When it comes to money, everyone has their own set of beliefs. Most often, the financial strategies and principles by which you now live have gotten passed down from previous generations.
While some of this advice may have held true in the past, it doesn’t necessarily mean that it’s still valid today. Over time, they’ve may have become money myths, and continuing to follow them may not only delays the achievement of your goals but may even put your entire financial future in jeopardy!
Below are 25 money myths that can affect your ability to build wealth and live free! By understanding each one, you can learn their truths which allows you to achieve greater success with money!
#1 – Avoid Debt At All Costs
Most people consider debt to be bad and to avoid it at all costs, which is correct to a degree. Aside from it being easy to obtain, most people don’t have the financial discipline to use it responsibly. Instead, debt allows them to live above their means and spend money they don’t have without realizing this may ultimately lead them into a personal financial crisis!
Truth be told, not all debt is bad. In some cases, it’s good, and using it properly can help you to reach your financial goals faster!
For example, debt can help you purchase a cash-flowing rental property. In addition, if you can borrow money at a low rate and re-invest it at a higher rate, then you’ll produce a rate of return in the process!
Taking out long-term low-interest-rate debt during times of high inflation can also be a smart money move. By doing so, you’re able to pay back loans with future dollars that will be worth substantially less!
For savvy and disciplined investors, debt is a tool that can help you achieve financial freedom faster!
Myth #2 – Your Home Is an Asset
Another common money myth people believe is that their home is an asset. In actuality, their highly mortgaged home shows up as an asset on their bank’s financial statement, making it their personal liability!
Also, there’s more to owning a home than simply paying your mortgage. You have repairs, maintenance, and other hidden costs to pay which consume a lot of your time and money!
For most people, this is one of the hardest money myths to accept. Their entire lives they’ve been told that homeownership is a smart investment and they should always buy bigger and better. But, the financial truth is that your home is typically your largest monthly expense!
Myth #3 – You Need to Earn More Money to Become Wealthy
Conventional wisdom tells you that earning more money will make you rich and wealthy. Unfortunately for most people, a higher income means a greater degree of lifestyle creep which leads to an even larger paycheck addiction!
To build wealth, you don’t need to earn more money. You need to set aside a portion of what you already make, instead of spending every last penny. This gives you the opportunity to save and invest so that your capital will compound for decades to come!
Myth #4 – Avoid Credit Cards
Credit cards often take the blame as the precursor to financial trouble. They’re viewed as the guilty party for why people spend more than they make, causing them to waste money on interest. In reality, these problems stem from the consumer’s inability to control their impulse spending and finances!
When credit cards get used responsibly, they can be beneficial. Not only do they help you simplify your finances and build credit, but they can come with some great perks, too. Think cash back, frequent flyer miles, and other rewards!
Myth #5 – Budgets Are For People Who Struggle to Pay Bills
Traditionally, budgets have been viewed as a tool that helps you spend money and pay bills on time. While it can do both of these, its primary function is creating a spending plan that allows you to save!
In truth, budgets are a financial tool that makes the things that excite you possible. It could help you build a cash runway for a new business, take a trip around the world, and make whatever dreams you have come true!
Myth #6 – Always Buy Bargains
Another money myth is that you should always buy bargains. Many times, these purchases appear to be good buys today, but in the long run, they can present challenges.
For example, some heavily discounted items are often manufacturer closeouts which means the product is no longer being produced. If you have an issue with it down the road, then finding replacement parts could be difficult. Instead of being able to fix it, you might have to replace it altogether!
Myth #7 – Working Harder Means Making More Money
Most employees earn a salary and get paid the same amount, regardless of the number of hours they work. It doesn’t matter if they spend 40, 60, or 80 hours of their life working, their pay will remain the same.
Still, some people have fallen into the trap of showing up early for work and staying late. By working more hours, they hope that they’ll get considered for a future promotion, which in turn allows them to trade even more time for money!
At some point, working harder and longer will cause burnout. It will take a toll on your physical, emotional, and mental health. Instead, you can keep your health intact by learning to work smarter, not harder!
Myth #8 – Buying New Is Better Than Used
When it comes to buying a new vehicle, many people experience “shiny object syndrome.” They get intoxicated by the new smell, technology, and its features which influences them to emotionally spend.
Brand new vehicles are expensive and the majority of them depreciate by 20% in the first year alone. Not to mention, if there’s an accident, then its value will plummet even further!
Instead of buying brand new, buy a “new to you” vehicle. You can still get a reliable vehicle, but it will just be at a fraction of the price. On top of that, you’ll likely save on sales tax and insurance, too!
Myth #9 – Price Indicates Quality
For most people, price and quality are confusing topics. Just because you decide to pay more for a product doesn’t necessarily mean that you’re receiving a better one. In fact, you may be paying just for the brand’s name which doesn’t give you any indication of its quality.
For example, consider prescription drugs. You have the option of buying a brand name or a generic. Typically, they both have the same amount of active ingredients, yet one costs exponentially more than the other!
Myth #10 – Saving for Retirement Can Wait
All too often, individuals in their 20s and 30s tend to put off saving for retirement. They think they there’s no need to do it now as they will have plenty of time to do so to in the future.
