Here we have another installment of Busting Debt and Money Myths With Dave Ramsey. In case you missed it, you can read part one here and the second installment by clicking here. Enjoy!
Myth: Debt consolidation saves interest, and you have only one payment.
Truth: Debt CONsolidation is dangerous because you only treat the symptom, not the problem. It is a CON because you just think you have done something about the problem. The debt is still there, as are the habits that you got in debt in the first place. News flash: you cant borrow your way out of debt - you can’t get out of a hole by digging out the bottom. debt is not the problem, it is the symptom of over spending and under saving. If you pay attention to how these programs work… sure, you may get a lower payment… but that comes at a cost of a longer term. In the end, you end up paying even more money because your terms are extended for longer. Don’t do it!
Myth: If nobody used debt, the economy would collapse.
Truth: Nope, it would prosper. let’s run through the scenario. What if every American stopped using debt of any kind in one year? The economy would collapse. What if every American stopped using debt of any kind in 50 years? The economy would prosper, although banks and other lenders would suffer. What would people do if they didn’t have ANY payments? They would save and spend money, not support banks. Saving and investing would cause wealth to be built at an incredible rate. Giving would increase and many social problems would be eliminated. Then taxes could come down and people would have even more wealth.
Myth: Everything will be fine when I retire. I know I’m not saving yet, but it will be alright.
Truth: Ed McMahon is not coming. There is no shining knight coming to save the day. This is the real world, where sad old people who are broke eat dog food. This is an emergency! You have to save! You have to invest for your future. You won’t be ok unless you make it that way. You are in charge of your retirement. Don’t think the government is going to help you when the time comes.
Myth: Gold and other precious metals are a good investment, and will help me if the economy collapses.
Truth: Gold has a lousy track record and isn’t used when an economy goes under. The average rates of return are 2% gain per year. In recent history, gold has a 50 year track record of 4.4%, about the same as inflation, and just above savings accounts. In that same time frame, you would have made 12% in a good mutual fund.
Myth: I can get rich quick if I join this group, buy a tape set and work three hours a week.
Truth: Nobody develops and makes a six figure income on three hours a week. It all sounds too good to be true because it is. The only person that makes money here is the person who owns the program you are joining, and they make money off you buying these silly programs. You should never join a money-making program that you have to pay a fee for, and don’t try to justify it by saying “oh, the fee is only $20 so if it doesn’t work, I won’t lose much”. I have personally heard this line from a friend and I couldn’t help but laugh. There is no secret to making money overnight, it just isn’t legit! The way to do that is work hard, live on less than you make, get out of debt and live on a plan. This is the only plan that will work. Nobody gets rich quick!
Myth: Cash value life insurance will help me retire wealthy.
Truth: This is one of the worst financial products available. A cash value policy is an insurance program that packages insurance and savings together. The returns on this are horrible. Your agent will tell you this is the way to go, but these policies never work out like they are said to.
Here is an example. If a 30-year-old man has $100 to spend per month on life insurance, he will find he can purchase an average of $125,000 in whole life insurance for his family for this price. The pitch is to get a policy that will build up cash for retirement. If the same guy purchases 20 year level term with coverage of $125,000, the cost will only be $7 per month, not $100. With the cash value option, the other $93 would seemingly go to your savings. Wrong. The first three years of savings go to expenses like commissions. After that, you get 2.6% interest a year for whole life.
Worse more, if you die early, the savings doesn’t go to your family; all they get is the $125,000 face value of the policy. The truth is, you’d be better to get the $7 policy and put the rest into investments. That means, when your 20 year term is up, you don’t need life insurance because you have a ton of money already saved up. You’ll be just fine.
Myth: Playing the lotto and other forms of gambling will make you rich.
Truth: Playing the lotto and other forms of gambling are attacks on the poor and people who can’t do math. It is a ripoff instituted by the government. Studies show that the zip codes that spend 4x as much as others are in the poor parts of town. The lotto and gambling offers false hope, not a way out.
Myth: I don’t have time to work on a retirement plan, budget, or estate planning.
Truth: You don’t have time not to! Most people concentrate on the urgent in our culture. We worry about our money and health only after they are gone. You need a budget! A budget is people telling their money what to do instead of wondering where it went.
