Five myths holding you back from financial freedom
By If you’ve been following our team for a while, you know that we talk a lot about what you can do to work toward financial freedom. Today I want to switch gears and look at what might be holding you back from that goal.
There are a lot of “experts” out there who can lead you astray if you’re not careful. Here’s a helpful rule: If somebody is trying to sell you on one-size-fits-all financial advice, you should probably be skeptical. An individualized approach considering your entire financial picture and your specific goals will be much more valuable to you in the long run.
That being said, let’s debunk five myths that might be holding you back from financial freedom:
Myth #1: Buying a house is always better than renting.
You’ve probably heard people say that you’re just throwing away your money when you rent. But there are a lot of cases where that’s just not true.
I always tell people who are in the market for a new home, you have to think about the costs of maintenance, repairs, renovations, and even taxes. Those should be figured into your budget, even though they’re incredibly difficult to predict. Look at it this way: Your rent is generally the maximum you’ll pay. Your house payment is the minimum you’ll pay.
You also have to consider other factors like the amount of time you plan to be in the house, because often the expenses of buying and selling can negate any equity if you’re only there for a short time. And lastly, although it hasn’t felt like it lately, home values don’t always go up. There are times when the house you bought today for $400,000 may only command $350,000 in five years.
Myth #2: You need a lot of money to invest in the stock market.
Fifty years ago, this might have been true. But nowadays with 401(k)s, fractional shares, and low- or no-fee trading, investing even a small portion of your paycheck can go a long way. As we know, the most powerful financial tool you have is time, and this money can make a real difference over years of growth potential. Start investing what you can now, and as your paycheck grows, so can the amount you put into your portfolio.
Myth #3: Inflation makes saving irrelevant.
You can find a million articles that demonstrate how saving $500/month can grow to $1 million. But inevitably, somebody in the comments section will say something like “Well 30 years from now, a million dollars will be useless because of inflation.”
I don’t know who these Debbie Downers are, but I do know this: I would rather have $1 million that buys a little less than $0 that buys nothing. Inflation is real, but letting it frighten you into not saving at all is a recipe for disappointment. A penny saved is a penny earned, and 100,000,000 pennies saved is…you get the point.
Myth #4: You don’t need life insurance if you’re young and healthy.
A lot of young folks really do believe that they’re invincible. But the truth is, everyone needs some amount of life insurance, especially if there’s somebody relying on your income. And even if there isn’t, having coverage can prevent leaving a financial burden to those closest to you.
Plus, there are real benefits to getting life insurance early on. The younger and healthier we are, the less expensive it’s going to be. If you wait until your 50s, it’s going to get more expensive, and you run the risk of unexpected health issues popping up along the way that could make you uninsurable. Don’t wait until it’s too late.
Myth #5: The stock market is just legal gambling.
We’ve probably all heard this one. It generally comes from people who don’t understand how the markets work or what stocks actually are.
We’re fundamentally looking at different businesses and trying to anticipate which ones will perform well and have potential for growth. When we buy stock in those companies, we actually own a little piece of them. They answer to us as investors, and their goal is always going to be to grow, earn a profit, and deliver returns on those investments. We can make an educated decision on what direction we believe those companies are headed and invest wisely. Investing is never a guarantee and there is always potential for loss, but it’s also not going to the casino and hoping to land on red.
Article by Kyrk Davis, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.