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Myths are based on assumptions, and you know what they say ssuming makes out of you and me. You don’t want to be foolish, period, but especially when it comes to your finances.
Money is one of those topics where everyone has opinions and advice. Not knowing what’s true and what’s not, can be detrimental to your financial health.
There are some common beliefs that simply aren’t true.
Estate planning is for rich people
“Estate planning is not only for the wealthy. Anyone with assets or dependents should have at least a basic plan to ensure their wishes are honored. The cost of a plan is often less than people expect, but the value of peace of mind is priceless,” says Marty Burbank, an attorney specializing in estate planning at OC Elder Law.
Common estate planning documents typically include wills, trusts, powers of attorneys, and living wills.
You don’t need life insurance if you’re young and single
A frequently financial misconception is that life insurance is unnecessary when you are young and single.
“While it might seem unnecessary at first glance, the truth is that life insurance can actually be cheaper when purchased at a younger age, and it provides crucial financial protection for any loved ones or debts,” says Stephen Boatman, a certified financial planner and principal at Flat Fee Financial.
Waiting too long to secure coverage could lead to higher premiums as health conditions may arise or rates increase over time, he says.
“This can be detrimental because it leaves individuals unprotected in case of unforeseen circumstances, ultimately impacting their financial security,” adds Boatman.
Debt is always bad
A widespread concept is that you should strive to completely avoid debt at all costs.
“In reality, strategic use of debt can be a powerful tool for building wealth, particularly through avenues like business loans or real estate investments,” says Boatman.
The downside of avoiding all debt is that it can prevent you from seizing valuable opportunities that could improve your financial standing in the long run. For example, taking on a mortgage to purchase property often leads to appreciation over time, enhancing net worth.
More money means more happiness
“Money is a tool, not the key to happiness. Focus on aligning spending with what truly brings you joy, not just chasing numbers,” says Erika Wasserman, a certified financial therapist and CEO of Your Financial Therapist.
“After all, no one’s smiling at a bank statement without purpose behind it,” she adds.
You should always pay off your mortgage as quickly as possible
While being debt-free is admirable, paying off a mortgage too quickly can limit your cash flow and investment opportunities.
“I’ve guided clients to weigh the benefits of maintaining a mortgage against investing that money in higher-yield assets,” says Angelo Crocco, owner of AC Accounting.
Prioritizing rapid mortgage repayment can lead to lost opportunities for wealth accumulation, says Crocco. “Finding a balance between debt repayment and investing is crucial for long-term financial health,” he adds.
A high credit score is the ultimate sign of financial health
Many people believe that a great credit score is the end-all indicator of financial health, but this isn’t necessarily true.
“A high credit score just means you’re a responsible borrower. It doesn’t mean you’re building real wealth. I’ve had clients with excellent credit who are still deeply reliant on debt and lack sufficient savings or assets. True financial health is about liquidity, passive income, and reducing dependency on credit,” says Crocco.
He always tells his clients—what’s more impressive than a high credit score is having enough liquid assets and passive income streams that you don’t need credit in the first place.
“Rather than focusing on optimizing a score, work towards reducing debt and building investments that generate cash flow. Eventually, you want to transition from borrowing to self-funding, where your investments cover major expenses, and credit becomes a minor concern,” Crocco says.
I need to learn more before I get started with my financial planning
Learning is a lifelong journey. Take one small step today. Even if you can save and invest as little as $50 a month that’s a good starting point. Just get going.
Says Anne Johnston, founder and managing director of Created Wealth Advisory, “The downside of believing you need to learn more before starting your financial planning is that it delays action, causing you to lose valuable time for investment compounding and potentially postponing progress toward your financial goals.”
The takeaway
Accepting myths as truth can hold you back financially. Challenge yourself to learn more, so you can separate truth from fiction and make the best choices about your finances.
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