The 10 Biggest Lies We Tell Ourselves About Money
The 10 Biggest Lies We Tell Ourselves About Money
Here are some of the biggest money lies we tell ourselves.
1. "It's Good Debt"
It's often said that there's such a thing as "good debt" and "bad debt." The so-called "good debt" may stem from student loans or your mortgage, which can play a role in building long-term wealth. "Bad debt," on the other hand, is most commonly from credit cards with high interest rates.
But by separating debt in this way, it's easy to rationalize having debt in the first place. It's true that some kinds of debt are worse than others, but it's wisest to try to avoid debt altogether. Only by having an "all debt is bad" attitude will you aggressively try to rid yourself of of it.
2. "I'm Earning a Return of X%"
When we place money in the stock market, we often assume it's generating a certain amount of return, based on historical averages. It's good to be aware of these historical returns in order to understand the potential of stock market investing, but you must remember that past performance does not guarantee future results. It's also important to have a true understanding of how well your investments are doing.
Thornburg Investments issued a report in 2014 outlining how the S&P 500 Index earned an 11% annualized nominal return over 30 years, but that return was actually 6% annually once taxes, fees, and inflation were factored in.
3. "I'll Start Saving Later"
Retirement always seems like such a long way off. We tell ourselves that we have plenty of time, and many years ahead before we need to start putting money away. But before we know it, retirement age is on our doorstep and we've hardly saved at all.
And because we waited, we missed out on the power of compounding returns. It's easy to come up with reasons not to save money, but very few of them are valid. Consider your retirement fund to be the first bill you need to pay each month. You won't miss the money now, but you'll be happy to have it down the road when you stop working.
4. "I'll Be Earning More in the Future"
When planning our future, we often do a good job of predicting expenses, but operate under the faulty assumption that our incomes will increase. I know people who have purchased larger homes than they can truly afford, justifying the expense by arguing that they'll be getting pay raises down the road. We all want to assume we'll be earning more as time goes on, but there are no guarantees. Your company may freeze wages, or even lay off workers. You may decide to stop working to raise your family. To achieve financial freedom, work to ensure your spending is less than your actual current income. This way, any pay increases you receive are like bonuses.
5. "I Don't Have Enough to Invest"
If you have money for that morning trip to Starbucks, then you have money to invest. If you have money for Netflix, or those pricey new shoes, or that bottle of wine, you have money to invest.
The key to financial freedom is ultimately about what we choose to spend our money on. And if you prioritize long-term saving over buying non-essential material goods, you'll find that you have much more money to invest than you think.
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