3 Common Myths about money.

By Rob Bacharach, CFP®

1. Small dollar amounts aren’t worth it, so I may as well not do anything…

The power of compounding interest is more powerful than most people realize. Take the example of starting with 1 penny. Double that penny every single day for 30days. Do you know how much money you would have at the end of 30 days? You’d have $5,368,709.12! One penny to start. The other thing most people don’t realize is the concept of start small has a lot to do with the simple habit of saving regularly. If you get in the habit of savings $10 a month, it will be much easier to increase to $50, then $100. If you wait until you can start at $100, you could miss out on years' worth of savings and compounding interest, potentially costing you thousands in future growth.  The simple habit of saving regularly is more powerful as we earn higher incomes. This is what we call Behavioral Finance.

2. Buy less expensive products so you have more money for savings.

In theory this seems like the best way to go. In practice, most have learned this the hard way. We opt for the cheaper version only to end up having to buy a second one in a short period of time, usually the more expensive one, after the cheap one failed, when we could have bought the more expensive one in the first place and been better. Quickly we went from “saving money” to spending more money! Try this instead. Make your purchase decisions based on how frequently you use the item. If you use it a lot, like a computer for work, spend the money on the upgraded version. It will likely pay dividends in performance, speed, reliability. Imagine missing out on a deal because your computer wasn’t fast enough to handle the online conference software. I bet the couple hundred bucks extra looks like nothing after that happens. If you are considering a new kitchen utensil you use 1x a year, opt for the less expensive option. While this isn’t bulletproof it worked pretty darn well for me over the years.

3. DIY TO SAVE MONEY vs. HIRE FOR THE PROJECT 

Comparable to #2 myth, this is another big one, especially in today’s world of Pinterest and YouTube. In theory it sounds like a great way to save money, Do It Yourself. But it rarely works out in your favor. By the time you have made multiple trips to the store missing supplies, screwed up once or twice, and potentially made a small problem a bigger one, you could have hired someone to do the job in a few hours. Instead of taking on projects outside of your wheelhouse, hire the professional. While you hire the professional, focus on what you do best. Get better at it and charge more for your services or increase your salary earning potential. This will pay dividends far beyond learning how to remodel your master bathroom or fix the leaky pipe on your own. I’ve done the math many times over again. Most of time doing a project on your own is not a money saving proposition. It is an experience.

Summary:

1. Small Dollar Savings Matter:

   • The power of compounding interest is often underestimated. Even starting with small amounts can lead to significant growth over time. For example, doubling a penny every day for 30 days results in over $5 million. Developing a habit of saving small amounts consistently, like $10 a month, is crucial as it can be gradually increased, benefiting from compound interest over time.

2. Invest in Quality Products:

   • While opting for cheaper products seems like a good way to save, it often results in higher costs due to the need for replacements. Instead, prioritize spending on items you frequently use, as quality investments tend to pay off in the long run. For rarely used items, a less expensive option might suffice.

3. Hire Professionals for Complex Tasks:

   • DIY projects may seem cost-effective, but they often end up being more expensive due to mistakes and time spent. Hiring professionals allows you to focus on your strengths, which can lead to greater financial returns than attempting tasks outside your expertise. While DIY might be an experience, it's rarely a money-saving strategy.

Action Items

• Encourage regular saving habits, even with small amounts.

• Evaluate purchases based on usage frequency to determine when to invest in quality.

• Consider professional help for complex tasks to save time and avoid costly mistakes.

-Rob

Securities offered through LPL Financial, Member FINRA/ SIPC. Investment advice offered through IHT Wealth Management, a registered investment advisor. IHT Wealth Management and AutomotiveWealth are separate entities from LPL Financial.

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