I’m sure you’ve received your fair share of financial advice over the years. Some was probably good advice. Some likely terrible. Some you’re not sure if it’s good or bad.
I grew up in a house with a saver father and a spender mother. Both have given me financial advice while I was growing up. Can you guess who’s advice I’ve followed?
I’ve learned that it’s less about how much you earn and more about what you do with that money that really makes a difference in your finances. And some common money myths may be keeping your broke without even realizing it!
Below, check out common money myths and financial misconceptions that may be keeping you broke. They aren’t popular and may feel a bit harsh, but may be the reality check you need to change your financial habits.
1. Myth: I will always be broke.
Reality: Changing your financial habits can make you feel less broke.
There are always things people can do to not feel so strapped for cash. For example, you can reduce your cost of living, live more frugally, stop impulse spending, clip coupons, etc. Yes, it’s hard. Yes, it’s not always fun. Yes, there will be sacrifices. No, it’s not very fun.
But to have extra money at the end of a week or month, take any steps necessary to trim where you can. That way, you’ll have the extra money in the future to spend your way and not feel so broke.
2. Myth: Everyone has a car payment.
Reality: Many people pay for their vehicles in cash. Even with a zero percent financing option.
When did it become so commonplace for you to go into debt for a vehicle? I know it’s so easy to take out a loan for a new or used vehicle when the dealership is offering 0% for 60. However, just because they are doesn’t mean you can afford the vehicle. Don’t fall into this common money myth trap!
Many people who have budgets, are thrifty, are obsessed with saving, etc. pay for vehicles in cash. That could be anything from a $50,000 SUV to a $500 beater to hold you over until you can afford something more.
A car loan may be popular, but not everyone has one. And if you ask someone who doesn’t have one, they’ll tell you how great it is to drive something that’s paid for.
3. Myth: Buying a home is better than renting.
Reality: You may be ahead financially by renting vs. owning.
I distinctly recall a lesson in high school (20 years ago!) where our economics teacher said home values tend to multiply every 10 years. Meaning if you purchased a $100,000 home today, 10 years from now it would be worth $200,000.
I don’t know the source of that data, but it couldn’t be further from the truth. Not only are homes generally not increasing in value, in many cases, they’re going backward!
Couple that with the cost of maintenance and taxes, and you may have one huge investment on your hands. Buying is not always better than renting. Do your due diligence and look at the numbers and evaluate your situation.
I have a husband who is a “doer.” He loves projects inside and outside of the house. Because of that, we will always be homeowners. It makes him feel accomplished to do work around the house.
On the other hand, maybe doing chores around the house sounds like a drag to you. Do you like to travel and spend a lot of time away from your home? Someone who likes making a payment and not having to worry if the dishwasher breaks or if the lawn needs to be mowed.
Renting, or purchasing a condo may be a better route. Do the math to find out if renting or owning is more cost-effective for you over time.
4. Myth: You have to have a lot of money to invest.
Reality: You can begin investing now with whatever money you have, even if it’s just 10 bucks!
Don’t let this common misconception about investing stop you from starting to invest, or to add to your current investment accounts. With micro-investing apps like Acorns, Robinhood, or Stockpile you can invest with very little to start. I’m using Acorns to save for my 40th birthday trip a little at a time!
Plus, you can manually or automatically add to your accounts as much or as little as you want. The bottom line is while if you invest more you will make more with the markets over time, you can begin to invest with very little money. Which is probably a good idea anyway for newer investors just getting their feet wet.
5. Myth: Carry a credit card balance to increase your credit score.
Reality: Credit card debt is a poor way to increase your credit score.
It is never a good idea to carry a credit card balance. Even if you are trying to establish some credit. Please do not convince yourself this is a good idea. Especially if you know you’re not responsible with your finances. Owning and using a credit card can help establish credit, but pay it off every month!
Don’t use the card and carry a balance, convincing yourself you’re helping to establish credit. You’re helping to establish debt you will have to pay back with a ton of interest!
6. Myth: You have to earn more to be able to save.
Reality: Depending on what is important to you, you can move ahead financially by re-prioritizing your budget vs. wanting to earn more money.
Don’t fall into the mental trap of “you’ll save when…”
- I’ll save when I pay off my car
- I’ll save when I get my next raise
- I’ll save our tax return next year
Don’t put off saving today because you think you can’t. If saving money was that important to you, you’d find a way to save money! Saving is all about consistency, even if it’s a small amount. Start with $1 a paycheck if you think you can afford to save nothing. Get into the habit of saving, and increase over time as you can. But you have to make it a priority and work at it!
