In every financial workshop I hold with 20-somethings, there inevitably comes a point where someone utters the phrase, “But my dad said…” followed by:
- I should carry a balance on my credit card to improve my credit.
- I should pay off my debt before I start saving.
- Buying in bulk is a better deal.
From misinformation to oversimplified generalizations about money that get passed down from generation to generation, most of us have adopted false beliefs about our finances. When these false notions shape our day-to-day financial decision-making, we end up in a world where around half of Americans live paycheck to paycheck.
The price of managing your money under misguided assumptions is high. To avoid costly mistakes, don’t buy into the numerous money myths that dominate conventional wisdom.
Here are three common myths debunked:
1. You need a lot of money to invest.
“Many of us still think of investing as something for rich people,” says money expert Miranda Marquit. “The truth is that it is easier than ever to start. There’s no need to try to get a large chunk of capital.”
Technological innovations have removed barriers to entry in investing, such as limited access, large minimum deposit requirements and high trading costs. Investment platforms such as Betterment and WiseBanyan simplify the process by recommending basic investment strategies based on goals.
TRY THIS: The app Acorns rounds up each of your purchases and invests the spare change.
2. Investing is too risky.
Another assumption about investing is that it carries unmanageable risk, akin to gambling.
“Investing is the first step to financial success,” says financial adviser Winnie Sun. “Change your perception of market volatility and see this as an opportunity.”
It’s easy to be scared by the hype of short-term market volatility. But in the long term, study after study makes the case for investing as a sound strategy for growing wealth. A stock market analysis from Yale University economist Robert Shiller shows an annual average return (after inflation) of 6.8 percent since 1871—even with wars, crises and multiple market crashes.
If anything, the gamble is not investing. When your money sits in a savings account, even with a decent 1 percent interest rate, it fails to keep pace with inflation and loses purchasing power over the long term.
3. It’s OK to settle for a starter salary.
The myth of paying your dues upon entering the workforce is ingrained in our culture, but there’s a big difference between the “paying your dues realities” of the 1970s and ’80s and the new normal of graduating with five figures’ worth of student loan debt.
Since the Great Recession, the median wage for 25- to 34-year-olds has fallen in every major industry except health care. Despite higher education, today’s young adults are more impoverished than their parents were at a similar age, with a median income $2,000 less today than in 1980 (adjusted for inflation).
The myth of paying your dues by accepting a lower salary than you are worth has created a cash-flow crisis for today’s young adults who are already burdened by student loan debt.
Struggle is not a prerequisite for success. Don’t settle for being underpaid. The consequences are more far-reaching than one or two tough years in the workforce.
This article originally appeared in the August 2016 issue of SUCCESS magazine.