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4 fatal financial fantasies
February 05, 2009
Many of us have financial fantasies that help us to remain optimistic in the face of financial hardship. But while there's nothing wrong with dreaming, some fantasies do more harm than good, especially when they affect the way we behave.
Why give up the dreams? Because expecting a windfall or a free ride to get you through life isn't going to make you successful - in fact, it will allow you to make excuses that can stand in the way of your financial freedom.
Let's take a look at four common financial fantasies - you're better off forgetting about them, but we'll provide some realistic, actionable plans you can put in their place.
Common financial fantasies
I'll receive a large inheritance.
What's more, if your grandparents are lucky enough to live long lives, or if they have to spend long periods in the hospital, it is likely that they will have used up much of their savings by the time they pass away. If you do receive an inheritance, it might not be as much as you think.
I'll win the lottery.
Even if you did win the lottery, you might not be able to hold onto the money. A high percentage of lottery winners actually squander their windfalls and end up right back where they started (or worse). If you don't have the skills to manage the money you have now, how will you manage $1 million? Also, there are considerable headaches associated with winning - keeping it a secret is difficult, if not impossible, and everyone you've ever known is likely to come crawling out of the woodwork like termites wanting to chomp away at your prize until nothing remains.
I'll start a website and make a killing off advertising.
Others advocate getting rich through creating legitimate websites or blogs that provide content of real value to users and selling advertising on those sites. Sounds great, right? Who wouldn't want to sit back and have the money come flowing in for simply creating a page and paying for a URL?
While the success stories of people who make a full-time living from either "junk" or legitimate websites and blogs can make anyone want to quit their day job, running one of these sites is not as easy as it sounds. Popular advertising programs, such as Google AdSense, hire people to keep an eye out for sites that clutter the web and make it more difficult for people to find valuable information online.
If advertisers discover that you are running a junk website, your account is likely to be terminated and your profits forfeited. It is certainly possible to make money from running one or more legitimate websites or blogs, but it's not a viable get-rich-quick scheme.
Any website that gets considerable money from ad traffic has done so from hard work and thousands of dollars spent in design, content and upkeep.
I'll make a ton off an initial public offering (IPO).
First, to make money in stocks, you have to have money to invest. If you can afford to invest $100 in a stock, even if it doubles in price, you've only got $200 - hardly enough to quit your day job (or even take a vacation).
Second, you'll need a combination of stock-picking luck and skill to pick out the next big thing before everyone else catches on. Third, just because a private company decides to go public doesn't automatically mean that its stock is a good investment.
I'll start my own business.
Further, being able to set your own hours and choose your own vacation days can make being self-employed feel like financial freedom compared to working for someone else, even if you're still working 40, 50 or 60 hours a week. If you do want to start your own business, however, keep in mind that this isn't a get-rich-quick scheme, either. Many small businesses fail within the first two years because of inadequate planning and poor execution.
I'll finish college.
A college degree opens the doors to higher-paying jobs and a higher lifetime earning potential. Even though many jobs won't make use of the majority of the things you study in school, a bachelor's degree is a prerequisite for getting an interview at many companies.
A college degree increases your lifetime earnings by so much that it's the equivalent of winning the lottery and receiving your payments annually instead of in a lump sum.
I'll make passive supplemental income through investments.
I'll buy a house.
Also, under the 2009 tax law, an individual can reap tax-free profits on the first $250,000 of gain from the sale of a personal residence. There aren't many other ways to make such a large, tax-free gain on an investment. However, as the burst of the housing bubble has shown, buying property can have pitfalls, so do your homework carefully before jumping in.
Be realistic and rely on yourself
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