6 Mid-Career Money Myths

By David Pitt, AP Personal Finance Writer

Managing money doesn't get easier with age.

Workers often hit their peak earning years only to be pulled in several directions. Beyond basic expenses there may be college-age kids or aging parents who need financial help. It can be a lot to balance at a time when retirement savings should take on more importance.

The problem is many fall prey to the myth that they can juggle it all month-to-month, on the fly.

"What happens with the tens of thousands of consumers we talk with every month is they've gotten into the habit of bad habits," says Mike Croxson, president of CareOne, a debt counseling company. "They don't have a plan anymore."

This often happens to workers in their 30s to early 50s. As life gets busy, they pay bills on auto-pilot and pay little attention to long-term financial planning. Here are six money myths to avoid as potential pitfalls during your peak earning years:

Myth 1: I need to prepare for an emergency before I pay down credit card debt.

It's wisest to pay down high-interest credit cards before you save for a rainy day. "You have to look at where you get the best bang for the buck," says Carlo Panaccione, a financial planner at Navigation Group Inc. in Redwood Shores, Calif.

You'd be better off paying down a $5,000 credit card balance charging you 14% than socking away that amount in a bank earning less than 2%.

If you're concerned about an inadequate emergency fund, you should be. But recognize that if you start paying down debt, you can still charge most expenses if a problem arises.

Also, weigh the consequences if you're sacrificing 401(k) contributions. You're losing the benefit of lowering your taxable income and possibly missing out on an employer match. Consider having at least enough deducted so your employer matches your 401(k) contributions. It's an example of where saving first makes sense.

To manage your debt, use these basic guidelines. Start with your monthly gross income — before payroll deductions and taxes. Your housing expense shouldn't exceed 28% of that amount. If you then add revolving debt, such as credit cards and car loans, the amount shouldn't exceed 36%. If it does by much, you really need to focus on shedding some debt.