The financial industry is full of experts who offer advice about money and what’s right for your finances. Additionally, some of the influence about our money beliefs comes from our parents, teachers, and peers.
In order to build wealth and create a stable financial future, you have to understand that not all of these beliefs are correct. Here are 5 money myths that if followed, prevent us from building wealth.
- A bank or lender won’t approve you for more than you can afford.
This is a money myth I learned the hard way when I purchased my first home at 23 years old. I mistakenly thought my budget for a mortgage payment was whatever amount the bank approved me for. Little did I know that just because the bank approved me for $200,000 didn’t mean I could afford those payments.
I’m pretty sure it was this mindset that brought about the 2008 financial and mortgage crisis. Many of us were duped into believing that banks and lenders had our best interest at heart, and wouldn’t approve us for more money than we could afford to pay back. Boy, were we wrong!
- Saving money is the fastest way to get rich.
Being frugal and trying to save money is always a smart choice, but no one ever saved their way to being wealthy. It’s all about leveraging your income, focusing your energy on living within your means, and making more money.
The secret to many millionaires is not how much money they save but how much they get their money to earn for them, or earn from other ventures. Put your money to work for you, instead of the other way around!
- A home is a better investment than renting.
While this myth may true on a some level, it’s not a one-size-fits-all choice. Buying a home can be disastrous if you’re not ready to handle the additional costs of being a homeowner. If you’re a young adult, or have a new career, renting may be a better option for your financial goals.
It’s all too easy to become house poor when you have extra expenses like insurance, utilities, repairs, and on-going maintenance. Until you’re ready to purchase a home and set down roots, renting is likely a much better choice than buying.
- You need money to make money.
While this is partially a true myth (as discussed in #2), the threshold to starting a business or creating a new career for yourself, is much lower than it used to be. For about $100 you can start a plethora of businesses and become your own boss.
Additionally, building wealth is about hard work, discipline, and being willing to apply yourself to make things happen. With a little bit of hustle and a whole lot of heart, you can essentially create an income out of nothing but an investment of time.
- Debt is bad and should be eliminated at all costs.
After personally paying off $14,000 of consumer debt in just over a year, I’m a firm believer in not using debt to fund my lifestyle. However, the mindset that all debt is bad and should be avoided is a mistaken belief.
It really just comes down to what you plan to use the debt for, as it could help you get a good education, purchase the home of your dreams, or start a business. Debt from consumerism and an inflated lifestyle can get you in a lot of trouble, but if you’re using debt as an investment into your future, it can be a good thing.
Which money myth have you believed in the past? What have you learned since finding out the truth from these myths?