You’ve probably heard plenty of money advice—from your family, your friends, your co-workers. Maybe you’ve even dug into some financial websites and done some serious homework.
And chances are, you found plenty of conflicting information. Spend now, save now. Buy insurance, don’t buy insurance. Pay down debt, get the biggest mortgage you can afford.
So how do you sort through the maze to get—and keep—your finances healthy? Start by taking a look at the top six money myths being thrown at Millennials and deciding if any have found their way into your belief system.
Money Myth #1: You have too much student debt to start saving money.
Here’s where you definitely need to see the bigger picture. Your financial security demands you have a stash of cash for the unforeseeable emergency—job loss, illness—and the inevitable—career moves, family expansion, retirement. If you start with a budget—you know how much you earn, your fixed expenses (i.e. student debt payments), your savings target and your discretionary spending—you can save while you’re paying down debt. Putting your discretionary spending before savings can cause problems down the line. Build your lifestyle from what's left over after you hit your savings goals.
Money Myth #2: If you need cash, there’s always your 401(k).
This is a bad idea on many levels. If you lose your job, you have to pay the money back immediately or pay taxes AND a 10 percent withdrawal penalty. And the money is there for retirement—the longer you keep adding money and letting both your principal and earnings grow, the easier your future life will be. Resist the temptation to think of your 401(k) as a bank account.
Money Myth #3: You don’t have enough assets to even think about wills and estate planning.
If you're married, have assets or debt, have kids, own a business or a share of one, you need a Will, Power of Attorney and Advanced Health Care Directive (AHCD). While the actuarial chances of your severe illness, disability or death are small, you don’t want to leave your loved ones in a mess. And the AHCD is how you ensure your wishes to be medically treated (or not) are honored. It's important.
Money Myth #4: There's plenty of time to buy life and disability insurance.
If only it was as simple as buying insurance right before you need it. Unfortunately, age, health changes and accidents can prevent you from protecting your income and your security. The older you get, the more expensive the coverage and the greater the risk that something might exclude you from affordable coverage.
Money Myth #5: Credit card companies won’t give me more credit than I can handle.
Just because you CAN charge it doesn’t mean you should. Let’s be clear: credit card companies make money when you rack up balances and don’t pay them off every month. So don’t let them be the guardians of what you can afford.
Money Myth #6: Pay down your student debt first.
So you have that giant number floating above your head—and no way out but to pay it down. Why shouldn’t you use every spare nickel to whittle it away? Because you still need to prepare and protect yourself. Do you have an emergency savings account? Have you started saving for retirement? It’s generally better for your financial security to whittle away at all three of these vs attacking any single one with gusto.
We all have beliefs about money—many of them hard-wired from how we grew up and our earliest experiences around money. But if any of these myths found their way into your consciousness, it’s never too late to bust them and start taking control of your money life.
Michael F. Kay, CFP® is a financial life planner, teacher and author of two books including the upcoming “The Feel Rich Project”. Through his books, workshops, speeches and client base, he’s helped thousands of women, men and families master their financial lives. Reach him on Twitter @FinLifeFocus.
Michael F. Kay, CFP, Contributing Writer