THE BLOG

10 Biggest Money Misconceptions

04/04/2012 11:52 am ET | Updated Jun 04, 2012

Something is clearly not working for most of middle class America regarding money. From my experience working with people, here are the 10 biggest misconceptions the middle class has about money:

1) Money Shortage Mindset
Most people struggling with money think there is a shortage of money. The reality is money is plentiful and even when there are shortages we print more. The very wealthy don't think in shortages. Change your thinking to think in terms of money being abundant and plentiful. This isn't some esoteric new age concept but reality.

2) Unconscious Spending
Most people have no clue what their money is being spent on. The couple that complains about $4 gas spends $4 a day to get 800 TV channels delivered to their home. Solution: Make a list of all your spending and don't use cash. Either put everything on a credit card or write a check so you have a complete record of every expenditure. If you are going to give a homeless person money, write a check so you can have a record.

3) Not Prioritizing Expenditures
You can get tripped up struggling to meet expenses that aren't really necessary if you don't have your expenses prioritized. Solution: Take the last 60 days and rate all your spending on a scale from 1-5, 5 being most important. Anything not rated a 3 or higher should be stopped immediately.

4) Budget with No Financial Plan

People spend most of their time budgeting the money they have rather than concentrating on a plan to create finances. I spend 90% of my time looking at ways to create income and how to invest and grow money and only 10% of my time on how I am spending it. A budget suggests what I am allowed to spend each month and a financial plan is a road map to creating finances.

5) All Debt is Considered Bad Debt
A very common misconception is not knowing the difference between good debt and bad debt. Not all debt is created equal. Some debt is good, contrary to what financial pundits like Dave Ramsey and Suze Orman suggest. Debt that is paid off by others or debt that actually generates income is good debt; assume all other debt to be bad. Solution get rid of ALL debt that can not be funded by others.

6) No Emergency Accounts
The lack of an emergency account is a big mistake. As recent economic events have shown us, the unexpected can happen. In order to bullet-proof yourself against these types of catastrophes, you should set up emergency accounts that are never touched except in urgent situations. Also your goal should be emergency accounts of at least 12 months of your income not the popular 3 months and I would prefer 30 months.

7) Paying Others First
Don't pay others first, pay yourself first. You are taught not to be self-centered but when it comes to money, be self centered -- pay yourself first and bill collectors next. This seems impossible when you first start, but it works like magic once you commit and you will actually see yourself cutting unnecessary expenses and creating more income to meet your REAL requirements.

8) Lack of Future Investment Accounts
Most people don't establish future investment accounts and then are baffled why they are unable to invest or start a business. Solution: Set up three investment accounts beyond emergency funding that you start funding every month for future investments. I started doing this when I was 25 years old and didn't invest in anything until I was 30. I had a Real Estate Investment account but no Real Estate; a Business Account but no business and a Stock Investment account but no stock portfolio. When it was time to do these things I had the money set aside to do so.

9) Incorrect Income Formula
Most people base their income needs on their immediate expenses, not their future expenses, investments and financial goals. Solution: quit calculating your income needs based on your current spending. Use this magical Income Formula to get ahead: Future Savings Monthly + Emergency Funding + Current Spending = INCOME TARGET

10) Not Paying Regular Attention to Finances

People tend to only confront something once it is a problem. If you want financial freedom, you will have to regularly invest time looking at your finances. What you pay attention to is where you get results. Once a week on a set day I sit down with my wife and two children to discuss our finances for 30 minutes. This gets everyone on the same page and demonstrates the importance of having control over our finances with the family. For finances to work you need everyone paying attention and on the same page.

While money won't make you happy, surveys suggest that not having money can tear a family apart. Most agree that economic troubles for the American middle class are only going to increase and most don't believe the government can solve this problem. A man told me once, "the best way you can help people in need is to not be someone in need." Help yourself out so you are in a position to help someone else out.

Grant Cardone, NY Times Best Selling Author of Sell or Be Sold