Everything I thought I knew about personal finance was wrong.
Not wrong exactly, but not the whole story…..which lead to wrong decisions. What I now realize is that I wasn’t clear in my own mind about the advise that I was applying. How much was based on principles, that would hold up over time, and how much was based on strategies, that might fail over time?
It didn’t even occur to me that there was a difference. And that’s how myths evolve. They always have some element of truth…..but it’s never the whole story. Today I am busting common 5 myths you have probably heard. They might work some of the time, but that’s not good enough. I want my decisions to be based on lasting principles not fading strategies.
Myth #1 – Maxing out your retirement account options is mandatory to financial freedom.
Retirement account are a good way to accumulate funds, especially if you have an employer chipping in. But there are many financial paths that can take you to where you want to go. All of your money in retirement accounts may keep you from pursuing financial goals other than retirement. Trust me when I say, there is more to life than retirement. Single-mindedly pursuing retirement shortchanges other opportunities that may lead to a better quality of life for a longer period of time.
Myth #2 – Net worth is the most important measurement
If you have measured anything, it has probably been your net worth. If you have financial goals, likely it is focused around some net worth number. Maybe it’s a million dollars. Maybe it’s 10 million. But how does that translate into your day to day life? How does it translate into your future needs? Cash flow generated from your assets is a much more useful number to work with.
Myth #3 – Homeownership is an important part of financial health
I like owning my own home(s). But it isn’t a one size fits all strategy. Homeownership is a lifestyle choice more than a financial decision. It’s also very dependent on where you live, how long you plan to stay in that place, how affordable housing is in the area, what are the available rental options, what other opportunities you have for your capital, the economic conditions of your current location………the decision is more complicated than “you should always own your home”.
Myth #4 – You can save your way to wealth
Frugality is a useful tool. I see it as a starting point. True frugality isn’t about being cheap, it’s about getting the best value for your money. It’s a common characteristic of people who are financially healthy. They have learned to be very value oriented. But savings always has a cap. No matter how frugal you are, it will always be capped by your income. Many people struggle with frugality. It feels limiting and restrictive and difficult to maintain over long periods of time. And its easy to fall into a poverty mentality that never results in freedom.
Myth #5 – Stay out of debt helps build financial freedom
Leverage is one of the most powerful financial tools. It’s likely one of the most misunderstood and misused tools as well. Consumer debt is always a hole to dig out of. Business or investment debt can help amplify your results if you can use it in such a way that brings in more money than it costs. But, if it doesn’t, it will accelerate your demise. Debt is like fire. It can help keep your house warm, or burn your house down. Leverage will amplify whatever situation you are in.
These are just a handful of myths that are spoken as if they are gospel. If you have struggled to meet your financial goals, it may not be your fault. These and other financial myths may be keeping you off track. Are you ready start busting myths and building real freedom and prosperity? Join my email list and let’s get to work!
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