DON'T Fall for These Financial Myths!

Now, these financial myths circumvent you from achieving true wealth. Investing is not exclusive to the wealthy. Waiting until you have a sizable amount is just plain wrong. Compounding is your best friend when it comes to building wealth.

Maybe home ownership is a byproduct of the American dream. Don't buy prematurely because spending all that money on home ownership before it's your time means that none of those dollars are being invested. Income doesn't equal wealth. A third of Americans who make over $100,000 per year are living paycheck to paycheck. Living below your means is a tried and true way to achieving wealth.

So, you think you know everything about money? I want to share six money myths that are probably holding you back from building true wealth.

Welcome back to another edition of We're Talking Money. I'm your host Phil Clark, and today I want to talk about some common misconceptions that may be preventing you from making good financial decisions.

Now, these financial myths, they are numerous and they've been around for ages. For example, money cannot buy you happiness. Well, it's true. But, it's also incomplete. I think it would be better said, money cannot buy you happiness, but neither can being broke. In other words, you need money to buy things that bring you joy or pleasure. But, rather than debate this age-old myth, let's dig into the ones that really matter. The ones that circumvent you from achieving true wealth.

Myth number one, it's not worth saving if I can only save a small amount. That's nonsense. Investing is not exclusive to the wealthy. The fact is, any amount is the perfect amount, and the earlier you start, the better. If you start early, around age 25, and save 15% of your paycheck, including the employer match on your 401k plan, if you have one, that amount can lead to a pot of money that will allow you to live a life in retirement that's very similar to the lifestyle that you learned to live while earning your paycheck.

If you're over age 25, don't be discouraged. Just get started. The sooner the better, and make sure that you gradually increase those savings every year. That's going to make a huge difference in your overall balance, and it's going to add to your wealth accumulation.

Myth number two, I'm young, so I can delay saving for retirement. Of course, retirement when you're young can feel miles away, but the earlier you start saving, the better. And that's because of something called compounding. Compounding is your best friend when it comes to building wealth.

Compounding happens when you earn dividends or interest on your investments, and those earnings are reinvested. Now that your investment is slightly higher, it can earn more. And that effect multiplies. Hence, the compounding effect can help you grow wealth. Don't forget, time is the secret ingredient. The younger you are, the better. The older you are, the more you might have to save to make up for those lost years.

Let's look at an example so you can get a better idea of what I mean. So, we take Marley here, age 35. He contributes $7,000 per year for 30 years. At age 65, he's projected to have approximately $707,000. Then, we have Beatrix. She waits until 45 to start saving, and she contributes $15,000 per year for 20 years. When she reaches age 65, notice she has $657,000. Though Marley saved less than Beatrix, he still coasted into retirement with more money.

Myth number three, buying a home is the American dream. Buying a home is not the American dream. The American dream is the ideal that every citizen of the United States should have an equal opportunity to achieve success and prosperity through hard work, determination, and initiative. Maybe home ownership then is a byproduct of the American dream.

Not everyone needs to own a home, at least not right now. There are lots of costs that go along with home ownership from down payments to insurance, taxes, repairs. The fact is, renting is a viable alternative. Make sure that you run the numbers. Do the math.

Don't buy prematurely because spending all that money on home ownership before it's your time means that none of those dollars are being invested, and they certainly are not getting the effects of the compounding that we just talked about. And remember, should you buy that home, if you don't plan to stay there for 7 to say 10 years, chances are, when you sell it, you will have spent more than you will receive.

Myth number four, all debt is bad debt. This myth is long in the tooth and a misconception that I believe ignores leveraging opportunities. I know that all of you Dave Ramsey fans out there are probably ready to turn me off at this point. "If you don't go get control of your life again by getting out of debt and using your income to build wealth, it's your fault starting today." But hang on, hear me out.

I understand that leverage or debt carries risk, but I also know that it creates opportunity and it can accelerate growth when used responsibly. If an opportunity has a reasonable probability of success and it can provide good cash flow, that is leverage that I can get behind. I think that's logical. We might just call that good debt.

Now, with that being said, I'll go back to what Dave Ramsey talks about and that is consumer debt like credit card debt, revolving debt, that is bad debt and you want to stay away from that to the extent that you can. Consumer debt is an epidemic and it seems to be growing out of control. We've seen it reach record levels. If you're going to use debt, it's for an appreciating asset, not a depreciating asset.

Moving on to myth number five, making a lot of money equals wealth. Income doesn't equal wealth. It certainly makes it easier, but studies tell us that a third of Americans who make over a hundred thousand dollars per year are living paycheck to paycheck. These people enjoy possessions and they lack discipline. After all, if you can afford the payment, why not?

We have a name for this. We call it lifestyle creep. The more you make, the more you want, and it's easy to get in that rut of deciding it's okay to buy it as long as you can afford the payment. The problem with lifestyle creep is it can easily derail your chances of achieving financial success.

Making a large salary or not, the key to building wealth is discipline. Many high earners have entered retirement without enough money to sustain the lifestyle they had during their active earning years. Be aware of lifestyle creep. Don't let it derail your chances for financial success, and stay disciplined.

And finally, we reach myth number six. People with all the fancy stuff have all the money. They're probably living under a mountain of debt, and all of that stuff is depreciating. That's working against the idea of becoming wealthy. Do me a favor. Never, never, never compare yourself to others based on material possessions. Set your goals and stay focused. Living below your means is a tried-and-true way to achieving wealth.

Learning the basics of finance is really not that complicated. And that literacy and critical thinking can help you live a more comfortable life, one without worry and without ever being broke.

Now, I hope this episode has inspired you to move past all of these myths and get focused on building your wealth. Discipline and consistency is all it takes.

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