Ten Money Myths That Keep You Poor

1. If I pay my credit card bill on time, I will improve my FICO score. The problem with this thinking? It's just not true. Making your payments on time is only 1/3 of the score. If your debt is increasing, then your score is plunging, even if you pay on time.

2. I'll start saving once I pay off debt. Hmmm. How well has this plan worked for you so far? If you want to get ahead, then you have to think and act with wealth consciousness. And when you do, then you will accumulate more assets, compound your gains, protect your assets, and live according to the Thrive Budget, which allows you to refinance your outlandish high-interest debt at a much lower price.

If you're drowning in debt, it is even more important to pay yourself first in tax-protected, financial predator-proof protected retirement accounts and health savings accounts. Getting financially literate will help you to understand this. Make education a priority.

3. Lots of successful people launched their business on a credit card. Credit cards offer interest rates in the 28–30% range, at a time when viable businesses, even those with lousy credit scores, are borrowing money at less than six percent. If you are borrowing on a credit card to make ends meet with your business (or your life), you need a new plan. Now.

4. Insurance policies are the best way to transfer wealth. Warren Buffett sells insurance policies. He doesn't buy them. His estate plan includes foundations for his kids and slowly, but surely, under the gift tax level, transferring ownership to them in his businesses. His son, Howard, is on the board of Berkshire Hathaway.

5. Dividend stocks are safe. Other stocks are speculative. The higher the dividend, the higher the risk today. NASDAQ stocks have performed at more than twice the speed of the dividend-heavy Dow Jones Industrial Average. NASDAQ's return since 2009 is 179%; the Dow's is 78%.

6. It's okay to buy a growth fund at a high price. Errr. Ever heard the phrase "Never pay retail?" It applies to everything.

7. Owning is better than renting no matter what the price. Over 7 million homeowners have lost their homes since 2007. Almost seven and a half million homes are still seriously underwater (worth less than the mortgage), according to RealtyTrac.com.

8. Borrowing from your 401(k) is okay if you are saving your home. If you are doing this, you are likely sinking your lifeboat—particularly if you are going to lose your home anyway. If the choice is draining your 401(k) or losing your home, it's time to consider a radically different plan, and, believe it or not, there are many other options.

9. Options are a great way to earn a second income with a small capital investment. As I outline in my book, You Vs. Wall Street, if the Nobel Prize-winning economist who wrote the book on options can't make it work, why do you think that you can? He had one of the biggest hedge fund collapses and bailouts of the last 25 years.

10. Annuities and bonds are safer than stocks. Bonds have lost money over the last 10 years. Credit risk is on red alert throughout the world. Many annuities have hidden fees that can slowly drain the account, without offering the promised measly return that you signed up for.

If the annuity provider goes out of business, you'll be lucky to get dimes on the dollar through the state guaranty fund. (AIG, the largest annuity provider in 2007, would have gone bankrupt if the taxpayers had not bailed the company out.) If you die early, in many cases, the company gets your hard-earned dough instead of your family.

Here Is How a Financially Sophisticated Individual Thinks and What to Do Instead

How Rich People Think and Act

1. If I increase my assets, I will improve my FICO score. The debt to assets ratio accounts for 1/3 of the total. I'd better contribute to my 401(k) and manage it well so that I can compound my gains. I can then refinance the debt at historically low interest rates and pay it off with the gains I make in the first year.

2. I can borrow money at historically low interest rates! I'm going to look into buying a second home to rent out for additional income. Maybe I can purchase a home for my kids, or a duplex for my college student, instead of having her pay rent to someone else.

3. Other people's money and low-Cost loans. My business is going to need capital to expand. I'm going to look for some good partners who have capital to invest and believe in the vision. Shark Tank here I come. Viable, income-producing businesses with a good credit score can borrow far more cheaply than the usurious credit card loan. Ford Motor Company owes more than $100 billion and still borrows for six percent.

4. Hard assets outperform all paper assets in today's high debt world. Most people outlive their insurance policies by decades because in retirement you can't afford the premiums. If you purchase a home instead, you take a huge tax write-off, pay down your mortgage instead of flushing rent down the drain, and could conceivably have it paid off by the time you retire.

5. The higher the dividend, the higher the risk. Modern portfolio theory with annual rebalancing allows me to keep enough safe (capital preservation), diversify, invest in hot industries and capture my gains, without the risk of the high-debt companies that pay dividends to keep unsophisticated investors in their hand.

6. The magic rule is "buy low; sell high." It's never okay to buy anything high unless you are pretty sure it is going higher. Buying high turns the most basic rule of investing on its head. When an investment drops in value, you'll feel so sick that you'll be tempted to sell low. That's why so many people have trouble earning passive income, and few can compete with Warren Buffett. So many people buy on euphoria (buy high) and sell on stomach acid (sell low), which is a recipe for losing.

7. There are many factors to consider before purchasing real estate, including the interest rate tax credit, how long you wish to live in the home, where the home lies on the buy low; sell high continuum, local natural disasters, the added costs of insurance, and more. Start by checking this valuable risk report provided by RealtyTrac.com. In expensive areas, some professionals purchase a family home in the country and have more efficiency for the work week in the city.

8. If borrowing from your 401(k) is the only way to save your home, then it's time to downsize. The 401(k) is your lifeboat to tomorrow; the Health Savings Account is your best long-term health plan. Don't drain them and hand the money over to the bank or the debt collector.

They'll suck you dry first, and then take your home, leaving you with nothing. Other options include renting your home out, selling for a profit, short sells, and restructuring.

The goal is capital preservation and living according to a budget that works with your current income without draining your future. That's why so many Baby Boomers are downsizing and retiring to the more affordable red states.

9. Options are risky. Modern portfolio theory, using the Natalie Pace easy pie chart system, protects me from recessions while outperforming the bull markets in between. Annual rebalancing is key. This system performs better than hedge funds. Why take on the extra work, the extra risk and the extra worry of options trading when any extra gain is so iffy?

10. Annuities and bonds are risky in today's high debt world, and I'm not getting paid to take that risk. Capital preservation is key. I'm not going to reach for yield, or place my faith and my dough in any one company for a measly three percent return. (Any return above three percent means that the company is higher risk than they are telling me!) Why do people who are afraid of the stock market feel more comfortable investing in one company that has no backstop in case of bankruptcy?

The rich have gotten richer in the United States, with widening gaps of income and wealth over the past few decades. It's not because the laws are in their favor. It's because they have been educated in financial matters. They understand life math. It's easier than the algebra we all slogged through in high school. Time to get money smart!

Natalie Pace is the author of the Amazon bestsellers The Gratitude Game/a>, The ABCs of Money and You Vs. Wall Street (aka Put Your Money Where Your Heart Is in hardcover). Natalie has been saving homes and nest eggs for 14 years, while at the same time earning the ranking of No. 1 stock picker.

Natalie Pace is a blogger on HuffingtonPost.com and a repeat guest on national television, and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer in giving back, she has been instrumental in raising tens of millions for public schools, financial literacy, the arts and underserved women and girls worldwide.

Follow her on Twitter.com/NataliePace, Plus.Google.com/+NataliePace, and Facebook.com/NatalieWynnePace. For more information, please visit NataliePace.com. Click to access a longer bio on Natalie Pace.

Opinions expressed by the author are not necessarily those of WITI.