Money, a topic often shrouded in secrecy and myths, holds the key to our financial well-being, personal growth and optionality. I’m on a mission to debunk the myths, beliefs and sometimes downright lies about money that we have all been told or overheard at one time or another. In this article, we will expose 22 of the most prevalent myths surrounding money, leaving you empowered to make informed decisions and take control of your financial future.
1. Money is taboo and we shouldn't talk about it with others.
Tied with number 22 for the worst myths of them all. Break free from societal constraints and engage in open discussions about money. Sharing knowledge and experiences can lead to valuable insights and growth. The fact that by and large we do not opening discuss money is the reason that so many myths can prevail. Knowledge is power…share financial knowledge the same way you would share health or safety knowledge.
2. Buying a home is better than renting.
Challenge the assumption that homeownership is always superior. Understand the hidden costs and consider renting as a viable alternative, allowing for greater flexibility and financial freedom. Real estate is local, and buying personal residence is individualized without question. The general rule of thumb is that if you reasonably sure you will be in a house for 5+ years then you should at least entertain the idea of buying since this is the breakeven point of buying vs renting in most real estate markets. However, with rising interest rates, rising home prices and the cost to maintain homes today, the breakeven point is most likely 7-10 years depending on the market. Do your due diligence and don’t fall for the “everyone should buy every time” crowd. Millions of American experience buyers remorse each year. Do the math, and buy when it makes sense, and rent when it doesn’t. Some of the wealthiest people in America actually rent and do not own their personal residences.
If you’d prefer to listen to me discuss these 22 Money Myths head over to the Finding Affluence Podcast.
3. You have to be rich to invest.
Nonsense! Investing is not exclusive to the wealthy. Educate yourself on compound interest and the power of starting early, even with small amounts. Your financial future depends on it. Remember, a small amount of money invested over a long enough period of time equals a large sum of money! There is a reason Einstein called compound interest the “Eight Wonder of the World!”
4. Carrying a small credit card balance to increase your credit score.
A harmful fallacy. Few things have more myths around them then your credit score. Carrying a balance does nothing to improve your credit score, and in fact can harm your score by increasing your utilization rate. What is worse is that you are incurring interest when you carry any level of a balance. This only does one thing, and that is make your credit card issuer rich and you poor. Pay off your credit card balances in full each month (or don’t even use your credit card other than once in a while to keep it active) to avoid unnecessary interest charges. This way you benefit from having a revolving credit account in good standing and you don’t pay anything for it as it raises your credit score.
5. My partner manages our money, so I don't need to worry about it.
A risky assumption. Take an active role in managing your finances, even if your partner handles the day-to-day tasks. Building financial awareness and joint decision-making will protect your future. Life happens, and I have seen too many scenarios where the surviving partner doesn’t know how to pay the bills, where the money is coming from or going to, what insurance they have and so on. The point is, in an unfortunate scenario (spouse passes away, divorce…etc), you need to be able to handle your basic finances to survive, and trying to crash course learn about your personal finances in that moment will lead to much more stress than you already have. In addition, you’ll most likely make costly mistakes and be an easy target to be taken advantage of.
6. Use cash for everything
Impractical and outdated. Embrace modern payment methods that offer convenience and security. Cashless transactions provide opportunities for returns, rewards, and better financial management. With that being said, there are plenty of times when it makes sense to use cash. Examples would include when you are offered a large cash discount or when you would be charged a fee to use credit or debit.
7. A savings account is a good place for your emergency fund and long-term savings.
In most cases the interest doesn't even keep up with inflation. Meaning, your purchasing power and value of your savings is decreasing by multiple percentage points every single year. Example, if you had $50,000 in a regular savings account earning essentially zero while inflation is at 6% then you would essentially be losing $3,000 this year by keeping your money in that bank account. Seek out High-Yield Savings Accounts (HYSA), Cash-sweep program, iBonds or something safe that offer competitive interest rates, ensuring your emergency fund and savings keep pace with inflation and remain liquid enough.
8. I don't need an emergency fund… I have credit cards.
A dangerous misconception. Relying on credit cards for emergencies compounds the problem by pushing you into debt. Emergencies tend to happen more than once, and the most common emergency is loss of income which typically means you’ll have a harder time paying back the credit card. Establish an emergency fund to tackle unforeseen expenses without jeopardizing your financial stability.
9. Money is complicated.
False. I don’t know how else to state it. Personal finance fundamentals can be grasped in a relatively short time. You can learn the basics in under 100 hours. From there, repetition and some emotional maturity needs to be leveraged to master the money game.
10. It takes money to make money.
Easier, but not required. While having capital can accelerate wealth-building, it's not a prerequisite. Providing value to the marketplace is the easiest way to “make money”. Most of us do this by trading our time for money in the form of a job. Another example of making money without having a large sum of money to start is leveraging other people’s money (OPM) for things like real estate, starting a business and so on. Remember, money compounds over time and the longer you invest the more exponential returns you can achieve. Cultivate a strong work ethic and seek out good opportunities to make financial progress.
11. A penny saved is a penny earned.
Terrible myth perpetuating scarcity mindset. Saving diligently is a key element in wealth-building, but without completing the steps after saving won’t get you very far. Being too frugal, and only focusing on cutting expenses, will typically lead to you missing out on larger growth opportunities. There are two sides to the personal finance equation. The expense side, and the income side. Expenses can only be lowered to zero. Most likely that isn’t even true since you need food, shelter…etc. Income, on the other hand, has unlimited upside and isn’t capped. While being responsible, and keeping your expenses within your means is important, most people would get further by equally (or more aggressively) focusing on earing more income. Accumulating wealth requires not only frugality but also smart investing and growth-oriented strategies.
