I never believed in vampires, the mythical creatures that feast on human blood and don’t ever die. Yet financial myths, those vile creatures that feed upon the cash that is your economic lifeblood, are alive and well. Just when you think they’re dead, they’ll make another appearance in a financial forum or pop magazine piece.
Some of these money myths are perpetuated by organizations with an agenda, like the National Association of Realtors, big banks issuing credit cards and other organizations that want your money. Many of these myths are the type that, when repeated long enough, start to become cultural truisms; ideas accepted as fact which have no basis in reality. Money is hard to come by these days, don’t get caught by these common money myths.
If You Rent You’re Throwing Money Away
That’s the biggest lie in the real estate industry. There are many good reasons to not like renting, but thinking you’re throwing money away is not one of them. Owner occupied homes are one of the worst performing financial commitments most people will ever make. Almost anything else you do for housing will end up being better for your finances than buying a house, yet that myth lives on. What’s totally bizarre is to hear it coming from people spending far too much of their income on 2,400 square foot house they can barely afford.
Buy In Bulk To Save
This one is true sometimes but not if your bulk purchases end up getting tossed. A bulk purchase can be just a bigger waste. The two schools of thought here are illustrated by Costco and Aldi. Costco sells in bigger lots, Aldi shrinks portion sizes to keep prices low. Sometimes a bulk purchase is the way to go but, for perishable items, buying smaller quantities with less waste is a better deal.
You Have To Spend Money To Make Money
This phrase was forged by people in the advertising industry. The trick is not spending more money, the key is spending the appropriate amount of money the right way. Spending money on advertising is sometimes effective but, more often, taking advantage of free alternatives is a better way to promote your product or service.
You Get What You Pay For
Sometimes that’s true, sometimes you just end up paying more. My wife and I used to think we got better service at the car dealership. Turns out we were simply paying more but not getting better value. Quality is not a linear product, quality is a geometric product. You have to spend a certain amount to get decent quality, after that mid-price point level, you start paying geometrically more for incremental improvements in quality. It pays to shop around, read ratings and explore alternatives. Don’t shop for expense, shop for value.
Invest In What You Know
Okay, that’s just not good advice for most people. You shouldn’t be stock picking or even fund picking with your retirement money. Most people are going to be better off investing in a broad market index fund and adding to it regularly over a long period of time. Don’t try to apply your industry-specific knowledge to investing. Buy a low-fee S&P 500 index fund, like the Spartan S&P 500 Advantage Class, and forget about it for twenty years. Leave it alone for thirty years, adding a little to it at regular intervals, and you’ll be rich. It’s really that easy.
If you take a good look around you’ll discover that the majority of people are poor. That doesn’t mean they’re bad people, it simply means they never learned how to handle money or evaluate investments. People are busy and those cultural truisms about investing sound plausible, especially coming from friends and family. If you want out of that trap, then that means going a different way and defying cultural wisdom.
