Don’t Believe Everything You Hear About Money
Paul Fain, CFP®
When it comes to money, some people believe ridiculous things. Where do we get these money beliefs? Usually from family or society. Here are some examples:
“Money can’t buy happiness.” To a degree, sure it can. While money can’t buy a feeling, having money can create more opportunities to experience happiness.
“I’m not good with money.” This is a classic limiting belief and sometimes a weak excuse for bad financial decisions. Take your own financial literacy seriously and you will gain control of your financial life.
“More money equals more problems.” This is wrong-headed unless you think the following are problems: How much should I save? Which debt should I pay off? Where should I invest? Which charities should I bless?
“I’ll never be able to retire.” For those with a scarcity mindset, there is never enough money. The scarcity mindset lives in constant fear of recessions, market declines, inflation, taxes, etc.
“I don’t want to sell now, let’s wait until it goes back up.” Is it a bad investment? Get rid of it. Take a tax write-off. Put the money into something with better prospects.
“Let’s wait until after the election to see who wins.” The historical data teaches a lesson – the market doesn’t care who wins the next election. Long-term investment success depends on fundamental financial factors (price, profit, product, etc.) not Democrats vs. Republicans.
“Paying rent is like flushing money down the toilet.” Actually, paying rent could make perfect sense if you are concerned about job security or being transferred. It also gives you time to get your proverbial financial house in order before a home purchase.
“You should contribute to your 401(k) only up to the employer match.” That probably limits your contribution to only 3-6% of your income. That is not enough. Most people need to be saving 10-20% of their income for future financial independence from work.
“Don’t diversify away your upside.” These folks misunderstand diversification. It is a risk-management tool. Diversification is intended to limit your upside because it limits your downside. You can’t have your cake (big returns) and eat it too (minimal risk of losing money).
“My kids can work it out when I’m gone.” That’s just selfish. And this one tops it: “I don’t need to save, I’ll just move in with my kids if things get rough,” or “I don’t need to save, I’m going to inherit money someday.” I hate to break it to you, but maybe your kids or your parents don’t want to be your financial pot of gold. They have their own financial wants, needs and wishes.
“You can’t go wrong with Bitcoin.” Oofta.
Financial security and financial freedom don’t happen by magical thinking. They require financial literacy, discipline, patience and sometimes courage.
This article originally appeared in the Knoxville News Sentinel online April 21, 2023.
