Our society does a terrible job of properly educating us about finances. As mentioned in “The Stewardship Story,” the average American graduates from high school or college with almost no practical information about personal finances. Many financial “gurus” are only perpetuating information to serve their agendas, leading to many incorrect assumptions. Let’s debunk three of the top financial myths we often hear.
MYTH: Debt is evil.
Debt is amoral, not evil. People can be evil. Financial entities run by corrupt individuals can also be evil, but debt itself is not evil.
Think of debt like a brick. You can use a brick to cause harm and do evil things. You can throw it and break items or cause damage. But you can also use a brick to do something amazing. You can build hospitals, houses, or schools with bricks. The same is true of debt. You can use debt to buy things you can’t afford. It can even lead to bankruptcy. On the other hand, debt can be used positively to get an education or buy a home. Debt can actually be one of the most important tools used in building wealth.
The commonality is the people behind the brick or the debt. People can be evil, the debt is not.
PRO TIP – Sometimes keeping debt helps you build wealth. Check out this blog on paying off a mortgage early.
MYTH: Insurance rates increase for “no reason.”
Most auto and home insurance rates go up yearly. The common response to this reality: “My insurance goes up every year for no reason.” There is a reason, and most of the time it has nothing to do with you, but everything to do with profit.
Insurance companies are great advertisers. In fact, their advertising has some believing certain companies are not-for-profit entities serving veterans. This is false. Insurance companies are for-profit and trying to make money. They increase insurance rates to ensure they stay profitable—nothing to do with you as an individual.
Will an insurance company increase your costs if you file a claim? In most cases yes, but again, this is directly tied to profit. If you cost them money, their profit suffers, therefore they charge more. If outside factors are also costing the insurance company, they will again increase prices across the board to maintain profitability.
PRO TIP: Use an independent agent so you have options each year as you deal with increased insurance prices.
MYTH: I am not qualified.
The number one reason people don’t pursue some of the wisest financial steps: fear. Most think they’re unqualified or “not there yet” financially. For example, some think they they don’t have enough money for a down payment or their credit is too bad, so they deal with renting instead of achieving homeownership. Additionally, people often believe they don’t have enough assets to meet with a Financial Advisor so they flounder trying to figure it out themselves. Without proper advice, they miss taking extremely important steps and it sets them back years. The truth is, you only need 3% for a down payment. In fact, 64.4% of people currently renting are qualified to purchase a home. You also don’t need to be a millionaire to speak with a financial advisor. If you have a steady income, meeting with a financial advisor would benefit you.
PRO TIP – when you decide to meet with an advisor, be sure to ask them these 5 questions.
There are a lot of financial myths out there and this list is far from all-encompassing. However, it does include the top myths we hear on a daily basis.
If you’d like to meet with an advisor to chat about your finances, schedule an appointment below.