12. All debt is bad debt.
A misconception that ignores leveraging opportunities (sorry Dave Ramsey fans). Leverage carries risk…yes, but leverage can also accelerate growth and be used responsibly. Even the talking heads that dislike debt the most all agree that leveraging for your personal home if you need to is okay. Leveraging debt for an opportunity that has a reasonable expectation to grow in value (appreciate) and provide cash flow (income) is what I would consider good debt. With that being said, there is no question that consumer debt is bad debt and is an epidemic in the United States of America. Strategically using debt for investments, such as acquiring appreciating assets or obtaining education (rarely), can be a reasonable pathway to wealth. Proceed with caution on all debt and understand that all debt carries risk no matter what.
13. Paying with cash and debit cards is best.
Risky and foregoes rewards. Similar to only ever paying with cash, paying with only cash and debit cards is not always the best option. Using your debit card carries more risk due to the fact that it is directly linked to your checking account. If you are a responsible human and already use debit cards, then it is completely reasonable to embrace credit cards responsibly, maximizing their benefits like cashback rewards and building credit history. Use them wisely, pay them off monthly, and enjoy the perks.
14. Needing to diversify.
More often than not it is best to start with one strategy. While diversification is recommended as a hedge against risk once you have a reasonable amount of investable capital, focus on mastering one investment strategy initially. Index funds offer a diversified portfolio from day one, allowing you to participate in the market without the need for extensive diversification. The idea is to master one type of investment vehicle to grow your wealth faster and then diversify to protect the wealth you built.
15. Don't need a will if I'm married.
Life is guaranteed to happen, plan for all possibilities. Protect your loved ones by having a will in place, even if you're married. A will guides the surviving spouse, children or executors and provides certainty during probate, ensuring your wishes are more likely respected. Depending on your situation, you may even want to consider a Will and a Trust. Consult an estate attorney to learn about what is best for your personal situation.
16. All my problems will be solved with more money.
Mo money, mo problems. While money can alleviate financial stress, it isn't a cure-all for life's challenges. Money solves money problems. That is it. Nothing more…nothing less. In many cases, more money actually causes more problems downstream because we don’t have proper money management skills to begin with.
17. Money can buy happiness.
A fallacy with limitations. It took me over 30 years to really understand that money in of itself does not buy happiness! Question for you, if money truly bought happiness, then why aren’t all the billionaires the happiest people alive? Instead, you find that many of them are not happy, end up divorced, estranged relationships with kids and so on. Money can provide comfort and meet basic needs, but true happiness lies beyond material possessions. Utilize money as a tool to pursue experiences and values that bring genuine joy. True happiness and fulfillment come from a balanced perspective and addressing deeper emotional needs.
18. The people with fancy stuff have the most money.
The Joneses across the street have all the fancy stuff, but here is a little secret, most of them are flat broke and one bad day from financial ruin. Flashy possessions often hide the burden of monthly debt payments. Don't fall into the trap of comparing yourself to others based on material possessions. If everyone had to disclose the debt they carried on most things you wouldn’t be as impressed. Focus on building your own financial stability that isn’t full of leveraged up consumer goods, oversized homes and brand new vehicles that you are upside down in.
19. High salary equals wealthy.
Income is not wealth. Don't be deceived by a high salary alone. 1/3 of all Americans making over $100,000 per year are living paycheck to paycheck. Building wealth requires disciplined financial management, saving, and investing. Many high earners leverage up for material possessions because their high income in the moment can afford the “payment”. Many high earners enter retirement without enough money to sustain their same lifestyle as when they had active income. Stay the course, and remember that when you start earning more money it is important to save and invest more as well. Don’t let lifestyle creep ruin you financially or put you in handcuffs to a job you can’t stand.
20. I have to work with a professional to improve my finances.
Empower yourself through knowledge at first. Personal finance and basic investing can be learned by almost everyone. Educate yourself to make informed decisions and seek professional guidance when needed, but maintain responsibility for your own financial well-being. No one will care about your money and your future as much as you. That’s just the reality of the situation, and when discussing your finances with an advisor you want to at least have a baseline understanding of personal finance so that you can accurately articulate your personal goals to your money manager.
21. Everyone should go to college.
Challenging the traditional narrative here. Recognize that college is not the only path to success. Explore alternative education options, vocational training, entrepreneurship, or pursuing your passion directly. Do the math and consider the long-term return on investment. In many more cases then you would otherwise realize, the return on investment is negative or much lower than alternatives. The most important thing to remember is that not all education is created equal and not all education has a high value in the market place. In addition, ALL education comes with opportunity cost. There are some degrees worth pursuing, however, it is my opinion that the majority of degrees are NOT worth going into debt to pursue. This is coming from someone who has multiple degrees, including a MBA, and wants to give honest and sometimes hard to hear advice on these topics.
22. Money is evil.
For what seems like obvious reasons to me personally, this is the most harmful money myth of them all. This myth pushes people away from talking about money, learning about money and using money to improve their lives and those around them. This myth also allows disingenuous people and entities to use the idea of money as a weapon to instill guilt and other emotions on people. Money is NOT evil. While it is possible for money to be leveraged to do evil things, money by itself (without human evil) evil. In fact, the same could be said for hammers, vehicles, guns, food supplies and more. Money is nothing more than a tool. A tool with the potential for good.
It is the perspective and actions of individuals that can turn money into a positive or negative force. Embrace money as a tool for positive impact, supporting charities, changing lives, and empowering yourself and others to live a life full of more freedoms and enjoyment.
By exposing these 22 myths of money, my hope is that you can gain a fresh perspective on personal finance and unleash your true financial potential.
Remember that money is a tool, and how you utilize it can shape your life, your family's future, and make a positive impact on the world around you. Empower yourself with knowledge, challenge conventional wisdom, and embark on a journey towards financial freedom and fulfillment.
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