7. Myth: Always pay in cash/credit cards are bad.
Reality: Credit cards offer some great perks for those who can be fiscally responsible.
Credit cards are not a good idea for those that carry a balance. But credit cards can be a good thing for people who pay off their balances each month. Many credit cards offer perks that can add up over time. Cash envelopes and paying in cash work well for many people who know they can’t be trusted with plastic. If you can trust yourself, using a credit card strategically to earn points or cash back incentives can work in your favor and make financial sense.
8. Myth: Your emergency fund should be in a savings account.
Reality: Your emergency fund should be somewhere accessible, but that makes decent interest.
Emergency funds are intended to be money saved and set aside for an emergency. The definition of an emergency can be specific to you, but typically it refers to the loss of a job, a health emergency that causes medical bills or time away from work, an accident that totals a car, etc.
Due to the nature of these emergencies, hopefully, they will not happen to you. Or if they do, not happen often. And if they do happen, you don’t need the money right this second. You’d have a day or two (or more) before you need the money.
Because of this, putting money into a high yield savings account or an online bank that has a higher interest rate than a typical savings account at a bank is a good option. Recommendations for high yield savings accounts currently include Ally or Marcus.
I use Marcus and have been very happy with them. Easy to use. Quick and easy to transfer money back and forth between Marcus and my checking account.
9. Myth: Two incomes are better than one.
Reality: Your family can live comfortably on one income if it is a priority for you.
More money doesn’t necessarily mean you have more to spend or more to save. It’s truly fascinating to me how two different families making similar incomes can have two completely different financial situations.
Discuss your financial situation with your partner, and decide what’s truly important to you. Who says making more means you’re going to be happier or be able to pay off more debt? Maybe being a stay-at-home parent is more important to you than more money. Or, perhaps you want more free time and are willing to exchange freedom for money.
I know single-income homes making around $50,000 per year who seem to have it all. I also know dual-income families making $250,000 who are broke. If it’s a priority for you or your partner to stay home, find a way to do it!
10. Myth: I don’t need an emergency fund.
Reality: Um, yes you do.
Don’t fall into the trap of thinking you’ll never lose your job, get into an accident or have health issues. When I was younger I felt invincible. I had my youth, had a good stable job and was never sick. Then I lost my job, right after we closed on our first house, and 3 months before our wedding. It was a slap in the face and I was not anticipating it at all!
If I had had an emergency fund, the weeks I spent looking for a new job would have been a lot less stressful.
Emergencies happen, that’s why they are called emergencies. You can’t plan for them and you can’t anticipate when they will happen. But they could ruin your finances if you aren’t prepared!
11. Myth: It’s not worth saving if I can only put away a small amount.
Reality: Every penny will add up over time. Don’t let this excuse stop you from saving.
Some of the best financial advice I’ve ever received is from my dad. He always reinforced the idea that it’s now how much you save, but it’s how consistent you are with saving. Of course, the more you save the larger your accounts will grow over time.
However, especially as you are first starting to save, or if you feel there is no way you can save a dime you can barely put food on the table the concept of consistent saving is powerful.
Put away that small amount. Maybe it’s $1 a week or $10 a paycheck. It doesn’t look like much but will add up over time. No, you’re not going to get rich. But what you are going to do is establish the habit of saving which is truly powerful.
Once the habit is established, the desire to grow the savings account will get stronger. You’ll want to see the savings account grow bigger so you’ll be more committed to finding the small ways you can add more to your account over time.
Don’t fall for this common money myth! Whatever you have to save, even if it’s small, save it! You can always grow it over time.
12. Myth: I’m young, so I have time to save for retirement.
Reality: Compound interest is your best friend when you’re young. Start as early as you can to take advantage of your greatest asset: time!
Don’t believe this financial misconception. If you are young, you indeed have more time to save for retirement than someone older. However, waiting to start your retirement account can cost you hundreds of thousands of dollars thanks to compounding. Regardless of age, if you have not started a retirement account, do so right now! If your company offers any kind of 401K matching, if you’re not taking advantage of it, you’re throwing money out the window!
13. Myth: I can always save later.
Reality: Later may not come or not in the way you were expecting.
