6 myths of financial independence - KPTV - FOX 12

By Andrew Housser

Every year, many people resolve to get out of debt or build financial security. By the midpoint of the year, many of their plans have fallen by the wayside. Some people become discouraged when they make slow progress. Others run into personal challenges that derail their financial intentions. Still others fall prey to some of the many myths that abound regarding just what it takes to get out of debt and find financial peace.

This year, consider some of the top myths of financial independence. Think about how these misconceptions may be affecting your financial well-being. Once you bust these myths, you can truly be on the path to a much stronger financial picture. 

1)  Debt is normal and OK. In fact, living with significant debt is a relatively new phenomenon. Long ago, being in debt was considered a crime that could send people to prison. The U.S. government did not even track total consumer revolving debt statistics until 1968. Since that time, total consumer revolving debt has grown by 600 times, from $1.3 billion to more than $790 billion. 

2)  You must earn a huge salary to get out of debt. In some cases, earning more seems to inspire people to spend more. A survey of people who filed Chapter 7 bankruptcy found that total debt increased with the amount of income earned. Sometimes, the more people earn, the more they want to show that they have money. Instead of living within their means and being financially stable, they borrow more – and when they run into challenges, it can be big trouble.

3)  You must come from money to be financially secure. Ask any frugal-living, financially secure person: It's not how much you make that matters. Rather, it's that you live within your means. That might mean you spend your vacations at the community pool rather than on a Tahitian beach, or get your Italian fix in Boston's North End instead of Tuscany, but it is possible to find financial peace on just about any income. 

4)  You'll have to win the lottery to pay off your debt. True financial security comes one day at a time. It might be nice to fantasize about paying off everything in one fell swoop, but reality may be a slower process. Pay as much as you can each month to one debt – perhaps the smallest balance or the one with the highest interest rate – and make minimum payments on the others, while not adding to your debt. Gradually, you will pay off one debt, then another. 

5)  Credit cards help you build wealth. Believe it or not, some people think you'll get richer by carrying credit card debt. Some people spend their lives moving credit balances from card to card, borrowing from one card to pay another. A few even borrow from credit cards to invest in the stock market. The problem is that credit cards charge, on average, 16.76 percent annual interest. Almost halfway into 2011, the stock market has earned an average total return of just over 2 percent. Even if you find a no-interest deal, most balance transfers come with a fee of at least 3 percent of the total balance – and when the zero-percent interest expires, if you haven't paid off your debt, you'll pay the much higher going rate. It's a dangerous game. Truly wealthy people invest the old-fashioned way – with money, not using credit cards. 

6)  You are a bad person if you are in debt. Being in debt does not mean you are a bad person. But it might mean you have fallen victim to the idea, so prevalent in today's culture, that you can have whatever you want on income of any size. Take a good look at your lifestyle, your spending habits, and most importantly, your inner beliefs. Figure out why you are spending beyond your means and learn how to change your ways. Then take real action to get out – and stay out – of debt.

One thing that all these myths have in common is that each provides an excuse to resist changing habits and getting out of debt. When you realize that these myths are untrue, you can move forward more easily. By taking a realistic look at your income, spending and habits, you can take the next step to your own financial independence day – the day when you can look in the mirror and know you are debt-free.