When it comes to money — especially your money — everybody has an opinion. They can tell you how to spend it, why you should invest here or there and tell you what you “have to do right now”.
Yes, there are myriad beliefs and sayings out there that are simply not true. Some of those myths are legend. Others are just plain fiction. Here are five myths that may help you understand your finances a bit better.
Credit cards are okay as long as you pay them off. Don’t tell Dave I said it, but there is some truth to this. A smidgen of truth, but still a sliver. The problem with this is that over 60% of Americans do not pay off their cards each month. And you are likely to come into a season when you have emergencies, odd circumstances or other downturns (e.g. pandemic, hurricane, death in the family) that cause you to use those cards and not be able to pay them off. No, while you can hang on to that iota of truth that credit cards are okay, you’re best to develop strong habits and learn to live without ’em.
If I had a million dollars, I’d be set. Maybe for a short season, but eventually, you’d be back in the same boat you’re in. It’s not about how much you earn. It’s all about how you manage your money. You and I have both often heard people say: “If only I had a million dollars, I would….”
No, you wouldn’t. Oh, you may pay off a few bills, buy a new car, take a vacation or give someone a few dollars. But soon, you’d be right back in the same boat because of bad habits and spending patterns. It’s happened countless times; just look at lottery winners and professional athletes. But you don’t need $1 million to start. You can have an 800 credit score whether you earn $2,000 a month or $20,000 a month. Believe me, it’s all in your head!
My credit score is important. I have to keep it up. Baloney. Your credit score is designed to keep you enslaved to the system. That said, if you practice good financial habits, your score should remain “good” or “excellent”. Do you know how your credit score is calculated? Here’s what FICO says:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
Pay your bills, keep your debt low, start using cash as much as possible, and you’ll be fine. Live by your rules, not the system’s rules.
Money is a private thing. I shouldn’t talk to others about my finances. Big mistake. Everyone needs an accountability partner. Unfortunately, many spouses never talk about their bills, paying those bills, retirement, kids’ college or the day-to-day flow of their money. That’s why most people today (nearly 80%) live paycheck to paycheck. If you’re single, don’t think you get off the hook here. Everyone needs accountability, someone with whom they can run ideas past and compare notes.
If you don’t have an accountability partner for your finances, what’s holding you back from finding one? They may hold your feet to the fire, but they could also help keep you out of the burning house too.
I don’t earn enough money to invest. No, it’s not about how much you invest. It’s more about when you start investing. Because of compound interest, the longer you invest, the more likely you’ll be happy when you turn 65.
|Length of Term||20 Years||40 Years|
|Est Interest Rate||7%||7%|
|Int Rate Variance Range||2%||2%|
|Total at 65||102.258.87||$137.755.53|
Look at Billy and Susan in the chart to the right. It looks like Billy is investing more, but Susan is actually the tortoise in this story. Start where you are with what you have. If all you have is an extra $10 to throw at retirement, do it. It all adds up, but where you gain the most is when the interest earned begins to earn more interest. The snowball will gain steamrolling downhill, but you have to push it off first.
Take note of a couple of things: How much did Billy and Susan put into their nest eggs each month? How long a period did each one invest? Everything else is identical, except, of course, the ending balance when they retire.
So, can you find $50 every month to invest for your retirement? $100? $200?