Top four financial myths

Exorcise Your Money Demons

Even if you know better, sometimes you can't seem to stop yourself from making poor money choices and sabatoging your financial goals. It's as if you're ... possessed!

If you're haunted by financial demons, fear not. We've got the spells you need to free yourself and get back on track.

DEMON #1: Procrastination

You know what you need to do, but some invisible force is holding you back. This specter can haunt several areas of your finances. For example, perhaps you're putting off saving for retirement because the "deadline" seems so far away. Or you're avoiding addressing your ever-growing debt load because it's so intimidating.

DEMON #2: Entitlement

It's all too easy to confuse needs with wants. After all, you work hard and deserve nice things, right? Whether you're considering big-ticket items ("I need a new car!") or smaller impulse purchases ("I need that pair of jeans!"), letting your sense-of-entitlement devil confuse your angelic rational self can cost you big bucks.

MAGIC SPELL: Sleep on it. It's hard to realize the consequences of your action, no matter how seemingly small, in the heat of a shopping trip. Take a step back to re-evaluate your decision before you buy. If it really is a need, you'll still need it tomorrow -- or even next week. So before splurging, go home and think about it. I find when I do this, I often forget what it was I thought was so important -- or I'm able to find a much cheaper alternative. Learn more strategies for cutting your spending.

DEMON #3: Ignorance

It's hard to call a habit evil when you really don't know any better. Perhaps you never learned how to handle finances, or maybe you simply don't know where to start. Money management isn't a required course in most high schools or colleges, and talking about money is taboo in some families.

MAGIC SPELL: Get educated. If you're going to realize your financial dreams, you've got to arm yourself with the knowledge to pull it off. You're doing something right already: Hanging around Kiplinger.com is a great start. We've got all the basics you need, plus tools and calculators, personalized advice and timely articles to teach you about investing, money management and spending wisely. You could also check out one of these five great money books for young adults to learn winning financial strategies for life.

DEMON #4: Fear

You know what you should do with your money, but you're paralyzed by fear. What if you mess up? What if you lose everything? So you stick with the path of least resistance. Instead of investing well, you stash your money in a low-risk savings account. Instead of buying that house you've been saving for, you sit on the sidelines afraid to leap into homeownership. Instead of pursuing your dream career, you brood in your menial job. Fear can sabotage your fortunes and ambitions.

MAGIC SPELL: Start small and build momentum. Remember that it's better to start small than not at all. After a few little successes, you'll gain more confidence and knowledge to work your way up to bigger and better things.

For example, if you're terrified to start investing, don't take your entire life savings and plunk it into an ultra-aggressive stock or mutual fund. Start with a little money in a well diversified mutual fund and gradually increase your contributions and branch out to other investments as you feel comfortable. (See our 30-Minute Investing Start-Up Kit for the specifics you need to get started.) You're sure to experience ups and downs, so keep your trigger finger in check. Learn more good long-term investing strategies.

DEMON #5: Exhaustion or indifference

Staying on top of your financial obligations can seem like a big job -- too time consuming and downright tiring -- so you simply give up. Bills pile up and investments wallow.

MAGIC SPELL: Automate your finances. You can set up automatic bill payments and contributions to savings or investment accounts through your bank, mutual fund company or broker, or directly with your phone company, utility company, credit card issuer and student loan provider. This way you only have to fret over these expenses one time to set up the plan, and then you can forget about them. All the while you're still keeping your payments -- and goals -- on track. Learn more about how to set and forget your finances.

DEMON #6: Jealousy

Do you ever feel good about your financial situation until you spend time around friends and family who seem better off than you? Jealousy can make you feel restless and even lead you to make poor money choices for your personal situation.

MAGIC SPELL: Tune out the static and set personal goals. "If you look to others to gauge your personal sense of success, you're not going to get an accurate reading," says Joshua Klapow, a clinical psychologist in Birmingham, Ala. There are simply too many variables. Besides, throwing yourself a pity party won't get you anywhere. Setting goals and coming up with a plan to reach those goals will. Ask yourself where you want to be in five years. Then, prioritize those goals and figure out a way to pull them off.

Make a conscious effort to remind yourself of your goals and your progress whenever you feel jealousy creeping in. And remember: Looks can be deceiving. Just because your friend lives in a big house and drives a fancy car doesn't mean he's well-off -- he could be in debt up to his ears. See Young and Restless for Success for more tips.

Financial Tips for 20-somethings

Financial Tips for 20-Somethings

Ramit Sethi, creator of the popular I Will Teach You to Be Rich blog and author of a forthcoming book by the same name, wants to show young people how to manage their money. While there's no dearth of books on personal finance, he thinks most of them repeat the same old—and unhelpful—story. U.S. News spoke with the 25-year-old recent Stanford graduate.

