A mistaken belief about money could cost you a lot in the long run. Make sure you aren't falling for any of these common misconceptions.
“Paying off my credit card all at once will hurt my credit score.”
A great rule of thumb for credit cards is to pay off your statement in full every month if at all possible. Your credit score is most impacted by how long you’ve had your line of credit and making payments on time. Try to avoid costly balance fees as much as possible by paying off your statement in full. Giving extra money to credit card companies is not going to help you.
“I’m too broke to invest anything.”
Once upon a time, this may have been true. Brokerages would charge a fee for every order, mutual funds had minimum initial deposits (some still do), and shares of companies had to be purchased in full. You needed a considerable chunk of change to get started! Today’s financial landscape is much more inviting to individual “retail” investors, though. Many brokerages offer fee-less transactions, fractional shares, and $1 minimums. Investing is still a risky business, but the barriers to entry are lower and more affordable than ever.
“The most expensive financial advisor will get me the largest return. After all, you get what you pay for.”
It is not unreasonable for a financial advisor to be paid for their service and expertise, but they shouldn’t take you to the cleaners, either. Imagine hiring a plumber who charges extra because they use gold-plated tools. You want to hire someone to just get the job done, right? The same idea applies to hiring a financial advisor.
If you are looking for a financial advisor, the magic word you are looking for is fiduciary. That means the person who would like to manage your money is held to a standard of working in your best interests and not their own. The National Association of Personal Finance Advisors is a good place to start an advisor search. Get referrals for anyone you’re about to hire. Look at their credentials and fees up front. The classic playbook of an inefficient financial advisor is to place your money into a number of funds with large “expense ratios,” or annual fees, as well as take an additional percentage off the top for themselves each year. When it comes to investing fees, you get what you don’t pay for. Save yourself from the gold-plated tools. Who knows - with a little reading, you could learn the basics yourself and perhaps manage your own portfolio just fine.
“I am too young/old to learn about money.”
This myth has two sides of the same coin, and they both have to do with using one’s age as an excuse. The young side says worrying about saving and investing are problems for older people with salaries. What good would financial literacy do when young people have so little to invest to begin with? The old side agrees: they should have learned more about money when they were young, but now it’s too late. Opportunities were wasted and investing is too expensive anyway. Except we busted that myth! The best time to learn about investing and put your dollars to work was yesterday. The second best time is today. That is true no matter how old you are.
“Anyone living in poverty is merely suffering the consequences of their actions and deserves to be poor.”
This is a different kind of myth from the first four. It speaks to a kind of self-righteous “bootstraps mindset” that robs people of their empathy and kindness. It can take many different forms. Most often, it involves judging others for making harmful or indulgent choices. It can feel good to congratulate yourself on making responsible, sensible decisions compared to the alternative. However, we are all victims of circumstance on one level or another. We were each born into a certain family in a certain community, each with their own advantages and disadvantages. Many people are one disaster away from going broke, while many more have already been through one or more. The only person’s life story you can understand more than anyone else is your own. You will live a richer internal life if you are able to forgive people for their imperfections, including yourself.
Money does not determine a person’s worth. People do.