The damaging money myths that are holding you back
I have two teenage sons, both of whom have their driver's licence and new jobs, which are launching them into a new phase of independence and curiosity about the world. It is an exciting time.
As part of this transition, they are learning what it is to manage their own finances, how to spend wisely, how to plan and save, and how to spend just enough on yourself to have fun, without blowing it all.
Both of my boys are fascinated with the FIRE movement (financial independence, retire early), and it has opened up some great conversations about spending and healthy money mindsets.
As part of this, I have had to work hard at breaking several money myths that are considered "commonsense" to many people. It created so much discussion with my broader social network that I'm sharing my top four money myths with you, and simple phrases to help counteract these catchy mis-truths.
This is important because when a saying rhymes or has a lyrical flow, our brain tends to trust its meaning. That's why marketing companies are paid squillions of dollars to come up with slogans - it's the bubbles of nothing that make it really something.
So here are my top four money myths and simple sayings to counteract them.
1. You need to be rich to get rich
Being rich to start with offers no guarantee of staying wealthy. It is true that having a bigger piggy bank to draw from creates more opportunities for growth, but wealth creation can start at any age and in any financial situation. Building wealth is about learning the rules of good money management, and the rules don't change much whether you have $100 in the bank or $100,000.
The important thing is to enjoy growth, whatever the rate of return.
A better saying is one that my grandfather used when he was training sheep dogs on the farm: "Learn to control a single lamb, and you'll be able to control the whole farm."
2. Bricks and mortar are a better wealth builder
This is definitely not always true. Rental returns and capital growth do not always outstrip property expenses and upkeep.
What this approach tries to achieve is to drive people into a longer-term investment strategy, which can often be good, but any long-term strategy can be good - not just property. In many cases, long-term share portfolios grow at a greater rate than property for a fraction of the initial investment, and they have better liquidity.
The problem is that people value these investments in terms of hard numbers rather than percentage growth. Ten years ago they might have bought $30,000 in shares that are now worth $70,000, but they also bought a property for $600,000 that is now worth $1 million. They intuitively think that $400,000 is much better than $40,000, but fail to see that if they invested $600,000 in shares they'd likely be worth $1.4 million based on these ratios.
Now, I'm not advocating for shares over property, just making a point that the myth doesn't always hold true. A better saying is: "A balanced table has four legs", meaning you need multiple investment strategies to create stable wealth.
3. You need to look wealthy to become wealthy
Baloney. This is what salespeople say when they want to sell you a fancier car or a more extravagant house.
It is true that if people are trusting you with large amounts of money, or to deliver a big project, you need to give a good impression and project competence. However, faking how wealthy you are usually just leads to poverty, with the cost of keeping up appearances often outstripping income. Being healthy, strong and kind is much more important to wealth building than projecting an image of wealth.
This is because you project self-control and empathy - things that build trust. Faking wealth simply projects recklessness and insecurity. A better saying is: "Tend to the little things - big trees grow from well-tended seeds".
4. When I earn more, I'll be able to save more
This is the most insidious of all the myths in my view.
Learn to save when you have little and you'll save when you have a lot. Learn to spend when you have little and you'll still spend when you have a lot.
Building wealth is a mixture of a healthy money mindset and good spending habits; it has less to do with simply increasing earnings. A better saying is: "Live within your means now, so your means can help you live later".