10 Misleading Money Facts
Everyone loves some good money advice, right? But most of it is either misleading, vague, or not correlated to the real world. So, here's our picks of the most misleading money advice out there. Welcome to a Lux!
First up, "investing will make you rich." It won't. The only way you'll get rich from investing is either with a huge amount of money or a huge amount of time, disregarding those once-in-a-lifetime "to the Moon" investments that everyone is chasing after. All you have to do to understand this is some simple math. You see, historically, the average return of the S&P 500 Index Fund is around nine to ten percent. But let's say you're an absolute investment god and you average 20 percent. Now, if 10K is all you got, 20% doesn't even cover your life for a month. When the rich invest, well, 10K could mean a million dollars. So sure, in that case, you get richer, but for the average individual, the returns are negligible. Does that mean you shouldn't invest at all? No, of course not. But you need to understand the reason you're actually doing it, and the reason is safeguarding your cash from inflation. It's definitely better to have money in stocks than in your bank account, but making you rich? Well, that's not necessarily going to happen.
You know those photos you keep seeing with what could have happened if you've invested fifty dollars in, let's say, Apple like 30 years ago? Well, did you know about Apple back then? Were you in the Silicon Valley scene, checking out every new disruptive startup? Everyone is the best investor in the world in retrospect.
Cutting out all unnecessary expenses will solve your money problems. If by unnecessary expenses you mean selling your second yacht, well then yeah, that might relieve some financial pressure. You pay for yacht-related things more than the yacht itself. You can actually find out how much all of that costs by watching our video on how the rich travel the world; we'll link to it in the description. But back to the point: unnecessary expenses for the average individual usually means less than 500 a month. And if an extra 500 a month is what you need to get out of money problems, then the issue lies in your earning power, not how much you're spending. You see, you can always increase your value, but you can only cut out so much from your life until all you have left is a mattress and a pack of instant noodles. Being mindful of where your money is going is a good thing to do, but cutting out everything that's not mandatory is just not the way to do it.
"Save money to be able to retire." This one is similar to investing. The only way this works is if you're making more money than you actually need or if you've been saving and investing for the past 30 years. Now the reasons why this isn't going to work for most people are plenty. For one, the cost of living is constantly increasing, making it challenging to save enough money to maintain the same lifestyle. One thousand dollars saved now will mean a lot less than 20 years. On top of that, you have inflation that's chipping away at your savings. Relying on savings for retirement also assumes you'll have a stable income and constantly increasing income until the day you retire. So, no economic uncertainties, personal setbacks, or career changes for you. And when you consider the fact that Millennials will probably start making it to 100, well, you've got a whole lot of life left to cover.
"You don't need money to make money." This is a tricky one, and the best way to explain it is with an example. So imagine you need to get from A to B, and you start walking from A to B. At the same time, someone else drives from A to B, and when they get there, they rent their car for other people to also drive from A to B. With the money from that rent, they buy another car and start doing the same thing. The business is doing great, and they start doing marketing for it. Given to you as the "what not to do" example because it takes so much longer. Hell, you even consider just renting the damn car to be over with. So do you need money to get from A to B? Technically no. But this is not an option between doing it with money or without money. It's about do I have money to make it ten times faster or not.
"You need passive income to be financially independent." We talked about passive income in other videos and will give you the same example we gave there. Let's say you're a world-renowned writer, and you sell hundreds of thousands of books every month. Every time your book sells, you make a profit in royalty; that is passive income. But the thing is, by the time your books sell hundreds of thousands of copies each month, you're already making a ton of money from events and speaking engagements. That passive income is just a bonus.
"Always talking about money will make it come to you." Look, there is a difference between securing your financial situation and being obsessed with money. It's been said many times that you attract what you think about or what you talk about, and the reasoning behind it is because always talking about something will make you more aware of the opportunities to get it. But this doesn't really work with money. Contrary to popular belief, the rich don't really spend much time talking about money when they're together.
"Money won't bring you happiness." Okay, so for the vast majority of people, money will 100% fix most of their problems and make them happier in the process; that's just facts. Yes, when you're already at the top, money is just a number and it has a diminishing return. You will eventually run out of the next cool thing to do, but that's the one percent of the one percent. It's pretty naive to believe money won't make your life a couple of times better. The only time money isn't going to make your life better is when it's just a little bit more. Money won't change you. You literally make money to change how your life feels; that's the only reason to do it. So yes, it will change you. It might not change your core values or what you admire in the world, but for the rest of the things, even how you relate to other people will change without you even realizing it. After all, you need to change yourself if you'd like to make some more.
"You have to work hard for money." Like we said before, there's no correlation between hard work and money. If you find yourself mentally sweating every time you have to work for money, you're either doing the wrong thing or you're not equipped with the right resources. People love to throw around this mystical activity of hard work because it's vague and can mean a million things. It's really easy to say, "Yeah, you just have to work hard," and the conversation ends there. The reality is though, the process of making a lot of money is rather difficult because a lot of things have to align. But doing the job of three people at the same time while working long hours isn't going to magically make everything align perfectly. It's true that sometimes you do have to do extra stuff, especially at the beginning, purely because of a lack of resources or training, but it should be a temporary thing. We as humans are not built to put in 10+ hours of this hard work day in and day out without any kind of repercussion.
"Follow your passion and the money will follow." Unfortunately, passion and money are not financially viable; it's extremely rare. Because when you think about it, passion is the joy you feel when you do something that's really close to your heart. When was the last time you were passionate about going to work? As a matter of fact, most of the time what you do for money and what you do for your soul should be kept separately with no interference. As an extra bonus here, when you can't find passion in your work, you can find excitement by getting really good at it. When you do something and you know it's solid, you get a sense of accomplishment, and that feeling is enough to supplement the lack of passion you might be feeling for the stuff you do for money.
And that concludes this list that we believe to be the most misleading facts about money out there. We hope you found this video valuable, Alexa. And as a thank you for sticking with us until the end, as always, here's your bonus: It's impossible to go from poor to rich. Above all, the most misleading fact about money is that it's impossible to jump through social hierarchies when you're starting at the bottom. In every family, there is someone who will eventually break the poverty chain. And Alexa, that person can be you. We'll see you back here next time. Take care.