Many of the money “rules” aren’t rules at all, they’re mostly myths. From renting is “throwing your money away” or lattes “will keep you poor”, we tackle five bad myths.
Many of these myths recur frequently because people hold strong opinions about them. They’ve grown up with these beliefs and sometimes even benefited from them, which makes it especially difficult to convince them that they are wrong.
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Below are five of the worst money myths that many people still believe and refuse to give up.
Renting Is Throwing Money Away
Renting vs. buying a home is one of the biggest debates in all of personal finance. Buying a home is seen as a cornerstone of the American Dream.
The reality is that your personal situation dictates what makes the most sense and buying is not always the correct choice. There is a lot to homeownership that most people never talk about .
You may be better off renting because it gives you the flexibility to move easily. You are also less impacted by many of the hidden costs of owning a home, such as maintenance and repairs. If your rent is lower than the typical mortgage payment, you may be better off renting and investing the difference.
Owning a home gives you much greater control of your living situation, as you aren’t subject to the decisions of a landlord. You get tax benefits for paying a mortgage and, over time, you build ownership and equity in your home.
Regardless of which you choose, renting is hardly throwing money away. It’s simply a financial choice.
Credit Cards and Debt Are All Bad
Credit cards are not the enemy and when you use them responsibly, you can earn credit card rewards and build up a credit history that can help you get a lower rate mortgage or some other loan.
Debt is a tool that you should use to accomplish your goals. The difficulty is when it enables you to overspend and buy more than you should. The simplicity of swiping a piece of plastic and buying something you want is very difficult overcome.
It’s not credit cards and debt that are bad, it’s how easily it enables bad behavior.
The Morning Latte Is Why You Can’t Retire
When David Bach wrote The Latte Factor, it was celebrated because it showed how our unconscious and automatic behaviors were sabotaging our finances. While that is true, buying your morning coffee at the local coffeeshop was derided as the reason we couldn’t retire.
The reality is much more nuanced and while automatic spending is still bad, it’s unlikely that the morning coffee is the real reason why. You want to be more intentional with your spending but, as others have pointed out, you should be asking $30,000 questions and not $3 questions.
Don’t spend mindlessly, but don’t focus exclusively on the small stuff.
You Need to Be Rich to Invest
Thirty years ago, investing was expensive. When I opened my Roth IRA in 1998, it cost me $20 to make a stock trade at Vanguard.
Today, you’d be hard pressed to find any broker that charges that much. Most don’t charge anything!
And with low-cost index funds, it costs even less. Vanguard’s Total Stock Market ETF charges only 0.03% a year as an expense ratio and you can invest as little as $1. That means for every $10,000 you invest in that ETF, you pay three dollars a year. It’s less than a cup of coffee.
You can and should start investing as soon as possible.
Your Home is Your Best Investment
For decades, we’ve heard this myth. The reality is much different.
The historic return on real estate isn’t as impressive as other assets. According to data compiled by Aswath Damodaran at NYU, the historic rate of return in real estate from 1928 until 2024 beat inflation but severely lagged behind the stock market.
The reason this myth persists is two-fold. First, housing often represents forced savings. You are required to pay your mortgage each month but aren’t required to contribute to your investments.
Next, we often forget about the hidden costs of homeownership. You have the cost of maintenance and repairs of your home systems. Every few years, they will need to be replaced. Then there is the cost of homeowners insurance and property taxes. Finally, there are the real estate agent commissions on the sale.
These are all costs that people often forget when talking about how much they made on their homes.
In life, there are very few universal truths. Be careful whenever people offer up advice as absolutes because there are so few of them. What may be true for one person, might not be true for someone else.
Advisory Services are offered through MRA Advisory Group, a Registered Investment Adviser. It is general in nature that the statements herein are not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. The investments and strategies mentioned may not be suitable for all investors. Past performance is no guarantee of future results. Nothing herein, nor any attachment, shall be considered to constitute (i) an offer to sell, nor a solicitation of an offer to purchase, any security, or (ii) tax or legal advice.