Seven Myths and Seven Mysteries of Personal Finance and Personal Economics

For the past half century, the hubris-laden financial industry has led Americans to believe that the individuals and organizations on Wall Street - renamed Dull Street by the author - and their minions on Main Street know more than we do about our personal finances and personal economies.

In fact, many of these self-appointed gurus of finance ended up penniless, in jail or in failed enterprises…

• EF Hutton
• Executive Life
• Mutual Benefit Life
• Arthur Anderson
• Indy Mac Bank
• Washington Mutual
• Freddie and Fannie
• Bear Stearns
• Lehman Brothers
• Bernie Madoff
• and the list goes on

Most financial executives and advisors - in my experience - have bought into the myth that the typical American is incapable of understanding personal finances and economics much less managing them effectively. The unfortunate reality is that many of these advisors don’t actually know enough about personal economics themselves to even discuss the topic intelligently.

They, like the clients they serve, have embraced the myth we call The Debt Paradigm.

These advisors know all about products.  In fact, the financial tools that many advisors use to develop personal financial plans for their clients are often no more than sales tracks that lead to the sale of specific products and services that redirect the money of everyday Americans into the accounts of their Behemoth bosses.

This is especially true of those advisors that are captives of Behemoth financial organizations most interested in selling their own products under the guise of financial planning and advice.  (This class does not include insurance companies that are selling and supporting particpating whole life products as the mainstay of their business.)

The Seven Myths and Mysteries Series is an attempt to begin (just barely, but to at least begin) deconstructing the Debt Paradigm myth and replacing it with a simple and effective model that American families can use to grow rich without risk and secure wealth without worry.

This kind of model doesn’t rely on esoteric insider analyses or on “secret” strategies known only to the initiated few. It rests on common sense and readily available information and ideas. The amazing part of that realization is that the “many” purport to have the inside track but the “few” - and you are among them because you are reading this - are the ones who actually do.

The two most important ideas you’ll take away from this series are these:

1. There is a model for helping you manage your financial lives and creating a personal economy that you control

2. You are in charge! It’s up to you to make your money work for your benefit and that of your family, including (and especially) your future generations.

We wish you well in your quest. We sincerely expect and desire that Seven Myths and Mysteries, while it does not claim to be an exhaustive study, will add to your understanding and insights about how to manage your personal finances and construct your own personal economy.

Here is a list of the Seven Myths and the Seven Mysteries we will discuss in this series.  Some are very easy to wrap your mind around while others require a closer look.

Seven Myths - alias Wealth Destroyers - Bad Thinking Creates Bad Habits

1. I’ll Do OK on Social Security

2. My Home Will Keep Me Secure

3. I’m a Saver

4. I Have A Retirement Plan From Work

5. My Investments Will Carry Me

6. My Financial Advisor Knows

7. I’ll Never Quit Working

Seven Mysteries - aka Wealth Builders - Moving from Bad Habits to Good Practices

1. Pay Yourself First - But Don’t Count Your 401k

2. You Know Best What’s Right for You

3. Don’t Risk What You Can’t Afford to Lose

4. Why Debt = Financial Death

5. Volume Is More Important Than Rate

6. “Conventional Wisdom” Is an Oxymoron and Tax Deductibility is a Trap

7. Compound Interest is Magic…Triple Compounding is Astounding

Myth No. 1

“I’ll Do OK on Social Security.”

I believe in Social Security because I believe in the United States of America. I believe that Social Security will survive its current troubles because Americans are a good and compassionate people.

However, it is naïve to believe that Social Security will continue in its current form. It is equally turning a blind eye to believe that Social Security is at all adequate as the reliable and only source of income for those who qualify for its benefits.

Most of us look forward to a time in our lives when we can dedicate our energies to pursuits that fill our souls regardless of whether or not they fill our pockets. Some of us want that to happen when we are 40, 50, or 60. Others can’t imagine not following their career path until they step into the grave.

Social Security can help those who qualify for its benefits but it is a myth that Social Security is liberating enough to permit us to live in even the most basic prosperity one expects in our wonderful country without any other source of income. For most of us it is not even adequate to pay for rent and food much less the lifestyle we have imagined for ourselves as we age.

The stories about folks who relied on Social Security alone (whether or not by choice) and ended up eating dog food or having to choose between necessities and medical care abound. This is not urban myth.

A simple bit of arithmetic demonstrates that the costs of a modest apartment, food, transportation, Medicare coverage, clothing and a modicum of entertainment add up to more than a monthly Social Security check - even if you are receiving the maximum Social Security has to offer.

Moreover, if you can get by today, you will find shortly that inflation of the cost of necessities added to unexpected but unrelenting medical and long term care costs will quickly erode the value of that monthly check.

Living on Social Security alone is a Myth.

This provides a departure point for the second myth: Many believe that owning a home will insulate them in some way from poverty and need as the years go by.

That will be the first topic for the next installment of The Seven Myths and Mysteries.

Filed under: Money, Personal Economy, Retirement, debt, economics, economy, financial, investing, investments, Money, personal economics, personal finance, personal financial plans, Taxes, wealth