Some financial advice has been repeated so often that it’s accepted as truth. But what if it’s wrong, and that advice costs you money? How can you tell fact from fiction? Here, we’re outlining five financial myths that may make sense at first glance but deserve a harder look.
1. It’s irresponsible to use credit cards
Discussing credit cards requires nuance. It’s irresponsible to say that cards should never be used and careless to encourage people to rack up more debt than they can handle. Unless you have compulsive spending habits and cannot have a credit card in your wallet without going on a shopping spree, there’s no reason to pretend credit cards don’t exist. There are at least two solid reasons for this, both of which impact your financial situation.
Credit card rewards
Credit cards can earn you great rewards. The trick is to use them judiciously. For example, my husband and I put most of our monthly expenses on one of two credit cards just for the reward points. Paying the cards off in full before the billing cycle ends means we pay no interest. Points on one of our cards recently covered airfare to Puerto Rico, and we’re saving the points on the other card for a bigger trip next year.
Boosting your credit score
Financial personality Dave Ramsey tells his followers they should stop using credit cards and allow their credit scores to go extinct. There are many problems with this advice, but here I’ll point out two:
- Using credit cards responsibly is one way to boost your credit score, and a credit score is the primary way lenders, landlords, and employers can tell how well you’ve managed credit in the past.
- Allowing your credit score to go extinct only makes sense if you’re positive about the future. For example, are you sure that you’ll never have an emergency too expensive to pay for in cash, be single and need credit, and will always have a job? None of us knows the future, which makes maintaining a healthy credit score a more reasonable option.
2. You’ve only made it in America after you’ve purchased a home
As of 2022, roughly 66% of Americans were homeowners. Sounds great, right? The issue is, we don’t know how many of those homeowners would have been better off never buying. A report by Hippo found that 78% of people who managed to buy a home in 2022 had regrets. Nearly half said that homeownership was more expensive than they anticipated.
Julien Saunders, along with his wife Kiersten, is host of the investing podcast rich & REGULAR. They’re also the authors of the well-reviewed book Cashing Out: Win the Wealth Game by Walking Away. Regarding the myth that an American hasn’t “made it” until they’ve purchased a home, Saunders said, “Whenever this subject is brought up in a group setting we ask people three questions. First, how many people have heard that buying a home is the best investment you’ll ever make in your life? And everyone’s hands go up in the air. Secondly we ask, how many of you know a lot of people who are homeowners? Typically a few hands go down but several remain raised. Lastly we ask, how many people know just as many homeowners as they do rich people? And almost all of the hands go down. It tends to stop people in their tracks and force them to reconsider whether the belief is valid and what other outdated beliefs they may be holding onto.”
If there are other things you’d rather do, like travel the world, start a business, or invest the money you would have spent maintaining a home, there’s no rule saying that you have to buy. Before you visit a mortgage lender, be 100% honest with yourself about what you want from life. The American Dream is about achieving your goals, not someone else’s.
3. Investing is for other people
There’s no doubt that investing comes with a learning curve. But then, so do driving, ice skating, and romantic relationships. In other words, you don’t go into anything new in life with all the answers tucked away in your brain.
Julien Saunders says that they typically hear “investing is for other people” from those who are deeply insecure about their chosen field of study. “They are often holding onto the belief that being good at investing means you studied finance, were naturally or culturally inclined to be good at math, and as a result — are good at investing. In these moments, we try to reframe investing as a subject and series of habits that can be learned like anything else.”
One of the easiest ways to get started is by contributing to an employer-sponsored 401(k), a Solo 401(k) (if you’re self-employed), or an IRA. With each of these, your money is pooled with that of other investors, and the investments made are balanced enough to provide protection. And because professional money managers are handling them, you can follow along to learn what they’re doing.
