25 Myths You’ve Got To Avoid If You Want To Manage Your Money Right is an excellent financial book. This book gives you a solid overall advise to rethink your financial strategy.
This book explains 25 New Rules of Money that anyone can follow to create a successful financial life.
In this book the author reveals 25 familiar financial myths. He explains where we go wrong following these myths. What makes this book interesting is that the author explains each of these 25 myths with a logic. These logics are easy to understand and you can apply these logics to your financial situation.
Have you ever been told that
- Investing in stocks is risky.
- You can’t go wrong by investing in mutual funds.
- Life insurance is a good investment.
- Debt is dangerous.
- Take the largest mortgage possible for longer period.
These rules were good rules in the old days but now the rules have changed and these old rules no longer work. By reading this book, you will learn new winning strategy about investing, building a strong portfolio, buying a house and selecting insurance policies.
1. You Can Have It All
You have been told since your childhood that you can and should achieve all the good things in your life. Our family, our friends and all other people surrounding us, make us believe that by working hard we can have all we want like a big house, a beautiful car and a fat retirement portfolio.
To buy a big house and a nice expensive car many people get heavy home mortgage and car loan that they can pay only by working longer hours on the jobs they hate most. The new rule of money is that you should become choosy to live a happy life. You have to make some good personal choices.
May be you don’t want to own a big house or you don’t need an expensive car, you can live in a smaller apartment and drive an inexpensive car. Thus you can save money and invest for your retirement. You have to make plans. You have to set short-term and long-term goals that are really important for you.
2. Get a Good Job and You will be set for Life
This rule was good for 20th century which was industrial age but now we have entered in a new age. We are living in the information age. In the Industrial you study hard, get good steady job and you are set for life, because you get a steady paycheck even after you retire.
but in the information age to make money you should have financial education, the jobs are no more secure, there are no more guaranties for retirement paychecks.
The jobs are transferring to the countries where the labor is cheap. Now you cannot be financially secure by finding a job because you never know when your job would be transferred to someone living far from here.
Now if you want to retire, you have to save money and invest intelligently for the long-term. You have to gain financial information and become financially smart to get ahead in the financial race.
3. Nothing safer than Money in The Bank
The author reveals that to get out of financial crisis of 2008 and to bail out big companies, the central banks of all the countries are printing so much money every day that your money is loosing its value everyday due to the inflation.
Suppose you put your money in the bank and you get 3% interest on your money if the inflation is growing at the rate 4% per year, you are actually loosing money by putting your money in the bank.
The bankers are the robbers nowadays.
4. Stocks are Risky
You have been told that stocks are risky and you should not invest your money in stocks. Then you have not been told the whole truth which is that stocks give better return than other asset classes. If you invest in good stocks, you will get much higher return than investing in the bonds, CDs or saving account.
Stocks are the real growth investment in your financial portfolio. If you want to grow your investments and become financially secure, you should invest your money in the stocks. Because the statics of past 50 years show that there are no other investments that can give better return than stocks.
If you are a long term investor, your biggest enemies are inflation and taxes, to combat these two threats you must invest in the stocks.
5. You Can’t Go Wrong With Mutual Funds
The myth is that you should invest your money in the mutual funds. But have you ever wondered where do the mutual fund’s managers invest your money. They invest your money in the stock market. Whenever the stock market goes down, the mutual funds also loose their value because they are directly related to stock market.
The mutual funds invest your money in stocks and give you only 20% profit and only if the stock market goes up but if the stock market goes down you loose money but the mutual fund managers still get their commissions. You should choose mutual funds carefully before investing your money in them.
There are two types of mutual funds, First type is active mutual funds where the manager buy and sell stocks every month, Second type is index funds where the manager invest money in a set of stocks, he does not sell any stocks, he just keep buy more shares of the same bunch of stocks. Index mutual funds give much better return than active mutual funds because they have less expenses fees due to less transactions of buy and sell orders.
6. You need a Financial Advisor
The myth is that you can not do it all by yourself and you should choose a financial advisor. But the new rule of money is that If you are willing to invest some time each month to learn investing, you don’t need financial advisor.
First of all you should learn to calculate your net worth. Keep track of your assets and liabilities. Follow this magical tip - update your net worth each month and it will automatically start increasing. You should make your own investment decision, start making small decisions and whenever you make mistakes, learn from them.
Track your performance and transaction costs. But in the beginning days if you really need a financial advisor, find an advisor with good past records.
07. Invest in the House
The myth is that you should buy a big and beautiful house in your early working years but If your house is your biggest investment then you are in trouble. The bigger the house, the bigger will be your down payment, interest rate and monthly mortgage payment.
The bigger the house the longer time period (30 year period) you would choose to pay off your mortgage but it is a foolish investment. Instead you should buy a smaller house and a shorter mortgage period of maximum 15 years, thus you can save a lot of money on the interest that otherwise you will pay to your bank.
08. Life Insurance is a Good Investment
You should not buy insurance policies for the investment purpose. If you invest your money in the traditional life insurance policies that give your money back after a certain period of time, you end up loosing your money due to inflation and taxes.
If you have a family who depends on your income then you should consider term insurance, in this insurance you invest very little amount of money each year to be insured.In the term insurance, they don’t give you any money back if nothing happens to you but you are insured and if unfortunately something happens to you, your family will receive the same amount of money that they will get from traditional life insurance.
It is like car insurance where you don’t get any money back unless an accident occurs. The good thing is that you could invest the difference (that you would have paid in the traditional policy) in low-cost index funds that can give you return of about 10% in the long-term.
If you have a financial portfolio that can cover your family expenses for ten years, you don’t need an insurance for example if your family expenses are $50000 per year and you have a financial portfolio of $500000 you don’t need a life insurance.
09. Debt is Dangerous
Debt is dangerous if you spend that money on buying liabilities such as car, boat or on vacations but debt can be good if you invest that money and get better return on that money than you are paying to bank.
For example if you take debt from bank with 6% interest rate and you invest that money in index funds where you can get 10% return in the long-term, in this case you are using debt as a leverage.
Final Thoughts on This Book
This book is very informative and interesting to read. Read this book and it will change the way you think about money. The wisdom written in this book is very valuable and original.
The author explains very well how most of the people are still following the old rules and often ask the questions like why they don’t get rich? The problem is that the money rules are changed and you should play the money game with new rules to win.