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13 money myths that could derail your finances

13 money myths that could derail your finances
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Unless you live, well, under a tree, you’ve probably heard the phrase, “money doesn’t grow on trees.”

And while the phrase is meant to inspire, financial experts say expressions like this — even when intended to be encouraging — can actually have a negative impact on how people view money.

‘Money comes from a cotton bush, actually,’ Grant Cardone, business consultant and author of ‘The 10X Rule,’ told Bankrate. ‘But seriously, the concept that money is scarce is just not true. There is just a shortage of people going for money with courage and the right attitude.’

How money myths lead to misinformation and misguided decisions

So many people are working hard to make the right decisions about their finances, and while they may believe they’re on the right track, that’s often not the case due to misinformation and common money myths they are led to believe.

In fact, a variety of things can cause someone to believe they’re more financially savvy than they really are — and that over-confidence can end up leading them down the wrong path.

This reality is often described like this: people don’t know what they just don’t know. And making decisions based on misconceptions can be pretty dangerous for your wallet.

So in order to form the right attitude about personal finance — and become more confident in the power of your own wealth — it’s important to first understand the truth behind some common money myths.

13 money myths debunked

1. Your money is safest in the bank

Well, it depends on how you look at it. Technically, yes, your money is safer in a savings account than it is in a shoebox under your bed.

But the idea that a bank — specifically a savings account — is the safest place for your money comes from older generations who were able to put money in a savings account and get a great return on it. However, now that interest rates on savings accounts are as low as .01%, that is no longer the case.

‘Your parents would earn more in one month than you could earn the entire year (in interest),’ Cardone says.

This doesn’t mean you shouldn’t have money in a savings account — you definitely should — and it should be at least enough to cover three to six months worth of expenses in case of an emergency (like a job loss or some other reason you couldn’t work for a period of time). But once you’ve built up that emergency fund, you’re better off investing extra money and allowing it to grow, rather than just leaving it in a savings account to sit there.

If you aren’t contributing to your 401(k) at work, that’s a great place to start. The money comes out of your paycheck and into retirement savings before you even see it (or spend it). Plus, if your employer offers a match, that’s free money toward your retirement!

Here’s how to get started investing.

And just to note, if you’re planning to make a big purchase in the next couple of years — like a house or a car — you’re better off keeping extra savings in a savings account (not money you’re contributing toward retirement savings, but extra money you’re saving for that big purchase). You want that money to be easily accessible. Investing is the best way to grow money that you won’t likely need for at least five years.

2. A penny saved is a penny earned

The truth is budgeting and saving can only get you so far. But first, let’s take a step back.

When you’re just starting to get a handle on your finances, budgeting and saving are crucial. This is how you train yourself to spend less on things you really don’t need to be spending on — and you can start to develop consistent financial habits. Plus, as you save more money, you begin to understand the true power of financial freedom — a sense of security that only financial stability can provide.

Read more: 16 ways to save more money this year

Then once you develop consistent financial habits, it’s time to start earning more money — because eventually, there will come a point when you just can’t cut any more expenses.

​‘People need to stop always looking at the expenses portion of their budget… It is usually the shortage of income that gets people into trouble,’ Cardone says. ‘The solution is not to cut back on the lattes you drink, but to get a higher-paying job. Or, the harsh reality may be a second job or putting your teenage or young adult children to work to get more money into the household’s coffers.’

The good news is there are several different ways to about earning more money. Here are just a few:

Read more: How to invest your first $1,000 to $5,000 wisely

3. If you don’t have a will, your spouse will get your assets

People automatically assume that all assets would go to their spouse upon death. But it doesn’t play that way. The reality is that the law varies by state. When you die without a will, the state decides who gets what. 

While thinking about life after our own death isn’t pleasant, it’s important to plan for it if you want to decide for yourself where your assets will go when that day comes.

If you have a complicated financial life — maybe you own your own business and have built up a lot of assets or maybe you have a blended family — in more complex situations like these, you need to go see a lawyer who specializes in wills, estates, and trusts.

