There are a lot of myths, misconceptions and sometimes outright falsehoods that influence perceptions of the world of finance. Many of these are harmless. However on the odd occasion they can become a problem, leading individuals to make rash or simply wrong-headed decisions based on insufficient information. To nip them in the bud, we'd like to tell the truth on a few of the most pervasive myths about wealth creation.
1. Wealth is created overnight
We've all heard stories about investors who bought and sold the right stock just in time, or business owners with that one great idea, all of which propelled these individuals to immeasurable fortune. Of course, these are simply attention-grabbing exceptions. The reality of wealth creation is that it's a slow, gradual affair.
Accountant and financial planer Thomas C. Corley interviewed 233 wealthy individuals in the US as part of his Rich Habits Study, and found only 1 per cent became wealthy before they turned 40. Rather, just under 60 per cent achieved that status between the ages of 51 and 60. If you want to be an overnight sensation, buy a lottery ticket - wealth creation is a long-term affair.
2. Your level of wealth will depend on your education
While it's true that education and wealth do tend to correlate, believing that a lower or medium-level education is the ultimate determinant of your future wealth can be a self-fulfilling prophecy. It's worth acknowledging the fact that many of the world's richest people, such as Richard Branson and Francois Pinault, never even finished secondary school.
But even if you're not a high-powered businessperson, your level of formal education has little impact on the basics of wealth building. Budgeting, saving, investing wisely and protecting your wealth - these are principles that anyone can learn. And if they need help, they can always turn to a financial planning professional.
3. You shouldn't invest until you have a large nest egg
To invest money, you need money in the first place. So, the logic goes, the more money you have, the better you will do, and vice versa. In fact, you can be relatively cash poor and still start investing. Some types of investments, like shares or managed funds, can be invested into with as little as $1,000. You can even use the equity built up in your home at start-up capital.
Don't forget, too, that as we've mentioned before, long-term wealth can start from humble origins if you make use of compound interest. According to the Australian Securities and Investments Commission's compound interest calculator, putting in an initial $5,000 deposit, along with a mere $50 monthly deposit for 10 years at an interest rate of 4 per cent will get you nearly $15,000 in 10 years. While this calculation is no guarantee, it does show how quickly modest sums can build up.