Don't Let These Financial Myths Hold You Back!

As a species, we are attracted to stories. They help us make sense out of a chaotic world and bring order to uncertainty.

Not all stories are created equally however. There are a number of myths on personal finance that have an insidious effect on those who have subscribed to them without entertaining alternatives. These stories creep up on us over time, until we have been indoctrinated without even being fully aware of it.

We receive some of them through dubious readings, such as financial books written by individuals who are less interested in helping you to grow your net worth than they are in steering you toward sub-prime services. We may learn of others through individuals we normally trust in most areas of our lives, such as close family members and friends.

However we may have absorbed these tales, it is important to maintain your financial savvy and critical thinking acumen, so that you can separate sound wisdom from all of the misguided dogma and noise in the echo chamber.

There are likely many “common sense” finance tips that are keeping you from accumulating real wealth. Here are just a few of the nonsense stories you should stop listening to – and why you should start thinking differently.

• Myth #1: Saving Is The Same As Earning

We have all heard the famous axiom that “a penny saved is a penny earned”. It is hard to argue with the notion that it is smart to live within your means and it surely makes sense to take advantage of opportunities to save your hard earned money.

But far too many of the working poor and lower middle-class, who fall short of their goals to attain wealth, focus on the goal of cutting their budget rather than thinking through what steps they could actively be taking to increase their earnings potential. They are spending more time “playing defense,” rather than taking offensive steps to increase their value and earn more money. They are overly fixated on how to cut up a small pie, instead of focusing on how they can enlarge the size of the pie altogether.

The fact is that there is only so much you can save, especially on a fixed salary, to be able to achieve significant wealth. There are numerous ways in which a fixation on reducing costs can stymie your growth – think of the saver who misses out on a valuable conference or networking session because they don’t want to invest in a professional wardrobe or travel costs. While they may be saving some dollars in the short run, they can’t calculate the long term relationships, opportunities, and wealth they are forgoing with such a short-term mindset.

• Myth #2: You Can Do It On Your Own

Because of short term thinking, many people are focused on their balance in the very short term – they are uncomfortable seeking assistance from professionals – be it in helping them to manage their investments, making major career decisions or delegating aspects of their business ventures. They prefer to do everything on their own, overestimating their own judgement and preferring to not invest the time or money that comes along with working in partnership with others.

The reality is that we all have strengths and weaknesses – the weaknesses can be mitigated and the strengths can be amplified when we bring in a talented team who can augment our own abilities.

This is especially true in the area of your managing your personal investments. There is a degree to which you can begin by using your own research and some automated tools, such as index funds set to specific target date years. But as you begin to accumulate significant holdings, it is critical that you bring in the trained eye of a professional to ensure that you stay on a consistent course upward.

• Myth # 3: Your Earning Power Has Already Been Set

So many of us tell ourselves stories about how much we are able to bring in based on conditions as they currently exist. We take stock of where we are coming from and where we currently are – and often enough, we just leave it at that. So we tell ourselves that this is the best projection we can do based upon where we happen to live or our grades from years ago in school.

Or perhaps we tell ourselves that we are limited by the nature of the field or profession we have chosen – if you have followed your passion into teaching or social work, that’s just the reality of how much you’ll be able to make.

All of this is short-term and near sighted thinking! The fact is that all of us have the capacity to be entrepreneurial in our thinking and how we approach the world. All of us have talents and insights from our niches of the world that can be applied to create new revenue streams. The key is to think creatively beyond the narrow confines of your circumstances as the world dictates them.

• Myth # 4: You Have To Start Out Rich

You need money to make money, right? Too many of us subscribe to the thinking that the game has been rigged to ensure that only the rich get richer. While it is undeniable that being born into the right gene pool can give you an enormous head start in accumulating wealth, this is no zero-sum game. In fact, you may find if you observe long enough, that being born into great wealth is actually a hindrance due to the manner in which it can sap the will and drive away from scions.

Many of the great achievers of our time have been driven from early on to make their own name for themselves. You will find that a huge percentage of the list of wealthiest Americans are made up of self-made people who rose from next to nothing to claim their place.

The magic of compounding interest and the networking capabilities of the Internet makes this a time of great opportunity to attain economic mobility – but it also takes grit and perseverance. Leave class warfare and envy for others to sort out – you should be too focused on maximizing your own talents and helping others to worry about the game being rigged against you.

• Myth #5: Your Income Is The Same As Your Worth

There is enormous focus on annual salary as a harbinger of financial success. This is actually a poor indicator if not placed within the full context of an individual’s financial picture.

A lawyer pulling in $150,000 annually is not necessarily in a better position than a school teacher with a $45,000 salary, if the lawyer is mired in credit card debit and excessive mortgage payments.

Having the capacity to save and the energy needed to invest your energy and focus into entrepreneurial ventures will ultimately outpace a large salary. Consider the broader picture when entertaining job offers – there will always be a lot more on the table to keep in mind than just the amount in your weekly paystub. How will the job help you to reach your professional goals and live up to your fullest expectations of yourself?

What other financial myths have you heard in the media or from associates? How have you learned to be able to separate out good advice from short-term rationales that will only prevent you from reaching the earning power you aspire to?