If you have a simple situation, check out the WillMaker software that you can get for around $50 through They do a great job of asking interactive questions to guide you through the will completion process. If you don’t like WillMaker, would be another way to get it done on the cheap.

If you get confused while doing your will with an online service, stop and see a lawyer! But if you want to just push through for peace of mind, it is much cheaper to have a lawyer review the will you’ve self-prepared than to actually prepare one for you from scratch.

Read more: 5 questions to ask as you prepare for the inevitable

4. A will guarantees how your money will be distributed

Not necessarily. And this is why for more complicated situations — like for people with several financial accounts, big assets etc. — it’s important to talk to a lawyer who specializes in wills and estates.

Here’s why: beneficiaries named on your financial accounts will actually override beneficiaries named in your will. So if person 1 is listed on your will and person 2 is listed on your IRA or other financial account, person 2 will get to claim that account (and the funds in it).

5. You should eliminate all debt as quickly as possible — especially by retirement

It depends on what kind of debt it is.

Of course it would be better to have no mortgage — and no debt at all — but life isn’t always perfect.

When it comes to high-interest credit card debt, you always want to pay that down as quickly as possible, in order to avoid paying extra in interest or getting into a situation in which you can’t pay it off, which could then damage your credit score.

On the other hand, a mortgage is a different situation. Again, ideally you want it paid off, but if you’re still trying to save for your future, then that is more important.

So if you’re setting priorities and have a low interest rate, that mortgage being paid off is not the highest priority. Unless you’ve saved like a maniac and have massive amounts of cash for your retirement years.

Read more: When you shouldn’t pay off your mortgage

The same thing goes for student loans, which also don’t necessarily need to be paid off as soon as possible. You want to make sure you’re saving enough money for retirement throughout your working years, which means you don’t want to throw extra money at these debts at the expense of your retirement savings. These loans typically have lower interest rates and may be tax deductible.

6. Cash is king

Limiting yourself to only paying with cash or a debit card can actually keep you from reaching your bigger financial goals.

The concept is based on the idea that if you’re paying with cash, you can’t spend more than you have. And that’s an important habit to establish as you start to build your personal wealth. But as you set bigger goals, like a buying a house, there’s more to this story.

So let’s use that example, say you want to buy a home in a few years. You’ll need to build up your credit in order to qualify for a mortgage. One way to do this is by using credit cards — in a responsible way. You only use credit cards to pay for things you know you’ll be able to pay off at the end of the month (so you’re still really only spending what you have). Paying credit cards bill on time and in full at the end of each month will help you build credit and increase your credit score, which allow you to get better rates on things like a car loan or home loan.

Another side of this story is that there are certain risks involved with using debit cards. If someone steals your card number and empties your account, you only have a day or two to report the fraud — and the reality is you likely won’t get all of your money back, if any. But with credit cards, you are guaranteed more protections when it comes to theft and fraud.

The key is to stay disciplined. You have to use credit cards the right way in order to reap the benefits. And if you do, your finances will be better off moving forward.

7. Carrying credit card debt will improve your credit score

While cash isn’t always king, neither is credit card debt. Yes, using credit cards that you pay off in full every month can help build your credit history and improve your credit score. But carrying credit card debt month-to-month is NOT good.

Credit bureaus don’t want to see a high debt-to-income ratio — meaning you’re carrying high balances on your credit cards. If you use a credit card, you want the balance to be $0 at the end of every month or pay cycle. You only want to use at max 30% of your available credit at any time. So if you have one credit card with a limit of $1,000, you only want to put as much as $300 on it at time, and then pay that off before the end of the month.

When determining your creditworthiness, credit bureaus and lenders don’t want to see maxed out credit cards or debts that carry over from month to month.

If you’re looking for a general rule of thumb: use credit cards to make small purchases that you can pay off at the end of each month.

8. Invest only in what you know

One big mistake many people make is investing too much money only in what they’re familiar with. And there are two big parts to this.

First, workers will often invest their 401(k) in their employer’s stock and that’s a bad idea. You don’t want to put all your eggs in one basket, and when you make this move that’s essentially what you’re doing — relying on your employer to pay your paycheck and build your retirement wealth. But what this does is ignore the fact that companies have a lifecycle just like people. For more on this, click here.

