There’s a lot of confusion surrounding finances where there doesn’t need to be. After all, our parents drilled into our heads some pretty outdated money myths that you probably still believe. But the truth about money is that it’s not as daunting and scary as our parents made it sound. And you definitely don’t need to know how to become a millionaire by age 40 to start educating yourself about your finances.
“The financial services industry in general is very opaque,” Stefanie O’Connell, millennial money expert and author of The Broke and Beautiful Life, told Knew Money. “There’s a lot of language, there’s a lot of jargon, there’s a lot of charts and things that make it seem very daunting and confusing, but the reality is that the basics of money management is very simple. It’s spend less than you earn, pay off debt, save, and invest. And that’s just about it.”
Well why didn’t our parents just tell us that? Below, more myths about finances you should stop believing.
Now this is one you’ve probably heard plenty of times. Why throw all your money away paying off some landlord’s mortgage when you can be building your own equity and investing for the future? Ever since we were young, we were grilled with the same tired advice of homeownership and how it’s the end-all, be-all of the American dream. However, there was always a catch our parents conveniently forgot to tell us — buying a home is expensive.
Most people only think of the down payment and the monthly mortgage they’ll have to pay, but there are also closing costs, taxes, high utility bills, and more fees that make owning a home a huge expense. Depending on your financial situation and what city you live in, it can can actually be cheaper to just rent.
“It actually is highly dependent on your expected time horizon,” Roger Ma, founder and certified financial planner at lifelaidout, told Knew Money. “Many real estate agents and financial planners say that unless you plan to live in a home for five to seven years, it may actually make more sense to rent because of the high closing costs to buy and sell your home.”
Yes, we’ve heard all the horror stories of people charging up their credit cards and not being able to pay off their bills. In fact, credit cards are by far the easiest way to get into debt, which is probably why our parents were trying to warn us. Although credit card companies can sometimes veer into mustache-twirling-villain territory, a credit card itself is not innately evil — as long as you use it responsibly.
“You need a good credit score to qualify for an apartment,” O’Connell said. “So getting a credit card and learning how to use it responsibly, which is paying it off on time and in full, and never charging more than you can afford to pay off, is very important.”
Just hearing this phrase is probably taking you back to your childhood, isn’t it? It’s one of those age-old tips that everyone’s dad tells them after they blow their allowance on movie tickets and Chik-fil-a. Sure, it’s important to save money and not spend more than you earn, but there’s more to money management than just saving your coins.
“It’s certainly good to be deliberate with your spending, as that has a significant impact on how much income you need to make per year,” Ma said. “However, there is a limit on how much you can cut back on your expenses. Focusing on both increasing your income and keeping your expenses low could be a better approach toward financial security rather than simply focusing on minimizing expenses.”
In other words, although it’s smart to buy less Starbucks and ditch a few monthly expenses, you won’t become rich or accumulate long-term wealth that way. Instead, focus your energy on how you can earn more money, not drink less lattes.
Yes, earning a high income is important, but if we all listened to our parents we’d all be doctors and lawyers and working jobs we might not like for a paycheck. If your passion, whether it’s in the creative or service industry, isn’t a field that typically comes with a high income, start by changing the way you think about that type of work.
“I think it’s a myth that keeps people trapped in a cycle of financial struggle, and it doesn’t have to be that way,” O’Connell said. “If you break free of that mindset and think, ‘OK, well, what if I do what I love and serve others and do something creative and I can make a lot of money.’ Suddenly that shifts the framework and it forces us to consider, ‘OK, how can I do this but double or triple my income?’ It forces us to ask different kinds of questions and take different courses of action that buying into that myth doesn’t really enable us to think about.”
Ah, here’s another one our dads used to drill into our heads all the time. And yeah, there’s some truth to it. How many times have you purchased some cheap, flimsy item at the dollar store only to have to repurchase the same item the following year after it falls apart?
However, this all depends on the type of things you’re buying. Spending $100 on a jacket makes sense if you plan to wear it almost every day for a long period of time. But choosing to buy the more expensive coffee maker over a cheaper version when they both work the same isn’t that smart. Splurging on long-term items that matter and being economical about the ones that don’t is a far better money strategy.
Your parents are probably more worried about their own retirement than yours. And honestly, when you’re in your 20s, still fresh with all your student loan debt, being a 65-year-old retiree feels as far away as the next George R.R. Martin book. But thinking about your retirement now will ensure you actually have enough put away by the time you’re in your 60s. For example, if you started investing $100 a month in a money market account by age 25 instead of waiting until you were 35, you would double the money by the time you hit retirement age.
Although our parents didn’t intentionally mean to mislead us about these myths about finances, isn’t it about time we all start thinking for ourselves?
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