Growing up, you hear about ways to manage money. The problem is that much of this knowledge comes from people that don’t really know very much about money at all. Think about it, are any of the people whose advice you followed around finances in good financial shape? Are they even good with money? I can’t say that I got direct advice from any millionaires. Nonetheless, as I’ve attempted to learn more about money and how to fix the terrible financial straights we were in, I’ve come to realize that much of what I knew about finance was in the form of old wives tales, traditions and other theories that could have been but were not even tested with a calculator! Although old Aunt Mary was right about many things, if her numbers don’t line up or make sense, we’ve got to go the other way!
There are many untruths adopted and disseminated by the broke, financial mainstream but these are the 7 financial lies I had to unlearn.
#1 You Need a Good Credit Score to Have a Decent Lifestyle
You know why you need a good credit score? So you can get more credit and pay more interest over your lifetime. It’s exactly what the banks and credit card companies want from you! If you are after financial freedom, the easiest way to make sure you’ll never get there is to spend your hard earned money on interest instead of saving and investing it. If you want to stay a slave, keep chasing down that awesome credit score.
#2 You Need a Credit Card for Emergencies
Did you know that cash works for emergencies as well? Yes, I know it’s hard to save up, but it can be done. Examine your budget and see where you can make some adjustments to get that emergency fund in place. Experts recommend a starter emergency fund of $1,000-$2,000 and then 3-6 months of expenses after you’ve paid off all your debt. If you choose to use a credit card you expose yourself to risk that could keep you in the pay-check to pay-check cycle forever more.
#3 You Need to Borrow Money for a House, Car or Any Other Big Ticket Items
I wrote a post analyzing this very thing. About the same amount of money you would pay per month for a 30 year mortgage could be saved over 10 years to buy the same house! What’s the difference? About $150,000 EXTRA in interest payments! Are we insane or what? Every time you think about making a large purchase, use the trusty old time value of money calculator and compare it with the interest you will pay and extended timeline on repayment using an amortization (credit payment) calculator.
#4 Your Home is a Good Investment
Mr. Money Mustache has a fabulous post about the low cost of renting compared to home ownership. Though his example is for the Toronto area, this is still applicable for many would be home buyers. The catch here is how you buy: cash versus borrowing. If you borrow for your home over a 30 year time period, the taxes, maintenance and interest work against you and make your home a terrible investment. You beat the numbers the sooner you pay for your home, however, due to avoiding additional costs associated with interest and PMI.
#5 You Need a College Education to Make a Lot of Money
I say this so much, I must sound like a broken record. We live in the era of the internet! It’s the New World Economy 2.0! I thank God for highly specialized education and careers. For the rest of us, a college education may not be imperative to live a comfortable lifestyle. We live in the time of YouTube University where you can learn many skills for little to no money, build a platform and scale like crazy. Success these days is not always proportionate to the amount of education you have. In fact, there are some studies that show C students and college drop-outs make up a large proportion of success stories and business owners. The college experience has been thrown into a generation’s success psyche (at a very high price) without regard to if it’s for everyone or totally necessary.
#6 You Have to Retire at the Age of 67 +
Wrong! The only reason retirement takes so long is because of people’s poor saving’s rates along with the tendency to be super consumers. If you settled down and save 50% or more of what you make the first 10-15 years of your working career, you can retire. I’m not lying….see the numbers crunched here yourself. With this revelation, we are already on the early retirement bandwagon! You can be, too 🙂
#7 You Should Save at Least 10% of Your Income
This is not exactly a lie, but I think it is probably one of the most common personal finance “standards” that could use some fine tuning. If you want to work forever, then 10% might be ok. With statistics showing that 76% of Americans live pay check to pay check, you might want to save a little more. Our goal is to save around 70%-80%, but of course that will require that we increase income as well. We’ve been inching up the saving to spending ratio ladder ourselves and still have a ways to go. From here, it seems impossible to save so much, but as the old adage goes, “Where there is a will, there is a way!”
Are you ready to ditch the terrible mainstream advice and REALLY start manage money right? I dumped over $120k in debt and would love to help you do the same. Check out this free 5 email course on getting out of debt.
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Ummmm….YES! I love these! We’re working hard to get PMI off our mortgage (hopefully that will be by the end of this year) but it’s not that easy. Total lesson learned – cash talks, credit is fake and costs you more in the end.
Yes! So proud of you killing it!
I agree with all of this! Very well stated. I am just beginning my job hunt after graduating with college debt. My mom is already anxious to know what kind of car I will get when once I get a job. There is no way I will walk into that trap. No more avenues of debt. I plan on saving for early retirement instead. Thank you for the post!
Good for you Rebecca! You are starting out the right way!