Similarly, people often think it’s a good idea to invest all their money in the industry they work in, especially if the industry is booming. Things are great and you know the industry inside and out, so what could go wrong? Well, a lot.

‘These clients end up with a portfolio with greater risk level than having a diversified portfolio of stocks and bonds from a variety of different sectors and countries,’ Brian Antenucci, an investment adviser, told Bankrate.

If you invest everything in one sector, you aren’t giving your money the chance to ride out any downturns in the industry. If you’re invested in several different industries, your investments will have a much better chance of benefiting from ups — and surviving any downs.

9. If you run out of money in retirement, you can just get another job

Many soon-to-be retirees often assume that if they need more money in retirement, they can just get a job. But unfortunately, it’s not as easy as it sounds.

First of all, as you plan for retirement, it can be easy to underestimate the type of lifestyle you’ll want to lead. And if you don’t plan accordingly, when it comes time to retire, you may realize that you don’t have enough money saved to maintain your desired lifestyle. Or you may run out of money much quicker than you planned.

And it’s a much safer bet to save more now than to just assume you’ll be able to get a job in retirement.

Many retirees plan to work part time in retirement, and if you know that’s the case ahead of time, you’re better off setting up that part-time job before your actual retirement date. If you just assume that since you’ve had a job most of your life, you’ll be able to get another one in the future, you might face a harsh reality at a time when your finances won’t be able to handle it.

As technology continues to change every day, and continues to change how various industries operate, it can be difficult for retirees to adapt, especially if they’ve been out of work for a longer period of time. So don’t just bank on the idea that you’ll be able to pick up work again if you run out of money.

10. All adults need life insurance

Life insurance is a way to guarantee that people who depend on you will be financially provided for if you were no longer around. But for people who have no spouse, children or business depending on them, life insurance is unnecessary.

Read more: 2 simple ways to shop for life insurance online

On the other hand, there’s one situation involving life insurance that’s often overlooked.

Stay-at-home spouses have a special need for life insurance. A 2015 survey from found that the ‘salary’ such parents earn by dealing with laundry, kids, cooking, etc. is more than $121,000! That’s more of an attention-grabbing number than anything else, because stay-at-home parents don’t actually ‘earn’ that, but it shows why having life insurance is so important.

Should a stay-at-home spouse pass away, the remaining parent would have to suddenly pay for childcare and everything else a stay-at-home parent does on a day-to-day basis. That’s why it’s essential the parent at home have a policy. 

Read more: How to shop for life insurance

11. You should take Social Security benefits at age 62

You can start receiving Social Security benefits when you turn 62, but that doesn’t mean you necessarily should.

Every year you wait to take Social Security after age 62, up until age 70, your benefits increase dramatically. So the longer you wait, the bigger your checks will be.

Read more: Online tool calculates when you should take Social Security

12. If you’re over a certain age without retirement savings, you’re out of luck

It’s a lot easier to build up savings throughout the course of your working years, because it gives you time to save more money and gives your money more time to grow. But unfortunately, financial setbacks and other things in life sometimes get in the way. And if that’s the case, it doesn’t mean you’re out of luck.

It’ll require more discipline and other lifestyle adjustments, including potentially taking on extra work, but there are ways to prepare for retirement later in life. The first thing you need to do is figure out how much money you’ll need to cover your expenses in retirement, as well as how much guaranteed income you’ll have — from Social Security, pensions and other retirement accounts.

That will determine how much you’ll need to save before you can comfortably retire.

Here’s more on how to start saving for retirement later in life.

13. You have to be rich to invest

You can start investing with just a couple hundred dollars. And these days, you can do it right from your smartphone.

Here are 5 brilliant and easy ways to invest $500.

Alex Thomas Sadler About the author:
Alex is the Managing Editor of and host of Common Cents, a series that makes money simple. By breaking down complicated concepts, Alex shows you how to better understand your money and make smarter decisions — so you can take control of your own life and future! Learn more here.
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