Debunking Money Myths

At Yeske Buie, we encounter many money myths that can mislead individuals on their journey toward financial security. Let’s use this space to tackle some of these myths head-on using our grounded wisdom and evidence-based approach to financial planning to help you see through the noise so you can make smarter, more confident financial choices.

1. “There’s no reason to save for retirement before 40.”

This fallacy fails to account for the young investor’s most powerful ally: time! Setting money aside for retirement during the early stages of your life enables you to benefit from the power of compound interest, where the earnings on your investments generate further earnings over time.

If you saved $1,000 a month for 40 years, assuming an 8% annual growth rate, your savings would increase to about $3.1 million by the time you retire. Contrast this with a savings period of 30 years, and your total savings amount to about $1.3 million. This is a simple yet effective illustration of how starting to save early can lead to a more secure financial future.

To maximize this advantage, Yeske Buie recommends you consider contributing to your employer-sponsored retirement plan, especially if they offer matching contributions—this is essentially free money. Additionally, diversifying your retirement savings across different account types, like traditional and Roth IRAs, can provide tax benefits and greater flexibility when you retire.

2. “Buying a home is always better than renting.”

Homeownership is often seen as the ultimate financial goal, with the belief that paying a mortgage builds equity, while renting is “throwing money away.” But this line of thinking oversimplifies the decision. Before choosing whether to buy a home or rent, looking beyond just the monthly costs is key. Your long-term goals, lifestyle preferences, and financial flexibility are just a few factors to consider before dismissing renting as simply throwing money away.

Renting can offer significant benefits that should not be overlooked. Some of which include lower upfront costs and the freedom to relocate at nearly any time. Additionally, because maintenance and repair responsibilities often fall on the landlord, renting can be a simpler option for those who’d rather not deal with the upkeep of a home. However, buying a home can be advantageous if you want to build equity, customize your living space, and benefit from potential price appreciation and tax deductions.

Research also shows that renting can be more cost-effective in many U.S. cities over 30 years. For example, in Irvine, California, long-term renters could save nearly $1.3 million compared to homeowners.

While buying a home may make sense for some, it’s not necessarily the best option for everyone. Ultimately, the decision to rent or buy should be based on you and your unique circumstances after a careful evaluation of the trade-offs at hand.

3. “The stock market is too risky for my retirement money.”

It’s easy to be intimidated by the ups and downs of the stock market, which can make it seem too risky for your hard-earned money. But staying out of the stock market entirely carries its own risk: not getting the growth you need to fund your retirement. Our approach to investing focuses on building a globally diversified portfolio that taps into the growth potential of the market while managing risk through regular rebalancing and keeping a long-term perspective. Over time, the market’s natural tendency to grow, alongside the economy, makes it a crucial component of a robust retirement plan.

4. “The more money I have, the happier I’ll be.”

Whether money can buy happiness has been debated for years, and recent research offers a nuanced view. A well-known study found that while income is closely linked to life satisfaction, its impact on day-to-day happiness plateaus at around $106,000 annually (adjusted to today’s dollars). Essentially, more money indefinitely improves life evaluation—how people think about their lives—but it has diminishing returns on emotional well-being beyond that threshold.

That said, it’s important to remember that the relationship between money and happiness isn’t just about the numbers. For example, having a lower income can make life’s challenges, like health issues or loneliness, feel even more overwhelming. On the other hand, having enough income can provide a cushion, offering peace of mind and a sense of security.

Ultimately, the role of money in happiness is complex. While money can certainly influence our overall life satisfaction, it’s not the sole determinant of our emotional state. Things like relationships, health, and a sense of purpose often have an even greater impact on how we feel day to day.

Money myths can lead to misguided decisions, but by separating fact from fiction, you can make choices that genuinely support your life goals. We realize this is easier said than done, so if you’d like to explore these topics or any others further, always feel free to contact a member of your financial planning team.