During each financial seminar I conduct with those in their twenties, there’s always a moment when someone brings up, “But my father said…” followed by:
- I ought to maintain a balance on my credit card for a better credit score.
- I must clear my debts before I can start saving.
- Buying in larger quantities is more economical.
A range of misunderstandings to oversimplified ideas about finances have been handed down through the generations, leading many of us to embrace incorrect beliefs regarding our money. When these misconceptions influence our everyday financial choices, we end up in a scenario where nearly half of Americans are surviving from paycheck to paycheck.
The cost of handling your finances based on incorrect beliefs can be significant. To avoid expensive blunders, refrain from believing in the numerous financial myths that are prevalent in traditional wisdom.
Here are three widespread myths clarified:
1. You don’t need a large sum to start investing.
“Many still perceive investing as an activity reserved for the wealthy,” states financial expert Miranda Marquit. “However, the reality is that it’s more accessible than ever. You don’t have to secure a hefty sum to begin.”
Technical advancements have eliminated obstacles to entering the investing arena, such as limited accessibility, hefty minimum deposit thresholds, and high trading fees. Investment services like Betterment and WiseBanyan make the process easier by suggesting straightforward investment plans based on your objectives.
GIVE THIS A TRY: The app Acorns rounds up your transactions and invests the extra funds.
2. Investing is excessively risky.
A common belief about investing is that it involves unacceptable risk, similar to gambling.
“Investing is the initial step toward financial achievement,” advises financial planner Winnie Sun. “Alter your viewpoint on market fluctuations and view this as a chance.”
While it’s easy to feel intimidated by the noise of short-term market fluctuations, long-term studies consistently advocate for investing as a credible strategy for wealth accumulation. A stock market review by Yale University economist Robert Shiller indicates an average annual return (after inflation) of 6.8 percent since 1871—despite wars, crises, and various market downturns.
In fact, the real risk lies in not investing. When your funds are kept in a savings account, even at a reasonable 1 percent interest, they fail to outpace inflation and lose value in terms of purchasing power over time.
3. It’s acceptable to accept a starting salary.
The belief in “paying your dues” as you step into the job market is deeply rooted in our culture, yet there’s a significant contrast between the “paying your dues” realities of the 1970s and ’80s and the current experience of graduating with substantial student loan debts.
Following the Great Recession, the average income for individuals aged 25 to 34 has decreased across all major sectors except for health care. Even with higher education, today’s young professionals are experiencing greater financial hardship than their parents did at the same age, with a median income that is $2,000 lower today than in 1980 (adjusted for inflation).
The notion of “paying your dues” by agreeing to a salary below your worth has led to a financial strain for today’s youth already weighed down by student loan debt.
Struggle is not a requirement for achieving success. Do not accept being underpaid. The implications extend far beyond one or two challenging years in your career.
