10 Money Myths You Should Ignore
I have listed some common money myths that are sure to cause some confusion as many walk the fine line of a sound financial journey.
Money Myth #1. A home purchase is always a good investment. Generally speaking a home is a good investment. However, this is assuming all of the proper groundwork has been conducted. In order for a home to be a “good” investment, the property should be priced right (below market value), comparable to other properties in the neighbor with similar values, and be a good neighborhood. Those attributes are only the tip of the iceberg, it is always best to work with a good realtor and get a home inspection to ensure you don’t buy a money trap. Homes are the most expensive purchase you will likely make in your lifetime, be sure to take your time. Don’t think that 3% annual appreciation and mortgage pay-down can get you out of an awful purchase. When you make real estate mistakes, they hurt your finances for years.
Money Myth #2. Pay off your debt before building your savings. Dave Ramsey probably would yell at me for not following his plan 100%. However, I currently work a plan that is very similar but adjusted for my risk tolerance, discipline, and other financial research I have conducted over the years. I believe that savings can come before debt in certain situations. I advise using index funds to grow savings for long-term, high dollar amount debt with interest rates 4% or lower. This turns the “throwing money into a well” into “building a fortress of dollars”
Money Myth #3. Always carry a mortgage. I plan on writing a in-depth post on this topic very soon, but for now I will simply say “Really….” This is the dumbest thing I have every heard, a mortgage payment is the largest monthly payment most people have for 20+ years! Why would I want to keep a liability around for my entire life? A mortgage sucks cash flow and is the worst thing I would want to write a check for, when I’m 65. The day I turn 65, I will have invested my mortgage payment for 20 years. So when I hit 45 and don’t have a mortgage, I can invest $2000 per month for 20 years and end up with 1.2 million living in my paid-for house.
Money Myth #4. Never go into debt. I am not going to spew about leverage and debt being a tool. I think debt is dangerous and is widely abused. I think that people use debt to stretch their paychecks and end up struggling to pay minimum payments as they grow. I actually encourage student loan debt for those who have no other option. If you can’t afford to cash flow school and are dedicated to finishing within a marketable course of study, than go for it! Just make sure you choose a field that will give you a return on your investment. The only way you can improve your circumstances, is by improving yourself. In order to earn more, you must become more – Jim Rohn.
Money Myth #5. A college education is essential to making big money. Don’t be fooled, I know several graduates who make far less than they thought when they went off to college. I also know that college isn’t essential to making big money. I earned my first 60+ salary 7 years ago without a degree and my wife also was a member of that club. Since then, we both returned to academia and we will graduate together in 6 months!
Money Myth #6. Use target-age retirement accounts to fund your retirement. Although I agree that these funds help simplify investing for those who aren’t knowledgeable, it creates a blind box for the investor. Now more people are throwing darts at boards just because they were pitched a cookie cutter retirement plan. The biggest problem with these funds are that they are actively managed. This results in higher fees and turnover. I always recommend no load, low fee, low turnover index funds.
Money Myth #7. You should begin investing after you gain wealth. Some people believe investing is something to be left for the crew on Shark Tank or investors on Wall St. Investing isn’t something set aside for the wealthy, it is a key contributor to become wealthy. If you want to become wealthy you need to invest.
Money Myth #8. Pause your investing when the market is down. When the market is down (your mutual fund is losing money) stocks are worth less money. This is the worst time to stop buying! In fact you should invest more when the market is down. When the market is down, stocks are on sale.
Money Myth #9. Investing in the stock market is extremely risky. Yes it is true that the stock market bares risk. However in the long-term, that risk is greatly minimized. You have to view the realities of investing. There will be changes in the market that resemble the seasons. Your investments will have periods of spring, summer, fall, and winter. The key is not to react to winter when spring is coming around the corner. The S&P index has a historic annual average rate of return of 10%. That doesn’t guarantee a 10% return, but the longer you leave your money (5+ years) the safer the bet is.
Money Myth #10. The “Stock Market” and “Investing” is day trading and stock picking. Many people hear stock market or investing and think about day trading and stock picking. I don’t believe in owning single company stock (not even for my employer). I also don’t believe in day trading or trying to pick winners. This is simply a gambling and should be avoided at all costs.
The road to wealth is simple, slow, and not sexy at all. So if something seems complex, fast, and sexy… proceed with caution.