The Finance Myths You Still Believe (Debunked)

If you believe paying off your mortgage early is always smart or that credit cards are evil, you're probably losing money. These common beliefs, they can quietly drain your wallet. I'm going to explain why.

Welcome to We're Talking Money. I'm Phil Clark. We cut through the financial noise to help you keep more of your hard-earned cash. Let's dive in if you're ready to rethink what you thought you knew about money.

This first myth is paying off your mortgage early. Some people say that's always smart. It sounds reasonable, right? Do it early and live debt-free. And I don't think it's a bad thing, but here's the catch: doing this could cost you thousands in opportunity.

If your mortgage interest rate is, say, 3%, if you were one of the fortunate ones to get that mortgage rate during the COVID crisis, you have a historically low rate. But the stock market, speaking of historically, typically returns around 8%. Every extra dollar that you throw at your mortgage instead of investing it, that's money that's not working as hard as it could. Now, if your mortgage expense is much greater than that, say if you're in the 8% range, that's a different conversation.

Plus, there are tax implications. Mortgage interest, if you're an itemizer, it can sometimes save you a lot of tax, and because of that tax deduction, it lowers your taxable income. And let's not forget liquidity. When you tie up all of your cash in a house or a non-income producing asset, it means you have less flexibility in the case of emergencies and less to invest.

And one more thing to consider is your employer retirement plan. You're trying to pay off your mortgage and you're subsequently choosing to forego saving into your 401k plan, you could be leaving a lot of money on the table. Did you know that some employers, maybe yours, match dollar for dollar, say 5%, 6% or even 7%? I've seen some employers go as much as 10% dollar for dollar. Let's say you're putting in five and they put in five, that's 100% return on your money.

Myth number two: credit cards are bad for your finances. People like Dave Ramsey, Suze Orman. The borrower is slave to the lender, that's what this math says. Debt is bondage. You will never have financial freedom if you have debt. They say that credit cards are evil. Misusing them perhaps is, but when they're used wisely, credit cards can offer rewards, cash back, travel perks, fraud protection, and they can help you build a credit score. The old credit score, yes, I said it. That credit score determines how much you pay for loans, insurance. It can even affect your ability to rent an apartment.

So just imagine two people. One avoids credit cards entirely. The other uses them responsibly; they pay off the balances monthly. Who comes out ahead? Well, I can tell you the person building credit, earning rewards and managing cash flow without paying interest, that's the winner. The tool isn't the problem. I paid off my credit card every month on time, which means I paid no interest cost, but I got the perks. It gave me almost $33,000 back. So don't underestimate the power of credit cards when used effectively and wisely.

Myth number three: renting is throwing away money. Owning a home, it's often called the American Dream, but is renting really throwing money away? It doesn't have to be. In fact, when you rent, you buy flexibility, freedom from maintenance cost, and sometimes it even adds to your financial security. Home ownership, it comes with property taxes, repairs, insurance and interest payments, and sometimes those things can outweigh the benefits.

Now, don't get me wrong, I own a home and I prefer home ownership. Depends on your stage of life. However, everyone's situation is different. Just because your friend is buying a house doesn't make it the right move for you, and just because your friend is renting doesn't mean you should ignore an opportunity to purchase a home. You have to do what's best for you, and to do that, it generally requires good planning.

Think about someone who relocates every few years for work. Renting can be far more cost effective than buying and selling homes repeatedly. If you're only going to be there for a short period, chances are making a profit on that home, that's probably not going to happen. Plus, the money you save can be invested elsewhere, often yielding far better and more predictable returns.

So we're almost to the end, but I want to give you a bonus myth, and that is that you need to be making six digits or more to build wealth. Wealth isn't just about how much you make, it's about how much you keep and how you grow it. Consistency in saving, smart investing and avoiding lifestyle inflation. Compound interest, it doesn't care if you make $40,000 a year or $400,000. It simply rewards discipline over time. I've seen people with modest incomes retire quite comfortably because they started early and they stayed consistent.

Early in my career, I worked with a couple who learned to live on the husband's salary. He was a lifetime firefighter. The wife was a medical professional who earned significantly more money. They saved the majority of her income, and you can imagine, as a firefighter, he didn't make a huge salary, but they learned to live on it. When both retired, they had millions of dollars. It's all about their discipline and their consistency, and of course compound interest.

So which of these myths surprised you the most, or is there one you still believe? Let me know in the comments. I'd love to have a good debate with you, love to hear what you're doing, what you think about these myths. And if this video saved you from a costly mistake, hit that like button and subscribe for more financial truths, the kind they don't teach in school. I'll see you next time on We're Talking Money.