5 money myths that are financial nonsense

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The following are 100 percent true statements: A penny saved is a penny earned. A home is a great investment. Money doesn't grow on trees.

Are you nodding in agreement? Gotcha!

According to money experts, there are plenty of money myths like these that get us into trouble and lead to false ideas about money, saving and investing.

Even benign statements such as "money doesn't grow on trees" can have a negative effect on the way we look at money, says Grant Cardone, host of the National Geographic television show "Turnaround King."

"Money comes from a cotton bush, actually," he says. "But seriously, the concept that money is scarce is just not true. There is just a shortage of people going for money with courage and the right attitude."

Part of forming the right attitude is knowing what is true and false about money. Here are five money myths dispelled.

Myth No. 1: Banks are the best place for money

Put your money in a bank. That's the safest place, right? Sure, it is safer than stuffing it under your mattress. Or is it?

"Savings accounts … are the equivalent of modern-day mattress stuffing," says Elle Kaplan, CEO of Lexion Capital Management, a New York City-based asset management firm. "Savings accounts cause you to lose money over time because their low interest rates do not keep pace with inflation."

Cardone says this myth stems from a time when our grandparents or parents were able to put money in a bank account and get a hefty return. This is no longer true.

"Your parents would earn more in one month than you could earn the entire year (in interest)," he says.

Myth No. 2: A penny saved is a penny earned

Many people believe that scrimping to save and hoarding money will make them wealthy. Not true, says Steve Siebold, author of "How Rich People Think."

"The real key (to wealth) is earning," Siebold says. Unfortunately, if you are making $50,000 per year, it will be nearly impossible to accumulate large sums of money, even if you save all your extra pennies.

"People need to stop always looking at the expenses portion of their budget. … It is usually the shortage of income that gets people into trouble," Cardone says.

Those who want to have a large nest egg need to stop thinking in terms of trading time for dollars, Siebold says. Instead, acquiring wealth is a "nonlinear process and comes from generating ideas that solve problems," he says.

In fact, most fortunes can be created almost overnight, if you have the "right idea at the right time," Siebold says.

Cardone agrees. He says that many middle-class money woes don't stem from big spending, but from not enough income being generated by members of the household.

"The solution is not to cut back on the lattes you drink, but to get a higher-paying job," he says. Or, the harsh reality may be a second job or putting your teenage or young adult children to work to get more money into the household's coffers.

Myth No. 3: My home is a good investment

Not these days, Cardone says. "This is a complete lie," he says. "A house is not the American dream; it is a nightmare."

Housing prices have dropped from the bubble years. Then, there are the increasing costs of property tax and maintenance.

This doesn't mean you shouldn't own a home. Just be aware that your house should be looked at as "an expense, not an investment," Cardone says. "It is merely a place to live."

Which raises the question: Should you pay off your mortgage as soon as possible?

It depends on whether you plan to live in your home for the rest of your life, says Adam Koos, president of Libertas Wealth Management Group Inc. of Dublin, Ohio.

"If the answer to that question is no, then it doesn't make sense," to pay off the mortgage quickly, he says.

The reason? You are tying up your money in an illiquid asset that you can't get back unless you sell your house, he says. Plus, you are making an assumption, which could be wrong, that the house will increase in value.

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"Now, if you want to live there forever and this is your true retirement home, it's OK to pay it off for peace-of-mind sake," he says. "(However), one should still weigh the cost of debt versus the rate of return earned (on that extra money) elsewhere."

Myth No. 4: Paying with cash and debit cards is best

Paying in cash or by debit card is always a good strategy, right? After all, if you pay in cash, you can't spend more than you have.

True, but you may be missing out on goodies offered by credit card companies, Koos says.

"You can rack up some serious rewards points using a credit card," says Koos, who recently cashed in points to take his family on a Disney vacation at no cost.

The key to this strategy is to pay off your credit card balance each month.

"If you stay disciplined, the interest earned (on low-interest-paying checking or debit accounts) is easily surpassed by the points earned on a good credit card," Koos says.

Myth No. 5: You need to diversify

You've been told that diversifying your investments means you spread your risk around. If one investment tanks, you still have money in the others to see you through.

But most Americans don't have enough money for that kind of diversification, and even if they did, it isn't the best strategy for them, says Chris Miles, "cash flow expert" at MoneyRipples.com.

"Diversifying is like buying many brands of TVs in case one of them doesn't work after a few months," Miles says. "Shouldn't we research it out first, then buy one TV?" Too many people throw money into things they don't understand or care about, he says.

"Find one or two things that you know a lot about and love … then invest," Miles says.

The "Turnaround King's" Cardone agrees. "Wall Street loves to perpetuate this myth because then you'll need them," he says. "I'm extremely good at a handful of things, and then I leave the rest alone. A professional ball player, for example, commits to one sport, not many sports. Focusing allows you to hit it out of the park."

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