Do you get caught up in money beliefs that don’t serve you? If your answer is “yes,” you are not alone. There are a lot of money beliefs and myths out there that might make you question your own decisions, or make you feel like you’re behind in the game. The truth is, though, everyone is different. There is no one-size-fits-all approach to personal finance. What you decide to do depends on what is right for you and what you’re capable of doing at any given time.
Recently, for an episode of my podcast, I spoke to the blogger behind the Millennial Money Woman about certain money myths that many Millennials believe. In her experience, four myths really stand out.
You Must Buy A Home To Be Financially Successful
Traditionally, it has been said that renting a home is a waste of money and buying a home is one of the main ways to build wealth and equity. And sometimes, that can be true. In some scenarios, in some low cost of living areas, it can be more affordable to own than it is to rent. However, buying a home is also quite expensive and completely out of reach for many, many people. Telling people who cannot afford to buy a home that they are throwing their money away by renting their home is unfair and short-sighted. Paying for a safe place to live is never a waste of money.
At the same time, there are plenty of people to just don’t want to own their own homes. They don’t want to be responsible for maintenance, they don’t want to be tied down to one location, etc. Applying this one-size-fits-all piece of advice can leave a lot of people out of the conversation and it can alienate the people who don’t want to achieve this goal. As the Millennial Money Woman said to me, “It’s such a huge commitment. And it’s not only financially huge, it’s also an emotional commitment.” Skipping this life decision won’t inherently damage you financially. There are plenty of other ways to make sure that your money is going where it needs to go in order to grow your wealth and support yourself.
Life Insurance Is Always A Scam
“As I graduated college, I was under the impression that life insurance is such a scam,” the Millennial Money Woman told me. She went on to explain that in reality, not all life insurance policies are created the same, so they won’t always be a good fit. However, if you have a family and you want to be able to provide for them if something happens to you, some life insurance might actually be a good fit. And that would be term life insurance.
Term life insurance is pretty much exactly what it sounds like. It’s life insurance that provides coverage at a fixed monthly payment for a limited period of time. This will often be a 20 or 30 year period. The idea is that you get life insurance while you are young and healthy and the policy is affordable and then the policy runs out by the time you are older and are less likely to have people who are financially depending on you. If you have anyone who is reliant on you for housing, income, or care, it’s incredibly important that you get life insurance. Otherwise, if you were to pass away, the people who rely on you might end up not being able to financially care for themselves.
If you’d like to find a life insurance policy that works for you, there are many options out there. If you have your own financial planner, you should talk to them about how much coverage you need and which companies they recommend. If you’re searching for life insurance on your own, you can compare rates through sites like Policygenius.
Saving Can Wait Until Tomorrow
It’s easy to fall into the idea that you can put off saving for the future, especially if you’re young. But according to the Millennial Money Woman, saving when you’re young is the best time to do so. “When you’re young, you have time on your side. So the younger you are, the less you actually have to invest, as long as you’re consistent.”
The sooner you start setting money aside, especially if you’re putting it into a retirement account, or another investment account, the more money you will end up having when it’s time to retire. Compound interest is when interest builds upon itself over time. When you have more time for that to happen, the money will grow more and more. So, if you only put a little bit of money away every month starting when you’re 22 years old, you actually won’t have to work as hard as if you were to start saving lots of money when you’re in your 50s.
I do want to add here that if you haven’t been prioritizing saving and investing up until now, it is not too late to start. It’s never too late to get started! Whether you can save $5 a month or $5,000 a month, it’s important to just do it. Put it in a high-yield savings account or open a Roth IRA. Whatever your vehicle is, just do it. Your future self will thank you!
Your Employer Can Take All Your 401k Money If You Leave
Retirement accounts are not very straightforward. And we aren’t all walked through the process in detail. That can lead many of us to be very confused about what we are entitled to. Many people, especially young people, believe that when they leave a job, their now former employer will be able to just keep any money they had in their employer-provided retirement account (whether that’s a 401k, a 403b, etc). But it’s actually more complicated than that! As the Millennial Money Woman said, “That’s 100% false”.
To break it down more clearly: any money that you personally contribute to your retirement plan is your money to take with you when you leave that job. Any money that your employer contributes to your plan, whether as a match or its own contribution, could possibly be theirs to keep. It depends on when you become completely vested in your retirement plan. Once you are 100 percent vested in your retirement plan, all of that money, both your contribution and that of your employer, is completely yours. So, find out when you become vested in your plan and keep that in mind when you are considering leaving a job. Sometimes you only have to wait a year, but at some places, you have to wait up to five years.
If you do leave an employer, don’t forget to roll over your old retirement plan balance to your new 401k at your next job or into a traditional IRA that you can control and continue to contribute to. This will ensure that you never forget about any money you’ve saved for retirement and allows you to continue adding to the balance over time.
It’s so important to interrogate any sweeping advice you hear or money beliefs that you hold. Compare the belief or advice to your own values and needs and make a decision from there. It’ll make things a whole lot easier for you.