There is no time like the present. Convincing yourself you will save later only means you never will. Like most things in life, there will never be the “perfect” time to start.
Stop making excuses for why you can’t start saving right now. Because later may never come, or you may continue to convince yourself of “later” and then an emergency happens or retirement is on the horizon.
If you haven’t started to save for something that you claim is a priority for you, the time to start is now. You may not get that promotion. You may not sell the house for as much as you were expecting. Your vehicle may not be worth as much as you think you could sell it for. Save for a rainy day now, your future self will thank you!
14. Myth: I deserve this.
Reality: Be happy with what you have. More stuff will not make you happier.
Don’t we all deserve more in this life? How easy it is to convince ourselves of spending more money than we should by framing in an “I deserve” way.
Stop convincing yourself you deserve something you can’t afford. Be happy with what you have and save for what you want. You deserve nothing except for the things you have put your blood, sweat, and tears in to afford.
It’s an unfulfilled life constantly wishing you had more and thinking you deserve more. Being grateful for what you have will not only keep more money in your wallet but is also more fulfilling and happier. Try it. Be grateful for what you have instead of constantly wishing for what you don’t.
15. Myth: A college education means I’ll get paid a lot of money.
Reality: The cost of your education may be more than it’s worth.
This could not be further from the truth and please do not fall for this money myth. While it is true that those with education beyond high school tend to make more money throughout their careers than those who don’t. But it is not a guarantee. I’ll repeat that.
Getting a college degree does not guarantee that you will make more than if you had no education or had gone to a tech school.
We all know someone (probably more than one) who has a college degree they are not using. This could be for many reasons. Maybe they are no longer passionate about what they studied and have moved on to something else.
Perhaps they were never passionate about the degree and simply wanted to graduate and move on.
Maybe they have elected to stay at home and now have to pay off student loans for a degree they aren’t even using.
Maybe they couldn’t get the experience they needed to move forward in their chosen field and have taken a lesser paying job to get by.
Maybe they were laid off from their corporate job and need money so they have taken a job they are overqualified for to make ends meet.
There are plenty of people with degrees that can’t even make enough money to pay back their student loans.
And there are plenty of people without college degrees that make more money than they can spend by following their passions through a tech school, teaching themselves a school, starting a blog, opening a business, etc.
Don’t take out student loans because you believe the money myth that a degree means you will make a lot of money.
This is never a guarantee and a hard lesson to learn. Especially for young kids who believe this myth, take out an equivalent of a mortgage for school, and can’t find a job after graduation.
16. Myth: All debt is bad.
Reality: Debt can help you establish credit.
Kudos to those who can pay for everything in cash and don’t have debt. Debt is very common: mortgage, vehicles, student loans, credit cards, etc.
Some debt has a more negative stigma than others. People typically view credit card debt as bad and a mortgage, vehicle or student loan as something most people have and are either good or not as “bad.”
The truth is, you need some debt to establish credit. If you don’t have a credit history, it may be difficult to get a loan.
17. You can only be a millionaire if you make a lot of money.
Reality: There are many millionaires out there that make a whole lot less than you think; they just knew how to manage their money and make it work for them!
Yes, if you make more money it theoretically should be easier for you to gain millionaire status. Millionaire status defined as having one million dollars of net worth, usually in retirement accounts. If you start investing early, are diligent about savings and invest for the long haul, it may be easier than you think to reach the coveted status.
Bankrate.com completed a survey last year in which they asked Americans what percentage of annual income do you save? 19% listed none. You’re not going to reach your retirement goals by saving zero. So the sooner you create and commit to a plan to save for the future, the better.
Dave Ramsey surveyed millionaires. He calls them the millionaires next door because they are all around, they just might not look like what you’d expect. For the group, he surveyed, it took an average of 28 years of saving before hitting one million dollars of net worth.
That doesn’t happen by accident. That is many cumulative years of savings, likely thrifty and frugal living to reach a goal like that. But it is achievable for “normal” people making average incomes. They just have the drive to want to achieve it.
There are many financial misconceptions out there that cause people to believe they are making a good financial move (when in fact they may not be). Before making a big purchase, taking out a loan, or opting out of your retirement account at work, take a second look.
You may save yourself thousands of dollars by making a different choice. Now that you’re ready to make your money work for, check out my Acorns Review and Stockpile Review to see if one of these investing apps are right for you.
What is one financial myth you used to believe?