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Most of our deep-seated beliefs about money, which we may or may not be aware of, are formed during childhood. Or they’re cultural norms we’ve swallowed whole, without even realizing we have.
The problem is, these oft-cited maxims aren’t always true. And believing them can do damage to your bottom line.
So we asked two financial experts for the truth about some of the common beliefs we all love to hold dear.
See which of these six you need to rethink—and which may still hold some truth.
1. The more money I earn, the happier I’ll be.
The first thing our experts pointed out was: How much money you earn doesn’t always correlate with how much you have. “Sometimes people who earn lots of money also spend lots of money. As their salaries go up, so does their standard of living,” says Certified Financial Planner™ Brad Klontz, who is also the co-author of “Mind Over Money.” What matters more is how you manage your money.
And, research shows, more money doesn’t necessarily equate to more happiness either. In fact studies have shown that a $75,000 salary was, for most people, the tipping point on the scales of contentment. “After you reach that amount, making more money won’t substantially improve your quality of life,” says Susan Bradley, a Certified Financial Planner™, and the founder of the Sudden Money Institute.
There is also research to show that what you spend on, specifically, influences your happiness, too. We spoke to a behavioral psychologist from Harvard to discover the types of purchases that really do bring us the most satisfaction.
2. My kids should be my financial priority.
Yes, of course, as a parent, your first responsibility is to make sure your kids are clothed and fed and comfortable, but when it comes to bigger personal finance goals, like saving for your retirement versus their college education, the opposite is actually true.
“You have to take care of yourself first, so you’re able to take care of your kids,” says Klontz. Translation: There are student loans to pay for their college, but there are no loans for your retirement. If you fail to save enough to live on, you could be putting financial pressure on your kids to support you later.
The same logic applies if your kids want material things that you can’t afford, such as designer clothes or expensive birthday parties. “Set boundaries when it comes to finances, so your kids will share your money values,” says Bradley. For instance, if your son wants pricey sneakers, say: “I will pay for this pair of sneakers. If you want a fancy brand, you need to pay the difference.” Or, anytime your child gets a monetary gift, require him or her to save some, give some away and spend some.
3. Debt is always bad.
Sure, there are plenty of debts that are “bad.” Specifically, this is the money you borrow to pay for something other than an asset that’s likely to increase in value. Credit cards are the best example: “If you don’t pay off your credit card each month, you can fall into a terrible trap,” says Klontz.
You also want to avoid being in debt to a friend or family member. “It’s dangerous and could potentially lead to relationship problems,” he says. A form of bad debt that most people find surprising? A car loan. After you buy it, a car’s value doesn’t appreciate. Instead, it’s value goes south.
But there is definitely good debt. This is the money you borrow to pay for something you expect to increase in value over time. “If you are paying student loans that enable you to get a good education and land a job you like that pays well, then it’s a worthwhile investment,” says Klontz, noting that people with bachelor’s degrees tend to make twice as much as those with only high school degrees.
Property is another example: If you hold onto it for long enough, your house will most likely sell for a higher price than the one at which you bought it. And, the profit you make by selling it should make the interest you paid on the loan worthwhile.
4. I should put off my life goals until I can afford them (having kids, going back to school, etc.).
This really depends on your personal financial situation. For example, “If you’re having trouble paying your rent, then it may be smart to hold off on having a child,” says Klontz. Or if you don’t currently have health insurance, it might be wiser to wait until you do.
But, generally speaking, you should be saving up for longer-term money goals so you can create the life you want, without the cost taking you by surprise. In fact, LearnVest experts recommend starting an emergency fund so you’re always covered, and also setting up separate savings accounts to fund your different goals. In the Money Center, you can even set up a priority goal and see how long it will take you to save enough money to reach it.
Sometimes the answer isn’t delaying your dream or going after it—it’s getting creative and doing a mixture of both. “I knew a woman who wanted to travel the world. So she would take a job as a nanny in Europe, work for a month or two at a time, live with a family and save most of the money. And then she’d take a month or two off and travel on her own,” says Bradley.
5. Never rent when you can own.
This attitude plays into the “American Dream,” but “buying a house shouldn’t be a romantic decision—it should be a financial decision,” says Klontz.
The first thing to assess is where your life is headed. Do you plan on being in the same city (or even neighborhood) for the next few years? If not, then owning property isn’t in your immediate future, because, in general, it takes time for property to appreciate. You also need to decide how much you can actually afford.
There are a lot of costs that come with home ownership besides your down payment. One of the most common home-buying mistakes people make is thinking that they’re merely trading a rent payment for a mortgage. You’ll also want to estimate the property taxes and insurance of any property you consider, plus any renovations you’d need to do, then decide if the place is within your reach.
In the end, the biggest mistake isn’t not buying a home—it’s buying too much home for your budget.
6. Money is the root of all evil.
The first thing to realize is that this thought pattern can be detrimental to your financial success. “It’s a limiting belief,” says Bradley.
The truth is, money, on its own, isn’t good or bad, it’s what you do with it that matters. You can certainly point to examples of rich, corrupt people. But you can also point to examples of rich, moral people (Bill Gates comes to mind) and poor, corrupt people.
“Some people think that all rich people are greedy and immoral,” adds Klontz. “As a result, they might subconsciously choose a career path that typically doesn’t lead to extreme wealth, so they’re not viewed that way. We’ve seen this happen with lottery winners. They come into a lot of money and then become uncomfortable and anxious,” he says.
Remember, money is about choice, and you can use it to reach your goals, whether, to you, that means having a fat savings account so you never have to worry, donating to causes you believe in, or leaving it to your grandkids some day.
Matt Sapaula encourages people to stop following faulty financial aphorisms but, instead, embrace the concept of being "Money Smart,” a process that creates pathways to financial independence through discipline and education. Click here to learn more about a Money Smart way to financial security.
