5 Financial Myths that Are Destroying Your Wealth

The problem isn’t so much what people don’t know, the problem is what people think they know that just ain’t so.”
— Will Rogers

Remember when you were absolutely certain about something that turned out to be false? Like Santa Claus or the Tooth Fairy. Or how about the witch that hides under your bed waiting to attack so you have to flip the light switch then spring into your bed before she gets you? (Okay, maybe that one’s just me.)

In honor of National Financial Literacy Month, let me just debunk a few “things you know that just ain’t so”:

1. You’ll come out ahead by deferring your taxes, and that’s one of the prime benefits of retirement plans such as 401(k)s and IRAs

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Why a Little Financial Information is Dangerous

Just cuz you’re following a well-marked trail doesn’t mean that whoever made it knew where they were goin’.”
— Texas Bix Bender

I respect people who are self-educated, and I respect people who continue to educate themselves about various topics, even after they’ve finished their degrees. As legendary basketball coach John Wooden used to say, “It’s what you learn after you know it all that really matters.”

That said, a little financial self-education can go a long way – toward completely destroying your financial future!

Why? Because when you cobble together your financial education with bits and pieces of advice you see on the internet, read in articles or hear on TV, you’re not really building a strong foundation of financial literacy. It’s like that old story of the 12 blind monks and the elephant. Each monk felt a different part of the elephant and used just that part to figure out what the whole animal looked like!

So one blind monk tells you to pay off all your credit debt ASAP, while another tells you that you need to build up a rainy day fund. One insists that you max out your 401(k), while another says to secure your future by paying off your mortgage. And the blind monk standing at the elephant’s tail thinks the economy stinks – so you need to get yourself a stash of precious metals!

When it comes to personal finances, you really need to see the whole elephant

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Fed says most Americans “extraordinarily vulnerable” to financial setbacks

A comment last week by Federal Reserve Chair Janet Yellen (read Is Pamela Yellen Related to Janet Yellen?) sent my inquiring mind down an investigative rabbit hole.Janet Yellen and Pamela Yellen

Janet stated that the Great Recession showed that a large number of American families are “extraordinarily vulnerable” to financial setbacks because they have few financial assets to fall back on when the you-know-what hits the fan.

She cited a new study showing that an unexpected expense of just $400 would force the majority of American families to borrow money or to have to sell something to cover it.

Just $400! Yikes! What is that? A minor car or appliance repair or a small medical or dental expense?

That stat came from a survey released by the Federal Reserve this summer that was so ignored by the media that it even escaped my notice.

When I finally tracked down that Federal Reserve survey (Report on the Economic Well-Being of U.S. Households in 2013), I could see why the media wanted to keep it under wraps.

Here are a few startling revelations from this Report…

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7 Ways to Spend Less and Enjoy Life More

Do you remember during the recession when it was actually trendy to cut up your charge cards and get out of debt?

Well, that fad wore off rather quickly, didn’t it?

Americans have since resorted to their free-spending ways, and now total debt in the US has hit a new all-time record.”

Over the past several years, 6-year-term loans have become the norm for financing cars, according to Experian Automotive.

And subprime loans to business have skyrocketed – at rates equal to as much as 125% per year, when the fees are included. (You read that right – 125%.)

Borrowing creates the illusion that we can afford a better lifestyle than we really can. And sooner or later, the chickens will come home to roost. It’s never pretty when that happens.

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