Sometimes it’s easier to believe a fantasy than it is to face reality — and when it comes to money, many people hold false beliefs.
When you’re young, the future seems far away, and you might think there’s time to make up for your financial mistakes later.
Unfortunately, whether you’re putting off saving for retirement or looking the other way when your credit card bill becomes due, money lies can have big consequences sooner than you think.
If you really want to live the financial life of your dreams, it’s time to get real. Here are 11 of the most common lies you need to stop telling yourself before it’s too late.
1. I will be a millionaire by the time I’m 30.
Truth: Building wealth doesn’t happen overnight.
Some people think they can jump on the fast track to wealth, but the reality is, it takes a long time to build your net worth.
So many people believe they will either earn a higher income or attain an unrealistically large net worth goal by a set age. While it’s important to have goals for yourself, it’s even more important to reassess and create achievable goals.
While you might not be able to save a set amount of money by a particular age, it is smart to set savings objectives. Consider how much you earn, how long you think you’ll live and how much money you might need during retirement. The target goal will probably be big, but instead of forcing yourself to meet such a short deadline, you can take your time — slow and steady wins the race.
2. I’ll start saving as soon as I earn $X.
Truth: You might never get to that goal, so you have to start saving now.
Many individuals think they can wait to start saving until they are earning a particular income. However, age doesn’t always translate to increased wealth.
Unfortunately, too many times I am told by clients that they’ll start saving more once they go into private practice, start a company, earn a six-figure income, etc. Either these things take way longer than planned, or more often than not, they just don’t happen.
When you put off saving until you reach some arbitrary milestone, you are unlikely to achieve the goals you set for yourself.
The goal is to begin saving as much as you can, as early as you can. Also, be sure to take full advantage of not just employer matches with employer-sponsored retirement programs, but the tax benefits most retirement programs offer.
3. I’m just not the entrepreneurial type.
Truth: You’re already a business owner.
If money is tight because you just graduated from school or decided to change careers, doing a little work on the side is a wise way to make ends meet. Although many people claim they lack the entrepreneurial spirit needed to find a side gig, the truth is that all it takes is a bit of hustling.
You’re already an entrepreneur. You’re the CEO, CFO and COO of ‘You, Inc.’ You already run your own business. The problem is, you only have one customer — you.
Starting your own side business helps you increase your income and ensure financial security if you get laid off or can’t work your regular job. If the thought of adding more work to your plate overwhelms you, Wilson suggests making a goal to add just one new income stream in the next three months.
This could be from selling items on eBay/Amazon, driving for Uber/Lyft or monetizing your expertise through coaching, consulting or public speaking.
4. Money is the root of all evil.
Truth: Money is just a tool — what you do with it shows character.
If you associate money with evil, you’ll never pursue careers and businesses that will allow you to earn significant sums of money. This severely hurts your ability to take care of your family in the way that you’d like to.
Instead, people should alter their thinking and recognize that money is the tool that allows them to create the lives they deserve and care for their families. Additionally, individuals should set clear money goals to ensure they remain on the right track.
Create a vision board that focuses on the things that money will allow you to do. If I earn an extra $100,000 next year, I can finally take my wife on vacation. I can put away funds for the kids’ education. I can make sure my mother has the medical care that she needs.
5. Credit cards are evil, too.
Truth: There are many good reasons to use a credit card.
Using credit isn’t inherently bad. Moreover, this kind of black-and-white thinking can actually hurt your credit score in the long run.
The right credit card, coupled with the right amount of debit/repayment, can build a credit score quickly. A low-limit card with a low APR that is being paid off in full every month is an excellent tool for building the credit necessary to take advantage of near-historic rates on mortgages and car loans.
The trick to using credit cards to your advantage is doing so responsibly. If you take the time to build good credit — and pay your bills in full each month — you can take advantage of many benefits, such as the ability to get a car loan with no interest, rent a killer apartment or even land your dream job. In fact, a recent Credit Karma article reveals that some employers actual check job candidates’ credit records.
6. I’m waiting to invest until the market gets better.
Truth: There’s never a perfect time to jump into the stock market.
If the ups and downs of the stock market have kept you from investing, then there’s no better time than right now to take the leap. The sooner you start investing, the more time you will have to ride out potential lows and cash out on historic highs.
