Myth #1 — Your Home Is a Smart Investment

Many people react strongly when I suggest that owning a primary residence is not a wise way to build wealth. The belief that homeownership equates to financial prosperity is deeply ingrained in American culture.

However, it’s relatively straightforward to analyze with a spreadsheet and see that renting and investing your savings in the S&P 500 typically leads to greater wealth accumulation than owning a home.

Research supports this conclusion. One study's co-author stated:

> "Owning a home may help you save money, but it won’t help you make money."

That’s how I like to frame it. Homeownership, with all its associated costs, often yields a low return on investment (and can even be detrimental). Thus, at best, it functions like a savings account (and at worst, depletes wealth).

Most people recognize that they cannot amass wealth by simply depositing money in a savings account, yet they still believe that homeownership, which offers nearly zero returns, will help them grow their wealth.

Don’t misunderstand me; I appreciate real estate. Much of my income comes from real estate, specifically through renting single-family homes, not by living in one.

Like many others, I once thought purchasing a house was an investment, leading me to buy a larger, more expensive home. After all, why not invest more in a good opportunity? We transitioned from renting an apartment to buying a sizeable house.

This decision adversely affected our monthly cash flow and wealth accumulation. It wasn’t until we moved out and turned that house into a rental property that it began to contribute to our wealth.

I’m not suggesting you should never buy a home to live in—I’ve done it myself. However, now that I recognize it isn’t an investment, I approach it differently.

The truth is that housing represents an expense (whether you rent or own), so you should aim to reduce that expense as much as possible.

Myth #2 — Your Job Is Your Primary Source of Wealth

This is another tough illusion for many to dismantle. Many of us grow up believing that climbing the corporate ladder is the key to financial success.

However, wealth does not stem from your paycheck; it comes from the assets you build over time.

Wealth-generating assets include investment properties, stocks, and businesses that produce cash flow and appreciate over time.

If you were to quit your job tomorrow (or be laid off), your salary would vanish—this is not wealth.

However, your investment portfolio and/or business assets would remain—that is wealth.

Certainly, your salary can and should be utilized to acquire those assets, but it is the assets you possess, not your salary, that provide financial security.

Warren Buffett has maintained a salary of $100,000 for years without an increase, yet he has amassed a fortune of around $100 billion.

Steve Jobs took a $1 salary when he returned to lead Apple, but his net worth was in the billions.

As Robert Kiyosaki highlights, the wealthy don’t achieve their status through high salaries; they do so by acquiring or building assets.

Myth #3 — Your 401k and/or Social Security Are Sufficient for Retirement

According to a Forbes article, while Fidelity recommends that individuals save 10 times their annual salary in a 401k by age 67, the median account balance for those nearing retirement is only about $90,000.

Applying the 4% rule, that balance would yield approximately $3,600 annually in retirement income, equating to $300 per month.

As reported by Yahoo!, the average social security benefit hovers just under $1,800 monthly.

Combining these two sources, a typical retiree might expect around $2,100 each month.

That’s not a promising outlook, in my view.

One solution could be to increase your 401k contributions, which is a wise choice, especially for those new to investing. The S&P 500 remains a prime investment for beginners.

Alternatively, consider focusing on wealth-building outside your 401k.

Real estate and businesses are two asset classes you can acquire or develop beyond your 401k that can significantly enhance your wealth.

These options require more effort and knowledge and carry additional risks, but they can also deliver greater rewards if executed properly.

While I once maximized my 401k contributions and even added extra funds, I now only contribute enough to receive the full employer match. This allows me to allocate funds for investments outside my 401k.

Of course, discipline is essential. If you spend that additional money instead of investing it, you won’t succeed.

But with dedication, study, and practice, you can discover that building wealth outside of your 401k can be more effective.

This doesn’t imply you shouldn’t contribute; rather, you should understand your own strengths and how to build wealth most effectively.

My Financial Transformation

At the start of my career, I adhered to the three myths discussed above. I purchased a large house, believing it was an investment, dedicated my time to advancing in my career, and relied solely on my 401k for savings and investing.

After several years of running in place and making minimal progress toward wealth accumulation, I began to learn about finances and how to improve my situation.

I began with Kiyosaki’s Rich Dad Poor Dad and then delved deeper into real estate investing.

Before long, I recognized that my large, costly house was hindering my progress. So, we relocated and converted it into a rental property, transforming it from a liability into an asset.

That asset has since generated several hundred thousand dollars in profit, providing approximately $500 monthly in passive income after expenses.

In my job, I worked over 70 hours a week in an attempt to get ahead. I eventually decided to return to a previous employer where I could work more manageable hours, allowing me time to focus on investments.

And invest we did, continuing to acquire single-family rental properties that have facilitated wealth accumulation, which will persist even if I lose my job.

Without this financial education, I might still be struggling to make ends meet, earning a high income but burdened by high expenses that leave little for investment and no time for learning and growth outside of work.

The journey hasn’t been easy and has required substantial effort, but I am quite pleased with my results compared to where I might have been.

Summary

While numerous financial myths exist, I believe the three most perilous for middle-class professionals seeking to build wealth are:

1. Your home is a smart investment.
2. Your job is your primary source of wealth.
3. Your 401k and/or social security are sufficient for retirement.

These three elements are not inherently negative. Owning a home, working diligently at your job, and saving in a 401k are all commendable actions.

However, they do not pave the way to significant wealth.

To build wealth, you need to focus on acquiring assets.

A home you live in does not generate wealth; it represents an expense (a liability).

Your job isn't an asset; when you stop working, your income ceases.

While a 401k can be an asset if invested wisely, many Americans struggle to utilize it effectively, and it is unlikely to suffice for meaningful wealth accumulation.

And the future of social security remains uncertain; it could be reduced before any of us can utilize it.

Instead, individuals should learn to acquire or build assets that lead to substantial wealth:

• Purchase a home and rent it out (my preferred method).
• Start a business.
• Invest in someone else’s business (ideally through the S&P 500, allowing you to own a stake in America’s strongest companies).

Find something you enjoy and excel at, and persist until you achieve success.

As Bill Gates famously stated:

> "People overestimate what they can accomplish in one year and underestimate what they can achieve in ten years."

So begin today and observe your progress over the next decade!

Wishing you the best, and feel free to reach out if you need assistance.

Here are a few additional resources you may find beneficial:

• My 6-Figure Passive Income Plan

  How I got here and how you can too.

  themakingofamillionaire.com

• The Secret To Why The Rich Get Richer And You Don’t

  Discover what the poor and middle class do wrong to avoid these pitfalls.

  themakingofamillionaire.com

• The #1 Investing Tip For Middle-Class Professionals Struggling To Build Wealth

  Learn how this can change your life.

  themakingofamillionaire.com

Building Arks

After facing challenges in wealth accumulation early in my career while adhering to traditional financial guidance, I embarked on a journey to learn about investing. Over a decade later, I am financially secure and striving for complete financial independence through real estate and stock market investments. I have successfully constructed my financial ark to withstand any storms that may arise.

I founded Building Arks to assist busy professionals like you in disregarding conventional advice and creating genuine wealth.

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I have no affiliations with any listed sites, nor do I earn money from any partners or recommendations made in my articles (other than Medium). I am not a lawyer, accountant, or certified financial planner. All content is presented in good faith for informational purposes based on my knowledge and experience. It should not substitute for professional advice. Always consult an expert before making any legal, tax, or financial decisions.