Our parents beliefs about money can quickly become outdated in today’s fast-paced world. Advice we hear growing up intended to teach us how to make more money, spend less of it, and design strategies to get rich quick can be risky as times change and economies shift. Our family’s beliefs about our finances often direct our behavior, even without our knowing it. It’s time to take a fresh look at some of the most popular old myths to see if any of them still hold true.
Myth #1: Having a regular savings account is a good idea. I remember when I was a young girl, walking into my neighborhood Savings and Loan with my little blue account book in hand. I’d deposit my babysitting money and watch with glee as the pennies grew to dollars. It was one of the most rewarding times of my life because I could actually see my money increase right before my eyes. Times have changed. Most savings accounts are hardly better than your piggy bank. Banks extend paltry interest rates that lag far behind the pace of inflation. The truth is, if you sock away your money in an ordinary savings account, you actually lose money over time. Instead of going the traditional savings account route, consider a few of these suggestions for your savings instead.
Myth #2: Reducing expenses is the best way to increase your bottom line. Cutting back on expenses may give you a few more dollars in your pocket at the end of the month, but in fact, increasing your income may yield faster results and help build wealth more effectively than simply being frugal. Clipping coupons, buying things on sale, and shopping around for lower prices on large purchases can make you feel good in the short run, but getting that well-earned raise, taking a second part-time gig, or even landing a job that pays more makes a bigger impact over time.
A friend of mine—I’ll call her Ann— was perpetually short on money at the end of every month. She lived paycheck to paycheck even though her expenses were lean and she rarely bought anything that wasn’t on sale. One day over coffee, Ann complained that her annual performance review had been disappointing and she had not received a raise for the second year in a row. I recommended that she look for a higher paying job. Once she got past her fear of enduring yet another job search, she spent some time pouring through local job openings to discover that with her experience, she could earn up to 20% more per hour at other companies. She quickly updated her resume, applied for several openings, and landed a position with higher pay—closer to where she lived. Ann found the courage to step outside her comfort zone, take a chance, and move her career forward. This impacted her financial situation in a big way. If you choose to stay in your current job and you know you deserve a raise, stand up for yourself and specify your value to the company. Recognize your strengths and state your case with confidence. No one will be able to advocate for you better than you can.
Myth #3: Paying cash is the best strategy. Many folks believe that credit cards are evil and fraught with pitfalls. I admit, using them without discipline can result in your finances quickly spinning out of control. But credit card companies today offer many rewards, such as racking up bonus points, cash back for everyday purchases, and travel discounts. Take a look at what your current credit cards offer and shop around. I recently booked a cross-country flight using points I’d stored up. My only out-of-pocket cost was the required airport taxes, which were less than $20. My other credit cards pay me back a percentage of all purchases, which I use toward paying off the balances each month. Using credit cards wisely can potentially save you money in the long run, if you are a committed bargain hunter. If you aren’t sure which card is best for you, either speak to someone at your bank about options (Chase offers a cash rewards card and a travel rewards card, for example) or do a little online research.
Myth #4: Income taxes will increase if you get married. We’ve all heard of the so-called “marriage penalty” but many couples actually see their income taxes decrease when they tie the knot. Couples where one person earns significantly higher than another discover that when they combine their wages, they actually pay less in tax than they would if they were single. Congress tried to eliminate these types of penalties by expanding the 10% and 15% federal income tax brackets. Plus, the standard federal deduction for married couples is twice that of single taxpayers. Actually, couples with combined incomes at the top and the very bottom of the income scale tend to see less of an impact when they get married, but there are many other financial and legal benefits that might outweigh the cost of merging your income tax burden.
Myth #5: Investing in gold is where it’s at. Please don’t be fooled by the deluge of advertisements hawking gold. Yes, gold is a physical asset. Gold is beautiful, but it’s also highly volatile. It seems like every time the economy takes a downturn, gold peddlers crawl out of the woodwork, playing on our worst fears (Protect Yourself Against A Stock Market Crash! The Collapse of the Dollar and How to Profit From it! Prepare Your Savings for War!). If you decide to put your hard-earned money into gold, make sure you consider the risks, explore other options first, and discover what wealthy folks, like Warren Buffett, think about investing in gold.