It doesn’t matter how old you are, how smart you are, how rich you are. Everyone, and I mean everyone, believes at one point in time in these money myths. These myths have amazing staying power. Help me help you debunk these, ok?
- You should borrow from your 401k when you need money.
- Borrowing from your 401k is a bad idea. In addition to being charged interest for the loan and not being able to contribute until the loan is paid back, you’re robbing your future self of compounding interest. This is why your parents, your grandparents, me, preach about establishing an emergency fund. An emergency fund is an account where you stash cash for emergencies – job loss, car repairs, A/C unit, etc. An emergency is going to happen, so why not be prepared? How much should you keep in an emergency fund? I suggest keeping at least 3 to 6 months of basic living expenses in cash.
- Credit cards are bad news and should be avoided.
- Credit cards are great when they’re used judicially and paid off in full every month. Credit cards help you establish your credit score. Having a good credit score helps you adult better (think: mortgages, car loans, etc.). Your payment history is a significant part of your credit score. Carrying over a small balance on your card does not help you increase your credit score. Credit cards are only bad news when you start to rack up that debt.
- Only rich people need a will.
- Wealth doesn’t necessarily dictate whether you should have a will. If you are married, have children, or you have specific bequests for your assets, you should have a will. If you don’t have a will, make sure you at least have beneficiaries listed on your 401ks, Roth IRAs, and investment accounts. Also, regardless of having a will, everyone needs a financial power of attorney. This document will enable whoever you’ve named as your agent (spouse, loved one, parent) to access your bank accounts, pay your bills, and make financial decisions on your behalf should you be incapacitated. One more document that you need is a healthcare directive, which unlike a financial power of attorney, address medical decisions. You can access Georgia’s version here.
- You don’t have to start saving for retirement until you’re 40.
- It’s shocking to me to read that two-thirds of working Millennials aren’t saving for retirement; they plan to save more aggressively later to make up ground. The longer you wait to save for retirement, the less likely you’ll be able to catch up on those lost years – even if you throw a whole bunch of money at the problem. If you only remember one thing, remember this: save early, save often.
- Social Security won’t be around when you retire.
- Let’s be real here, Congress needs to address the issues related to Social Security. However, it will likely exist in some form or fashion when we’re Silver Sneakers. The kicker is that you cannot believe that Social Security will provide for your entire income need in retirement. It’s likely that it will only cover a fraction of your expenses in retirement. That’s why you need to start saving now in your 401k, Roth IRA, investment accounts, etc., to prepare for that beautiful future when every day is a Saturday.
- You have to be rich to invest.
- There’s no separation between Wall Street and Main Street. Anyone can open an investment account with as little as $25. But before you start opening accounts all over the place, look to see if you are contributing to your 401k at least to the employer match amount and have an emergency account established. If you just said “check, check,” check out my retirement savings waterfall for next steps to investing.
- My partner manages money, so I don’t need to worry about it.
- Everyone needs to know what’s going on with their money. Even if each partner maintains separate accounts, you both need to discuss your finances openly – you’re building a life together and that life involves money. Do not stick your head in the sand when it comes to your finances. If you’re scared or embarrassed that you don’t or won’t know how to deal with your money, seek help. This isn’t a gender issue, no one is better or worse than the other sex with money management. However, if as Queen B proclaims “Who run the world? Girls,” then ladies, you need to feel confident to control your money.
What other money myths do you want to debunk? Knowledge is power; don’t short change yourself by believing these myths or that you can’t confidently manage your personal finances. We’re in this together!
Editor's Note: This blog post is part of the January 2019 edition of Odyssey NexGen Newsletter. Curious about Odyssey's NexGen program? Email [email protected] to learn more.