $108k in student loan debt left. I have to make more money to repay this debt. In fact, if I don’t blog I would be -$1k in my budget every month. I pay over $1,500 / month toward my loans, and I’m not bringing in enough money to make that number seem small. I don’t have a health problem. I don’t have a career or a relationship problem. I have a money problem. More money will increase my happiness because of this (which is why I blog and teach people how to blog).
Money is just like anything else (like your health, job, relationship, etc.). More money will make you happier if you have a money problem. Just make sure it’s a real money problem and not something else.
Myth #2: Your current circumstances dictate your financial future.
Your current circumstances do not dictate your financial future. It may feel this way and you may think you’re stuck, but you’re not.
You have the power to change your financial future, regardless of where you are now. Don’t believe me? Read As A Man Thinketh by James Allen and you’ll learn more than I can ever explain in this post about how you have the power – right now – to change your financial future.
If you think you’re stuck, then you are stuck. If you think you can change your financial life, then you can. Like Allen says in the book, “All that a man achieves and all that he fails to achieve is the direct result of his own thoughts.”
I know soooo many people with $100k-$300k in student loan debt. Most of these people who I know are not trying to get out of their debt, but instead are putting off repaying it, or just ignoring it all together. This is a choice they’re making, despite them telling me they’re stuck and have no options. You have options. Take a budgeting course and learn how to manage your money and change your circumstances.
I’m proof of that. If I adopted that mentality, I would probably still have close to $200k in student loan debt because of the income-driven repayment options. Instead, I’ve decided to look at my student loans as an opportunity to learn how to make money myself and pay them off as fast as I can. This has led to me starting a blog, which turned into a profitable business and has helped me repay my debt. This is a mindset I’ve adopted. I believe that graduating with $206k in student loan debt isn’t going to stop me from being wealthy, and I truly believe it.
Myth #3: Because your financial advisor is someone you know, he will act in your best interest.
Just because you know your financial advisor, or because he was a recommendation, does not mean he is going to act in your best interest.
A financial advisor acts in your best interest when he is a fiduciary. A fiduciary means that the advisor must act in your best interest above his own (e.g.: he can’t recommend financial products that pay out a commission if they aren’t in your best interest).
If you’re not sure whether your advisor is a fiduciary, ask him.
I see people use “someone they know” to manage their money, only to find out that the advisor is not a fiduciary and they’re not getting good financial advice at all.
Myth #4: As long as you can afford the monthly payment, you can afford to buy it.
It’s not true that if you can afford the monthly payment, then you can afford to buy the item. You shouldn’t look at monthly payments when you buy something. You should look at the total cost of the item – whether it’s a car, a house, or something smaller, like a TV.
Purchasing based on the monthly payment is what I like to call a “renter’s mentality”. Instead, think of yourself as having an “owner’s mentality” and focus on buying things out-right, when possible. This will limit your payments and help you build wealth because you’ll have more available money to increase your investments and overall net worth.
Myth #5: Keeping a credit card balance increases your credit score.
This is SO not true. If you have a credit card, you can (and should) pay it off in full every month to build credit. You do not need to keep a balance to build your credit. At all.
Myth #6: As long as your partner manages your money, you don’t need to be involved.
Things happen. Life happens.
Unfortunately, people die, become disabled, get dementia, get divorced, lie, steal, and on and on. It’s not always happy and that’s just how it goes. :/
For these reasons, if your partner manages your money (or the family money) you need to be involved. Whether that means joining him at financial planning meetings, or sitting down with him once a month to review your budget, you need to do something to be a part of your finances.
It’s perfectly fine if you don’t want to be the one who sets the budget or is in charge of paying the bills. But you need to know what is going on. You need be aware and be included in the process.
Myth #7: A credit card is a good emergency fund.
A credit card is not a good emergency fund. A credit card turns into debt when you don’t pay it off. You do not – and should not – plan to go into debt for future emergencies that you know are going to happen.
You know emergencies happen. This isn’t news. An emergency fund doesn’t mean that emergencies won’t happen – it means that when they do, you don’t have to worry about the financial aspects of the problem. You don’t have to be scared about how you’ll pay for the emergency. It will still suck – but it’ll be affordable.
Use cash in your savings account (not in the stock market) as your emergency fund. This fund isn’t meant to be spent frivolously, nor is it meant to be invested in the market. It’s meant to be an insurance policy for you when something goes wrong and you need to pay for it.
Myth #8: A home is a good investment.
This one is probably the most controversial. But I’m going to say it – a house is not a good investment.
A house is great to buy as a home. It is somewhere for you to live that you will eventually own outright once you repay the mortgage. But until then, you are financing this purchase. And not only that, but the house is going to have problems. You will need to replace and fix things. You will need to furnish your home. In the early years of owning a home, it costs you a lot of money.
I’m not saying don’t purchase a house. If you have the money, then yes, absolutely, buy a house. I am in favor of home ownership for a number of reasons that I won’t get into here. If I didn’t have student loan debt, and I was married, a house would be a top priority for me. But, it would be that way so I could have a home to live in and raise a family in – not to increase my investments.
Your house doesn’t produce income. And in the early years of ownership, it can cost you a lot of money. Down the road, it may be a part of your net worth in a positive way, but it still won’t produce income for you – it’s illiquid. So, as far as owning a residential house to live in goes, think of it as a home for you and your family – not as an investment property.
Myth #9: Take out as much student loan debt as you can in order to pay for school.
Despite college and post-graduate school being more important and popular than ever, it’s not a good idea to go to school regardless of the price. Student loan debt is a huge problem for so many people, including me. Instead of going full force into the best school you can get into no matter the cost, think about what you want to do for work and whether the cost is worth it.
For example, if you want to be a surgeon, it may be worth it to take out $250k in student loans because your income will be $250k/year starting out, and you’ll be able repay your debt over a short period. However, if you want to be a banker and think you’ll make $50k/year, you may not want to take out $250k in student loan debt.
Think about your income potential based on the career you want to go into. Make smart decisions about the amount of debt you take out based on the career you choose.
Don’t max out your student loans like I did. You’ll regret it if you can’t pay it back!
Did you find any of these money myths helpful? Anything about managing your money that you know you need to change? Let us know in the comments below! And you can also contact Natalie Bacon for any financial questions you might have!