Even if you’re a self-directed investor and a smart saver over the long term, chances are you believe what you’ve read and heard on personal finance management and investing.
You’re careful, you maintain good credit, a steady job, a family – you’re the perfect candidate for good credit at the best rates, or so you’d think.
Fact is, there are several long-held, “iron-clad” myths about personal finances that simply aren’t true and, in fact, may have a negative impact on future wealth building.
Whether you’re a long-time household money manager, or you’re just learning about money management basics, don’t believe everything “experts” tell you. There are a lot of old-time sayings in the investment world that just “ain’t so.”
To save for the future, you have to earn more. On the surface, it makes sense, until you start tracking household income and outgo. You can develop a bigger nest egg by earning more or by spending less.
Develop a budget using your check register and bank statements for the past year. Work with the real numbers, not hopeful estimates. Find ways to cut living expenses:
- Create a written budget and live by it.
- Start couponing.
- Do it yourself and save – paint it yourself, clean it yourself or repair it yourself and pocket the savings.
- Automate savings with monthly electronic funds transfers so you don’t even have to think about it.
- Get rid of a car if possible. Families with teen drivers sometimes have three or four cars to insure and maintain; selling one of these money drains can be a big help.
- Keep an emergency credit card, but if you can’t pay cash, wait until you can.
You can save your way to wealth, disproving the old chestnut that to save, you have to earn more. WRONG! You can also spend less and save for a brighter future.*
Two incomes are better than one. This one’s been around since FORTRAN and punch cards. Sure, two incomes bring in more each month, but you spend more, too. Child care costs, the costs of a second car, work clothes, higher taxes – you add it up and you might be surprised to learn that a second income isn’t improving your ability to save for retirement.
It pays to do the math. Add costs associated with a second income against the income to determine your net gain. Two incomes help, but perhaps not as much as you think. More household income may not mean wealth creation.
You need a four-year college degree to earn the big salary. It used to be true, but career colleges cost less, you start earning faster, you’re certified, accredited or licensed, and the job market is strong for skills like computer networking, CAD or an electrician’s license. This old saying doesn’t apply in a highly-technical world in which high-tech skills are in demand.
It’s better to own a home than rent. Not so fast. Property values go up and they go down, as we’ve all seen in recent years. When you rent, you don’t pay interest on a mortgage, you don’t worry about maintenance costs, no homeowners insurance (though renters insurance is a good idea). There are lots of reasons to rent instead of buying, especially if you plan to move down the road.
Being stuck with a home you can’t sell ties you down and may limit opportunities in a fast-paced economy. Consider renting to enjoy more personal freedom. Buy if you’re in for the long haul, but rent if the future isn’t set in stone.
Finally, there’ the myth that money can buy happiness. Just look at the tabloids. Many movie stars, athletes, and other famous people aren’t any happier than the rest of us, though they have a lot more money. It’s a clear statement that more money will probably not bring joy to your life.
There are other personal financial myths that have outlived their usefulness. Today, both employees and entrepreneurs have more options and more opportunities to design a financial program that works today, tomorrow and well into retirement.
*For more information on how to save money, download our free e-book: “Saving Money: Our Two Cents” at www.nsbank.com/ebook/index.jsp.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.
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