Do young people today face different money issues than their parents did at their age?

Yes and no. We still need to save, invest, and plan. But on many objective measures, things are not going well for gen Y. The facts just keep coming: Average tuition is up over 250 percent since 1976, revolving debt is up 24 percent in the last five years, and 2004 male graduates earned less after inflation than they did 30 years ago. Half of recent college grads have failed to pay some of their debt. And there is a staggering array of places to spend our money, including online and on luxury goods that simply didn't exist 20 years ago.

But I'm less interested in knowing the sociological trends than helping individuals start to manage their own money. Hopefully, by getting the discussion started in a refreshing way, we can all get our friends to pay attention to this stuff and start organically. As an example, the most common way people hear about my blog is through word of mouth. That tells me young people do care about their finances.

There are so many books out there on young people and money—Suze Orman's The Money Book for the Young, Fabulous and Broke, for example. What's different about your advice?

I always say that personal finance has been taught by old white men for old white men for way too long. If I see another newspaper column about saving money on lattes, I might just have to jump off a bridge with 68 iron weights in my hand.

There aren't any secrets to personal finance. People have been saying similar things for 50 years: Know where your money is going, save more, invest your money, and grow it. But instead of seeming like lectures, personal finance can actually be relevant and engaging to young people. How do you make money as personal as talking to a friend? I try to tell stories about dumb things I've done with money, simple steps to save and invest, and how to think about money (like the difference between being cheap and frugal). And I think I have the best readers on the planet, who offer really smart comments on every post.

What kind of stories do you hear from your readers who are frustrated with their financial experiences?

The problem is not that we're making bad personal-finance decisions. It's that we're not making personal-finance decisions at all. A lot of my friends don't know how much their 401(k) match is or why a Roth IRA is a great choice. These are recent Stanford grads [like Sethi]. Part of it is our educational system, part of it is the complicated paperwork and messages that financial companies give us, and part of it is our own lack of personal responsibility. But no matter how you slice it, we need to step up and take control of our finances.

The second-most-common story I hear is not knowing where to get started. Should I pay off debt? How do I pick stocks? What savings account should I open? There's so much noise that even the basics, like opening a high-interest savings account, have become complicated. Last year, I spoke to the Credit Union National Association about simplifying their offerings for young people. I wish more financial companies would pay attention to the needs of gen Y.

In your blog, you say that personal-finance experts have long lectured young people "not to buy lattes, fancy electronics, and expensive clothes. To which I always reply: How has that been working, grandpa?" So what kind of advice is more useful?

We don't want to know about term life insurance or estate planning. Those words make our eyes glaze over, and more of the same personal-finance topics will produce similarly poor results. But we do care about money if it's presented on our terms.

There's a funny idea in our culture that more information is always good. But as Barry Schwartz noted in The Paradox of Choice, the more choices we have, the less likely we are to do anything. In a study about 401(k) participation, he wrote, "For every 10 funds added to the array of [401(k)] options, the rate of participation drops 2 percent."

So if the average 20-something sees 20 fund choices at work for his 401(k), TV commercials about annuities, blog posts about Roth IRAs, and newspaper columns about not spending so much on lattes every day, what do you think he'll do? Chances are: nothing. Over half of 20-somethings don't contribute to retirement accounts. Forty percent don't even deposit money regularly in a savings account.

We want to know two major things: how to figure out where our money is going and how to make it go where we want. Make it simple, make it interesting, and get other young people to join in on the conversation.

Name three things young people can do to improve their financial situation.

1) Getting started is more important than being the smartest person in the room. If I had a choice between being 100 IQ points smarter or starting to invest earlier, I'd choose starting earlier. I encourage young people to read enough to get started but not to worry about knowing every investing instrument under the sun. There are plenty of easy ways to get started, like a simple low-cost index fund. If you haven't gotten started yet, try to systematically understand your personal barriers. Are you afraid of losing money? Are you not sure about how much money you actually spend each month? Then tackle them one by one.

2) Be strategic about spending. Instead of saying, "I guess that's how much I spent last month," be strategic about your spending. One of my most popular posts was about a friend who spends $21,000 per year going out. It seems outrageous, but he consciously spends that much after maxing out his investment options and giving to charity. By knowing what you value and where you're spending, you can consciously decide if that's how you want your money to go.

3) There's a difference between being sexy and being rich. Lots of us get sucked up into the hype of fancy alternative investments and day-trading and the "Hot Stock of the Month!" I hate this so much. Those investment tips are designed to sell magazines, not good advice. The investment literature—and people like Warren Buffett—show that long-term, buy-and-hold investing wins. It's not as exciting as buying and trading every day, but what would you rather be: sexy or rich?