That Daily Latte Isn’t Why You’re Broke. (And Other Popular Myths About Money.)

buying-coffee

Funny thing about myths. Hear one often enough, you start to believe it. And the topic of personal finance is shrouded in a web of mystery, misinformation, hallucination, hearsay and sheer nonsense. Luckily, numbers don’t lie. Look at the numbers, and you’ll see right through some of the more common myths about money.

1. That Daily Latte is Why You’re Broke. Let’s do the math: $5 a day for 365 days comes out to $1,825. Nice chunk of change, sure, but Starbucks® isn’t why most of us live paycheck to paycheck. The real reason? Drumroll, please… housing, education and healthcare.1 Three of the biggest expenses in our lives, getting more expensive.

2. Owning is Better than Renting. Forget the price of a home, (median, $188,900).2 Real sticker shock hits when all the other costs kick in, like down payment and closing costs, maintenance and insurance. Big money. Owning and renting both have advantages. What’s best? Depends on your situation. Our advice is, buy when you’re ready. And when you do, well, that takes us to our next myth…

3. House = Good Investment. Oh, how quickly we forget. Remember, just a few short years ago? Housing values dived, and lots of us went underwater – stuck in homes worth less than what we paid. Yes, things look better now, and generally, homes do rise in value over time. But remember, an investment is basically a bet. So, no, you don’t buy a home as a bet, hoping to make money. You buy a home as a home, hoping to make a life.

4. Saving Means Sacrifice. SAVE is not a four-letter word, so why does it feel like a curse? Because the gurus say we’ve got to give up the good things, like the daily latte. Then we set unrealistic goals and quit when we don’t get there. Look, save what you reasonably can. Be real, be balanced. Your dream vaca? If you can afford it, live it.

5. Credit Cards BAD!!! Tons of fake news here. Take the one that cash is the better way to pay. False, big time! Plastic comes loaded with protections. Here’s another: a low balance is good for your credit score. Not quite. Part of your score measures outstanding balances against available credit. Now, a low balance isn’t necessarily bad, but you still get charged interest. Pay the balance in full every month, you pay no interest. And your score? Way up!

6. Penny Saved, Penny Earned. Okay, a half-myth. Penny saved, better than a penny spent. Penny earned? The real trick to saving is a little thing called compounding interest. So when the piggy bank is full, go open a savings account with a high dividend, like a Certfificate or an Individual Retirement Account. There’s your pennies, earning.

What about you? What money myths have you debunked through personal experience? We’d love to hear your story!

1slate.com, May 26, 2016.
2smartasset.com, January 20, 2017.

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