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Top 5 Money Myths Debunked

Top 5 money myths debunked – don’t let these cost you money!


Don’t be held back financially by believing these money myths! Let’s set the record straight.

Many people never reach their full “financial potential” because they believe in some widely-accepted money myths. Maybe it’s bad advice from a close friend, or you’ve pieced together your own story using bits of information.  Either way, it’s time to clarify some things out there! The goal of this post is to set the record straight and debunk some of the top money myths.

Based on my research, here’s what I found…

List of 5 money mistakes in point form

1)  You should avoid taking on debt

Those who can’t manage debt often blame “debt” itself as the issue. That’s just not true. For the majority of people, a wrong mindset in how to use debt is the problem.

Not all debt is created equally, and it’s important to understand the difference.  Good debt helps you earn more in the future.  For example, a student loan can help fund an education that places you in a higher-earning career.  Bad debt on the other hand only costs you money (such as a car that will usually depreciate). And it has no impact on any future earnings.

Debt has its uses, but you need to be careful of two things: (1) what you use it for; and (2) how much you take on.

Firstly, some of the wealthiest people carry the most debt. But unlike the average person, they use it to make money, rather than use it to spend on “things” that lose their value. It’s a very different mindset.

Secondly, it’s important to understand where your spending limit is. Even good debt becomes bad if you take on too much of it. Do your research, and be sure when you do borrow, you give yourself a healthy buffer to what you can afford.

Related post: How not to overspend and save money

2)  Credit cards are bad

Credit cards, when used correctly, are very beneficial. They offer convenience (tap & go payment or allow you to buy online), and some even offer rewards for using it.  By paying everyday expenses through my credit card, I build up enough travel rewards to fly once a year for free! 

Credit Cards only become a problem when people misuse them. Instead of using it as a simple, convenient way to pay, people use it as if it’s a long-term loan. It’s not. It’s meant for short-term purchases (and by short term I mean you pay it off before the bill comes due!)

Think about it – would it make sense to borrow at interest rates over 20%? That’s what most credit cards charge and many people carry a balance and only make minimum payments.

If you carry a balance, pay it off before you plan to save or invest! By doing it so, you’re essentially earning that type of return on another investment… and it’s tough to make a 20% return anywhere.

Ultimately, you need to know your personality and whether access to credit alone is a problem. If that’s the case, don’t paint credit cards with a bad brush – it just might not be right for you. Instead, deal with the spending issue head-on. Calculate where your spending limit is (helpful advice in this post), track how you spend your money, and build a budget to get back on track. I know budgets aren’t sexy, but I’ll show you here how a different perspective on budgeting might be helpful.

Related posts: 

3)  You need six months of cash in an emergency fund

Having a well-stocked emergency fund is always a good idea. It means you’ll rarely need to borrow in time of crisis and you’ll have less stress knowing you’re covered.

But let’s be honest, six months is a lot of cash sitting idle!  For the average working family that may mean setting aside over $20,000.  And this money won’t be earning much in a savings account!

Instead, I believe you need six months of liquid money (money you can access easily) for an emergency. And it should be split between cash and low-risk investments. Hear me out…

What’s the absolute worst-case scenario? Maybe the emergency is you lose your job… now you need enough money to get you through 3-6 months until you find work in your related field. But does that mean your six months of emergency fund savings all need to be in cash, ready to spend right away? Absolutely not.

Sure, you’ll have some bills that you need to pay in short order.  For those you should keep enough cash in your savings account to cover it – maybe 1 or 2 months to be safe. But generally, it won’t take longer than a week to get access to money that’s invested in the stock market. You should keep the rest of your emergency savings in low-risk money market funds or well-established dividend stocks and earn a higher return.

Why?  You might as well have a part of your emergency savings put to work! Sure, you don’t want to jeopardize that money by putting it into risky investments.  But if that money is never used, you can go 10-15 years missing out on a lot of healthy returns!

But be sure to keep your emergency fund separate from your other investments.  You want a clear line of sight that you have access to money in case of an emergency.

And lastly, be sure that you don’t invest your money into anything high risk – you need to ensure your money will still be there when you need it.

Related post: The gems of the stock market – dividend growth stocks

4)  I don’t have enough money to invest

This is one of the biggest myths I hear.

There’s a universal mindset out there that you need at least $10,000 before it becomes worthwhile to invest. Nothing could be further from the truth. 

With as little as $1,000 you can build an investment portfolio.  There are plenty of ways to start too!  A new investor could begin by buying bonds, low-cost mutual funds, and index funds through a stock brokerage.  All of these don’t have a minimum cost to start.

By sitting on the sidelines, you’re losing out on what Albert Einstein called the eighth wonder of the world: Compound Interest.  And the more time in the market you have, the more compound interest can do for you!

As I’ve shown in a previous post, it’s very costly to wait to invest. Whether it’s $1,000 or $10,000 get in the market as soon as possible!

Related posts:

5)  Renting is like throwing away money

This one’s hotly debated in the personal finance community.  I believe renters can be as financially successful as homeowners.

There are lots of costs tied to owning a house that could otherwise be invested if you were renting… Let me break it out for you…

Firstly, in a 25-year mortgage, the first 5-10 years of payments barely scratch the surface in paying down principal. This money can be considered “throw away money” that could otherwise be invested.

Secondly, homeowners also have to pay property taxes and cover the costs of major repairs (roof, windows, etc.). A homeowner sees no return on any of this money. 

Lastly, a homeowner has an “opportunity cost” tied to their down payment.  Rather than using that money for a down payment, it could have been used to earn money in the stock market or some other investment.

I’m in no way saying owning real estate is terrible – My wife and I own property and we have done well financially because of it but that doesn’t mean those who rent are making poor financial decisions.

Honestly, it’s a personal choice.  Some people prefer homeownership. They take pride in their house, and they enjoy the feeling tied to it. On the other hand, some people prefer the flexibility of not being tied down to any one place, and would instead invest their money elsewhere. A case can be made for both (as long as if you rent, you still invest!)

SWP Action Steps

Just because you hear something, doesn’t mean it’s always true.  When it comes to money, find a trusted resource, educate yourself and don’t be afraid to ask questions.  It’s better to get clarity than struggle with it on your own.

Now that we’ve debunked some of the top financial myths, I’d encourage you to share it with someone else.  Who do you think could benefit from one of these?  Help us educate others by sharing this with some of the links below!

Think it through

  • Who can you use as a sounding board for financial ideas? Would they have helped you resolve some of these myths?
  • Knowing what you know now, is there anything you’d do differently?
  • What steps can you do to help educate others on these myths?

Related posts:

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