3 Wealth-Building Myths Most People Believe But Shouldn’t

February 1st, 2010

I hate slogans.  I don’t mean advertising slogans.  I mean those self-help slogans people recite ad nauseam and never even give a single thought as to whether they are true or not. How many times have you recited some “truth” you heard on some tape, or in some book, or at some seminar because it sounded true but never really gave any thought to whether it was actually true or not?

Some can be a little harmless (not completely harmless, just a little harmless).  But those that I think can do the most damage are these so-called financial truths.  These “truths” cause some people to change their views on money, but what they got was a bill of goods instead because their original view was right.

Well, I decided to look at some the common wealth-building “truths” that I hear a lot, and see how well they hold up to critical analysis.

1. “Don’t work for money, make money work for you.”

If you’ve ever been approached by a pyramid…I mean MLM distributor, then you’ve heard this one a million times.  I know I have.  I hear it every time one of those guys tries to sell me something…actually, they try to get me to sign up to sell the products that I don’t buy in the first pace.

I have to give this slogan one thing: it sounds smart.  It sounds real smart.  But if we use our critical thinking skills, does this slogan give us something to build our financial future on?

Let’s see.  To take this to its logical conclusion: If we want money to work for us, then we should quit our jobs and live off our investments.

What was that you said?  You don’t have the money to do that?

Then, you’re SOL.  Because if you don’t work for money (no income), then you have no money to invest in order to “make money work for you”  So, this slogan is essentially meaningless for you and 99.9% of the people out there.

Even the super-duper rich don’t just stop earning money to live off their investments.  And speaking of the rich, this brings me to the next one…

2. The Rich Get Richer, The Poor Get Poorer

I learned this one at a young age.  But with all due respect to my elders, they were wrong.  The truth is the rich get poorer sometimes.  And people with no money do get richer sometimes.

What bothers me about this is that it plays on class affiliation and in the myth that “the rich” think differently than “the poor”.  In fact, a lot of wealth-building sloganeering plays upon people’s insecurities about not having enough money.

But let me say this: don’t fall for that poop.

“The rich” are not some monolithic group that knows something that you don’t.

But rather than hearing my opinions, let’s put this to the logic test.

If it were true that the rich get richer then it follows that the rich would always get richer.  Since they do get poor sometimes.  (ahem..Bernie Madoff), then it’s just not true.

This next one is one of my favorite myths because so many peple beleive it and who could blame them, because the media is always hyping…

3. The “Lottery Winners go broke myth” AKA Poor People Don’t know how to Handle Money

First off, playing the lottery is stupid.  Your chances of winning are low.  Better to invest that money than spend it on lottery tickets.  But there are a lot of misconceptions about the lottery.  Here are a few:

  • only poor and stupid people play the lottery
  • lottery winners spend foolishly
  • lottery winners go broke

I’ve seen this “truth” in a ton of “wealth-building”, “wealth attraction” and some finance books.  These books just take it for granted.  But I have this habit that annoys most of the people around me:

I QUESTION these “truths” and I subject the “truth” to critical analysis.  So, how does this whole lottery winners go broke myth do?

Well, I did a little research and unfortunately, for some financial gurus, the facts don’t back up this “truth”.

In a study on lottery winners, Professor Roy Kaplan found that:

“Specifically, winners came from various education and employment backgrounds and they were clustered in the higher income categories than the general population indicating that lotteries might not be as regressive as popularly believed. Winners were older than the general population and more often male (60 versus 40%). There was significant association between the amount a person won and his or her work behavior. Individuals with psychologically and financially rewarding jobs continued working regardless of the amount they won, while people who worked in low paying semiskilled and unskilled jobs were far more likely to quit the labor force. Contrary to popular beliefs, winners did not engage in lavish spending sprees and instead gave large amounts of their winnings to their children and their churches. The most common expenditures were for houses, automobiles and trips. It was found that overall, winners were well-adjusted, secure and generally happy from the experience.”

If you want to spend $34 to get a full copy of the study, then by all means do so.

So, let’s see.

Only poor people play the lottery—WRONG. People with more money play the lottery more often.

Most lottery winners spend lavishly—WRONG.  They spend rather conservatively.

Most lottery winners quit their jobs—WRONG. Most stay at their jobs if it’s a job they like.

Hmmm…sort of puts a large scoop under that poop some get-rich finance gurus preach about the lottery.

You see, I think this myth also perpetuates the idea that “the rich” think differently than “the poor”.  But as you can see.  The rich play the lotto more often.

In this case, DON’T imitate the rich.

To end, I thought I’d have some fun and make up some smart-sounding financial slogans and attach bad advice with it.  Do NOT follow this advice.  If it sounds like advice you’ve been given, then you were given bad advice.

Don’t pay for your house, make your house pay you. (buy a house, rent it out, while you rent a cheaper apartment…in 30 years you’ll have a free-and-clear house)

The more money you spend, the more money you make. (rich people spend a lot of money, so you should too in order to become rich)

Don’t pay the tax man, make the taxman pay you. (earn as little money as possible so you can qualify for the Earned Income Credit).

Poor people have lots of cars, rich people have lots of boats. (buy boats instead of cars…”park on a yacht–not in a lot”)

No plane, No Gain. (you ain’t rich till you own your own plane!)

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