Busting Personal Finance Myths
- Irene Chow
- Apr 16, 2024
- 6 min read
Updated: Apr 30
Title: Busting Personal Finance Myths Introduction:
Don’t Let These Misconceptions Keep You from Financial Wellness
There are tons of apps and platforms today that claim to “help” aspiring savers and investors navigate the world of finance and investments.
The assumption is that investing is complex and that most people need help to understand and sort through the various choices available to them. While there are clearly some complex issues associated with financial investments, the majority of choices that most of us face are surprisingly and reasonably simple.
Our philosophy at Litmus is, “It’s your money, own it.” Our approach is based on combining knowledge, action, and accountability (KAA) to empower individuals to create, act on, and sustain tailored strategies that enable them to achieve financial wellness over time. We start below by busting some common myths about personal finance.
Myth #1: “I don’t have enough money to invest.”
Investing is not just for the ultrarich. The five largest banks in the U.S. have, among them, more than 200 million savings accounts with over $6 trillion (with a “T”!) in deposits. The vast majority of these accounts have balances of less than $250,000, and the average amount is likely less than $100,000 (it was ca. $60k+ in 2022) and pays less than 1% in interest.1
Imagine if just 1% of that money was moved into money market funds, mutual funds that invest in highly liquid short-term debt instruments of high credit quality such as T-bills (short term U.S. Treasury Securities). Money market funds are currently paying around 4.5% versus <1% for bank accounts. That would generate an additional earnings of $2.1 billion dollars over one year or $175 million dollars per month.
Another way to look at it is this: let’s say you have $10,000 in a normal savings account. Even at a 1% deposit rate (note that the national average deposit rate over the last two years has been less than 0.5%), you would end up earning $100 versus $450 in interest if you had put your cash in a money market fund yielding 4.5%.
We have not even touched on the topic of investing. This is a simple question of where you are keeping your savings. Talk about FOMO!
Myth #2: “I don’t have the time.”
Other versions of this myth include: I don’t understand the jargon; there is too much information to read; It’s too early in my career to worry about investing; or conversely, it’s too late, I’m about to retire or am retired.”
Like all industries, the finance and investing world has its own vocabulary and terms, and no lack of disclaimers and fine print, thanks to protective regulators and lawsuit-fearing financial companies. Stop for one minute to think how a person “gets” more time. Time is a function of priorities. Usually, it’s from delegating or outsourcing certain tasks, whether that translates into hiring a cleaner instead of cleaning your apartment, getting a babysitter to have a date night, or having meal kits delivered so you don’t need to cook.
What’s the common thread here? All of these services cost money. So if there is one thing anyone should make time for, it should be their financial wellness. Once you arm yourself with a little knowledge, we’re confident that you’ll find thinking about, discussing, and managing your finances can be interesting and quite fun.
And the same goes for the question of timing. It is always the right time to focus on your financial health. It is never too early, and equally, never too late to optimize your financial well-being.
Myth #3 - “I have someone who takes care of the finances for me.”
Maybe that someone is your parents, your parents’ wealth advisor, another relative, or your partner. No matter which of these situations you might find yourself in, we stand firmly by the Litmus philosophy — it’s your money, it’s you who needs to own it.
There is absolutely nothing wrong with consulting others for information or advice. In fact, that’s what we view as part of the “knowledge” stage of your personal finance journey. However, a number of us by default get roped in or added as a client of our parents’ financial advisor. Remember that this is just one of many options for achieving and managing financial wellness, but don’t forget to ask yourself if it’s the right option.
For example, if you are “piggybacking” on your parents’ financial strategy or asset allocation, there is a good chance that your investment portfolio is not configured properly for your needs. This may be obvious, but the first thing to note is that your parents are older than you! If not already retired, they are much closer to retirement than you, which likely means they have a different investment time horizon, risk tolerance level, and different income and cash flow needs. In other words, the strategy or asset allocation recommended for them may be at best suboptimal, if not wildly inappropriate, for you.
Other factors to keep in mind are that good decisions that your parents made in the past may not be good decisions for you now; market conditions may have changed and your values may not be the same as your parents’ or your family’s values. A good financial advisor should treat you as a valued client with unique goals, and not accept you as a client merely as a favor to an existing client.
The next scenario may be somewhat unpleasant or contentious to discuss, but it would be challenging to achieve financial wellness without doing so. If your spouse/partner or other relative “handles the money stuff,” what if that situation changes and they no longer can or want to do so? It is a notorious fact that financial or money problems are one of the top reasons for conflicts in relationships. According to a recent study, 3 in 5 Americans have considered delaying marriage to avoid inheriting their partner’s debt, and 54% of the study’s respondents believe that having a partner with debt is a major reason to consider divorce.2
Even with our loved ones, it is more difficult than it should be to talk about money. Litmus is setting out to change this. Money has always been an awkward topic that doesn’t get a lot of airtime e even though we spend a good amount of time thinking or stressing about it.
Litmus was founded to make financial literacy fun and financial wellness accessible, but you won’t be able to achieve either if you’re not willing to bring up the topic.
Ask your parents what, if anything, do they expect to have left over after their retirement and whether they have a will. If so, what does it say, and if not, why not? Having this information allows parents to help their children be informed and prepared in advance. It will also help align thinking about your and their savings, investments, and estate/other assets. Will there be an inheritance? What are your parents’ views regarding philanthropy? What form will the inheritance come in and what are the related tax implications? Ignoring or avoiding these questions and issues may feel like the easier option now but typically ends up doing more harm in the long run.
Takeaways
Like all healthy habits, financial fitness is an achievable goal but only if you’re willing to commit to it with patience, practice, and repetition, which is what allows financial wellness to become part of your regular routine. Rather than look at finances as a complicated, overwhelming or time-consuming topic, we urge you to think about money from a different perspective. Money is a means to help you live your best life. Who is better positioned than you to be responsible for saving it, managing it, and growing it? It’s your money — why would you want someone else to own it?
We’ll have a box/short form for people to sign up for info on bootcamps at the bottom of the articles. WIll incorporate your verbiage into the form.
You can likely think of other attitudes towards financial wellness that are equally “unhealthy,” and if you are being honest, you may even be a practitioner of an unproductive approach. We’d love to help you figure it out! But whether you become a Litmus Financial client or not,
Litmus Financial is here to educate, inform and guide you through this process with our Finance 101 bootcamp, our advanced course-work, and our business model of personal interaction and accountability.
We estimate our boot camp will take the average investor around 10 hours to complete. With 45 minutes every other day, you can complete the bootcamp in less than a month; less than 6 weeks if you spend 45 minutes every three days. Is 45 minutes every third day for six weeks worth comfort with financial decision making for the rest of your life? We think the answer is obvious, but you must decide for yourself.
Comments