"I have to pay for my kids college education."
"I haven't made it until I own a home."
"I have to fund my retirement plan every year."
Sound familiar? Many believe they must do these things to lead a good life. But new book Everything You Know About Money Is Wrong explains these are just financial myths. Author Karen Ramsey tells CBS News This Morning how to overcome the myths to lead the life you dream about.
Ramsey says hers is a book for people with an adequate amount of money. It encourages prioritizing what is important.
There is not just one way to organize your finances, Ramsey says. What is touted as the right way may not be the correct approach for you. Therefore, if you try to conform, you will probably lead a very stressed-out life.
In the book, Ramsey outlines 21 of what she considers myths along with a guide to creating a personal spending plan. Here's a sampling.
Myth: "I have to pay for my kids' college education."color>
"I say, where is it written? Who said it must be true? Ramsey asks. She started showing clients how much they need to save and found out most people don't have the extra cash, she says.
Instead she suggests kids pay for their own education. Ramsey has clients who learned time and money management because they had to work, study and go to class, she says. Because they had to pay for it, they studied what they were really interested in, she notes.
Moreover, students with loans get a job and work on paying them off. "It makes kids more responsible adults and it allows you to save more for your retirement," Ramsey says.
"My clients have said one of the most satisfying days...was when they paid off their college loans," she adds.
Myth: "I won't have made it until I buy a home." color>
Most people think they haven't achieved the American dream until they can buy a home, Ramsey says.
But there are certain people who don't want to be home owners or who want to spend money on things other than house maintenance, she says.
"It's almost as if these people need acceptance to be in this category. Others tell them, 'When are you going to grow up?' I am telling people it's OK not to conform," she says.
Ramsey points out that if you don't know if you can be somewhere for more than three years, buying a home is not a sound financial dea. You will not be able to recoup the costs of a house if you sell within a few years, she says.
Myth: "I can't say no to my kids."color>
Many people love their kids so much they want the best for them. But Ramsey says something became confused when people started to think it's important to buy their children the most expensive things.
"What is the message you want your kids to learn about money?" Ramsey asks.
"If you can't say no and they always get what they want....Kids will grow up and get into credit card debt because they will still want everything they got as a child even though they can't afford it," she says.
Myth: "I have to fully fund my retirement plan each year."color>
"Each year" is the key in this directive, she notes. People have been badgered by all sorts of literature to put the most money they can into a 401(k) each year.
But, she says, there is always once or twice in a lifetime when retirement money should go toward something else.
For example, stop funding your 401(k) for one year to finance a trip to Europe, a once-in-a lifetime experience, she says.
Myth: "I can't buy or do something because I don't have the money."color>
Money is the great excuse, she says. But the issue is really seeing what's important for you and making it happen. The key is to be clear about what you want, Ramsey says.
Budgets don't work for the same reason that diets don't, she says. Diets focus on deprivation, and for most people budgets do, too. Instead of a budget, she recommends a three-step personal spending plan.
|KAREN RAMSEY'S FINANCIAL TIPS|
|Find out the facts|
Figure out where your money goes. Examine your spending habits, from paying your mortgage or rent to shelling out for auto expenses, clothes, books, cups of coffee, haircuts or meals out.
What are your short-term, intermediate and long-range goals? Short-term goals are wishes such as "I want a new briefcase by end of the month." Intermediate goals cover matters such as saving for a down payment on a new car needed within three years. Long-range plans may include something like a cabin in the woods.
|Putting it all together|
See what's discretionary and cut it out. Is a scuba diving trip to Mexico more important than eating out or giving expensive presents or buying new clothes?
So hold off on buying that daillatte or muffin, Ramsey advises; you may find the money adds up and you can take the great vacation of your dreams.
Produced by Tatiana Morales; ©1999 CBS Worldwide Inc. All Rights Reserved