We all grow up with the same financial advice: Spend less, save more, and invest early. While most of this wisdom is true, there are many widely accepted money management tips that are actually wrong.
Let’s debunk several money myths that might help you to solidify your new way of thinking.
1. I’m Too Young to Have to Think About Retirement
If you know the power of compounding interest on saving more, then hopefully you’ve caught the potential your money has when you give it enough time to grow.
Additionally, the more time you give yourself between now and your financial freedom date, the less money you’ll have to invest out of pocket. You need to simply let time in the right investments do most of the work.
When you’re young, you have the most disposable income you’ll ever have. If you decide to start a family, you’ll now have people depending on that income for their immediate needs. While it’s most tempting to splurge when you’re young, it’s actually the most powerful time you have money-wise.
2. It’s Too Late for Me to Fix My Money Situation
Likewise, if you feel you have no time left to fix your situation, you’re only doing yourself a disservice by not planting even the littlest of seeds today. Like a plant, money needs time and the right environment in order to grow.
That being said, the next best thing to do, if you feel you’ve missed your prime time, is to start right away. Continuing to procrastinate or giving up altogether is the same behavior that caused you to be where you are now.
Even if you won’t be able to reap the benefits of what will grow, you’ll be leaving healthy financial circumstances to your estate. If you have children, then they won’t be saddled with debt or any other complications, because those get inherited just as wealth does.
Additionally, you’ll also be showing them the right financial behaviors to have. Remember wealthy people tend to learn from each other; make sure your kids learn from you.
3. This Is Hopeless—I’ll Always Be Broke
Is this really true? Can you take on more work, or find a second job in order to increase your overall income? Do you want to? Our hopelessness can oftentimes come from a feeling of overwhelm and lack of confidence. How can you simplify things?
How can you increase your knowledge of the thing that has you stuck? Reading this article is already a good start, and sometimes it’s enough to just focus on completely step one. In other words, don’t worry about financial independence until you’ve got the hang of keeping all of your receipts nice and tidy. Other times, it really is a matter of confronting the shame we have around simply feeling lazy!
Okay, so you really would just like to starfish yourself on the couch for the rest of the weekend. That’s being human, but what if you first did a couple of things to prepare for the week ahead? What’s one small productive thing you can do to feel proactive rather than hopeless and helpless— lethargy usually first stems from those feelings?
It may take a few weekends (maybe many!) before you build up enough momentum to make your financial literacy a habit, but once you get the ball rolling, at some point, things will get moving on their own.
4. I Deserve to Splurge
Maybe you do deserve to splurge, but after having done the calculations in this month’s budget, can you afford to do it, or will the splurge set your long-term goal back? We talked about ‘deservability’ earlier, but sometimes how we feel simply cannot justify the math.
If you do decide to splurge, just take responsibility for what that might mean to your game plan. Go back to your budget sheet, and update it to accommodate this new direction. Just make sure to weigh your desire for the splurge with your desire for your long-term goal. If you can find the balance, that’s all that matters.
5. You Need Money to Make Money
No, you need a bit of knowledge and effort to get you started. Money working for you can beget more money, that’s true, but if you keep in mind the snowball effect of compound interest, even something small can grow into something large.
This unfounded belief is similar to the belief, “I’ll always be broke.” If you put in effort, you’ll get something, even if it’s not a country club membership or a luxury yacht. Again, ask yourself if you really need all of those things.
Most of us are actually quite happy with what we have, and maybe what we need is just a little reassurance as to which way we should be headed. That being said, working with what you already have is enough to set the foundation toward building what you really want.
6. I Don’t Need to Budget—I Have Enough Money to Cover My Expenses
You may be able to cover your expenses without a problem now, but will you be able to continue to do that with the same ease 10 years from now? Inflation will ensure that what you can afford to get today will continue to get more expensive.
Are your income revenues able to secure for you long-term guaranteed income that can keep up with inflation? Budgeting isn’t just for people who struggle with money, but is the beginning of your ability to manage it well into the future.
If you stopped working either by choice or by force, do you have enough money set aside that could continue to cover your expenses? You need to know how much money that kind of security would require you to invest regularly. A budget can help you find that monthly sum.
7. I Have to Buy a Home
Most middle-income families believe that the biggest asset they can acquire in their lifetime is a home. Depending on where you live, that could mean a value of $300,000–$600,000. However, the average American will make $30,000 a year over the span of a 40- or 50-year career.
That means, your everyday American would have made between $1.2 and $1.5 million in their lifetime. YOU are your biggest asset, and nothing besides what you want to make out of your life matters in the grand scheme of building wealth. How much of that $1.2–1.5 million can you keep and grow? This should be your main concern.
8. I’m Going to Pay Cash for Everything—Credit Cards Are a Scam!
While credit can be very dangerous as we’ve previously talked about, its uses can be beneficial as we’ve also mentioned. Using a credit card can be convenient in many cases, as well as provide you with fraud protection.
And, as previously discussed, it can be a way for you to exercise the right behaviors you should have with credit. You don’t have to completely shun credit cards and loans out of your life, but do use them with care.
If you have real trouble with spending and credit, then it might indeed do you some good to stave off them for a little while. Then, when you’re ready and more financially stable, you may add the use of credit cards back into your life.
9. I Don’t Make Enough Money to Save
If you can’t find the extra money to save, then you definitely need a budget. In fact, you can always find a few extra dollars somewhere, and at least commit to a small amount of monthly savings.
Beginning the habit of saving is a matter of prioritizing it first. If it means enough to you, you’ll find a way to do it. If you’ve done the budget and found that you really can’t downsize or scrounge up the extra dollars, then you’ve got to look at your income situation.
Your priority, in this case, is increasing your sources of income. It takes as much effort, maybe a bit more perseverance, to find extra work as it does to budget. Make your income a priority, and you can then take care of your financial future with a bigger budget.
10. My Partner Manages the Money, so I Don’t Need to Worry About It
Many people might feel this way, but it’s not until tragedy strikes unfortunately until they realize how detrimental being uninvolved is.
What would you do in the unfortunate event that something were to happen to your partner?
This is the part of the budget that we’d all like to avoid, but it’s an important element of creating a financially sound home. If you contribute to the home in any way—it could be with a paycheck or by taking care of the kids and the house itself—either way, your contributions go toward creating a secure home.
You need not become a financial whizz like your partner may be, but it’s important to at least know what they’re doing. Should something happen to them, you, or the partnership, you’ll be able to take the reins in such a way that the least amount of financial damage is done.
11. Money is The Root of All Evil
This particular money mindset is a long-standing social belief that we’ve too long used to judge others. The actual scripture that this belief is based on says, “The love of money is the root of all evil.” If we’re to look at this passage clearly, we’d see perhaps that money isn’t the problem, but our love of it, how we treat it is most definitely the problem.
It’s our mentality around money that is askew. We avoid having too much for fear of looking like “one of those people” who covet money or a materialistic lifestyle. However, we may lean too much to the opposite side of love into hating money so as to fulfill some internal sense of virtue and righteousness.
You may not be particularly religious, but if your mentality around money causes you to feel some kind of shame or even guilt, what is the likelihood of you stepping out of your comfort zone to seek more money out?