As an investor under the age of 30, studies have shown the sooner you’re able to invest in the market, you have more time to overcome market fluctuations. Historically, the stock market has gone up over time, and a 35-year investment (retire around 65) in an index fund that follows the S&P 500 will do well for the investor.
Unless you have a time machine, or a crystal ball, you likely can’t predict how the market will perform.
It’s like standing at the edge of the pool wondering how cold the water is and contemplating if you should get in,” said Adams. “The best way to test the waters is to just jump in.
If you aren’t sure where to get started, Adams suggests automatically depositing a certain amount each month into an account with an online brokerage firm. This way, you won’t have to take a large position in the market all at once.
7. Disability and life insurance are for sick or older people.
Truth: You should get this coverage while you’re young and healthy.
Most of the millennials he encounters think they don’t need life or disability insurance because they are young and healthy. However, the truth is that younger people should secure coverage while they’re still in good health.
Thirty-somethings are often getting married, starting families, buying homes, paying off student debt and have tremendous financial responsibility. Spending a small fraction of annual income to protect the remaining majority is a no-brainer.
According to Smith, the single greatest asset most 30-somethings have is their future earning potential.
We don’t think twice about protecting our homes and cars with insurance, yet many refuse to consider protecting their livelihoods in the same manner, adding that many workplace life and disability packages don’t provide sufficient funds for those who find themselves unable to work.
If you want to shop around for life or disability insurance, try contacting an independent broker who can explain coverage options available at numerous A-rated companies.
8. If I stop paying my student loans, they will be forgiven.
Truth: It’s almost impossible to have your student loans forgiven.
Many young people dream of the financial freedom they would enjoy if their student loans were suddenly forgiven. However, the fact is that few people qualify for these gifts. In fact, forgiveness is usually limited to people who conduct volunteer work, perform public or military service or work in certain medical practices. Also, if you have private student loans, you usually can’t get them forgiven regardless of your industry.
If you decide to stop paying your student loans back, the consequences can be disastrous for your financial future.
Borrowers who stop paying their student loans will significantly damage their credit scores and creditworthiness. You can also get sued by the private lender for their unpaid balance and fees.
Since the rules around student loan forgiveness are so specific, Adams recommends that borrowers contact their student loan providers and ask for options available for people in their professions.
9. I can’t afford to put money in my 401(k).
Truth: You can’t afford not to invest in your 401(k).
One of the biggest financial mistakes anyone can make in life is not contributing to a 401(k) plan.
When you tell yourself this money lie, you’re missing out on potential tax benefits, generous employer matching contributions and thousands of dollars in missed income into your account, adding that taking part has no real downside.
Those not enrolled in their 401(k) accounts should first contact their companies’ benefits departments to see if they’re eligible to contribute.
Typically, employers want you to be 21 and have worked at least 1,000 hours to participate.
10. I’ll pay off my debt when I start making more money.
Truth: You might never feel like you’re making enough money.
The single biggest money lie I’ve heard over the past two decades goes like this: ‘Sure, I have student loans and a car loan and credit card bills that are more than I can pay off, but when I get in my 30s and 40s, those are my prime earning years, and I’ll make it up then.
Typically, people start families in their 30s, a fact that causes monthly spending to increase. After all, children only get more expensive as they grow. Even if you don’t plan to have kids, there are plenty of factors that could affect your ability to pay off debt.
First, you might never make a lot more money. Second, if you do earn more, you might not want to make the lifestyle adjustments needed to pay your debts off. After all, spending the fruits of your labor on old bills is nothing if not frustrating.
Bottom line: if you can’t save money now, you probably won’t later.
11. I only need one retirement account.
Truth: Having multiple retirement accounts can help protect your money.
While a 401(k) is a great start to a retirement portfolio, it likely won’t be enough for retirement and will need to be supplemented with another product.
There’s been a shift from pension funds to retirement accounts, with employees now in the driver’s seat. The responsibility to choose strategies and mitigate risks while saving for retirement is now mostly falling to the employee.
Investing in a 401(k) is simple, and the employer contribution is a huge bonus, but in order to meet your retirement goals and keep that money safe, you need to diversify your savings strategy.
Savers should protect themselves from market risk and protect the value of their nest eggs while maintaining a varied portfolio. Diversity is important when it comes to retirement savings because it can actually help to reduce risk and improve return.
An easy way to balance out your retirement portfolio is to take advantage of a conservative product, like a fixed annuity, which guarantees a certain income during retirement, even if the market fluctuates.