Truth be told, the longer you wait to start doing anything, the harder it becomes. As you wait, your habits get more solidified, making it more difficult to change.
No matter your income, you can always find ways to save and invest right now. Due to the power of compounding, the sooner you start, the less money you’ll actually need to set aside for retirement!
Myth #11 – Salaried Jobs Are Always Better Than Hourly Ones
Another one of these money myths is that getting paid a salary is always better than getting paid by the hour. Salaried employees get paid a set amount as long as they work at least a certain number of hours per week.
Also, employers usually have higher expectations for salaried employees and demand the job gets done on time, no matter what. This typically leaves employees to work longer hours and on weekends, without getting paid for doing so!
If you’re paid an hourly rate, then the more you work the more you’ll get paid. Plus, once you’ve hit 40 hours for the week, you’ll get paid overtime for working more!
Myth #12 – Tracking Your Spending Is Budgeting
While watching where you spend money is helpful, it’s not the same as budgeting. Tracking only shows you where your earned income was spent, which may not have necessarily been where you wanted it to go!
On the other hand, a budget creates a more concrete plan for your income by determining both how you’ll spend and save your hard earned money.
Once you’ve created a budget, then it’s time to track your spending. This ensures your expenses remain within the parameters that have been set, while also allowing you to reach your savings goals!
Myth #13 – Everyone Needs Life Insurance
The insurance industry wants you to believe that you need every type of insurance possible. They use marketing gimmicks and scare tactics to create fear, which can be a powerful motivator that convinces you to buy their products!
While life insurance can reduce your risk by adding a layer of protection against having a hardship, it isn’t for everyone. Such as those who are single and don’t have anyone reliant on their income.
Typically, life insurance is a good idea for parents and for those who have other people who are dependent on their income. Otherwise, you should weigh the Pros and Cons before deciding to purchase a policy.
Myth #14 – The Stock Market Is For Experts Only
Another common money myth is that it’s risky to invest in the stock market. It can be, especially if you buy individual stocks and only own them for short periods.
Conversely, buying the entire stock market via ETFs and index funds and holding them long-term significantly reduces your risk of listing money. In fact, it almost guarantees that you’ll experience financial gains and have success!
Myth #15 – Buying a Home Is Always Better Than Renting
Most people believe that you should always buy a home whenever it’s possible. But, this isn’t the case.
Typically, when you buy a home you have to own it for several years before you break even on the closing costs and maintenance expenses. By selling it within the first few years, you may end up losing money!
Owning a home isn’t guaranteed to be a good financial decision, nor is it right for everyone. Such as individuals who enjoy having greater flexibility and less responsibility!
Myth #16 – College Requires Student Loans
It’s no secret that college education expenses are skyrocketing, but that doesn’t mean you have to go into debt to get a quality education. In fact, there are many ways to go to college and graduate debt-free!
Most people realize that scholarships can help pay for their schooling. But, little do they know many of these gifts never get awarded because no one looks or applies for them!
Also, there’s no rule that says you or your children have to go to college immediately after high school. By taking some time off and working, they may find an employer that will pay or reimburse part of their bill!
Myth #17 – You Only Need One Source of Income
Most people are completely reliant on one stream of income – their job. They don’t recognize that if the stream dries up, then they’ll potentially be left with no way to pay their bills.
By having multiple streams of income, you diversify your earnings. Instead of having one source, you have many. This way, if one of them stops, then you’ll still have others that can pay for your needs and wants!
Myth #18 – My Partner Manages Our Money, So I Don’t Need To
In most relationships, one partner is more involved in the family’s finances than the other. Still, each partner needs to have access and be aware of their entire financial situation.
What if something were to happen to one of you? Would both you and your partner know who to contact, which bills need to be paid, or where they can go to get some fast cash?
It’s often said that the secret to a successful relationship is communication, and that means talking about money, too!
Myth #19 – You Have to Work Until You’re 65
False! You don’t have to work until you’re 65. With the right plan, you can retire much sooner!
Early retirement starts with living well below your means and producing a high savings ratio. In doing so, you’ll have more money to invest and work for you, so that one day work will become optional!
Myth #20 – Coupons Save You Money
Coupons can help you save money, as long as they’re used for items you already planned to purchase. But more often than not, they’re advertisements that attempt to lure you into a store or make a purchase online.
Also, depending on your money personality, coupons won’t always save you money. For some people, like bargain hunters, the thrill of saving money can cause them to spend more of it!
Myth #21 – Your Will and Estate Plan Can Wait
It’s a fact – someday your life will come to an end. It probably won’t be today, hopefully, won’t be tomorrow, but one day it will.
Without a will or estate plan, your assets go into intestate succession when you pass. During this legal process, the state determines where your assets will go, which may be much different than what you wanted!
Rather than relying on the courts, you should begin working on your will and estate plan today. By doing so, you’re ensuring that your nest egg and other assets will go to the people and causes that you care about most!
Myth #22 – It’s Too Late To Reach Financial Goals
In life, there are no specific timelines to achieve certain milestones, other than the others that you set for yourself. It doesn’t matter your age, you can always climb out of debt, become financially stable, and do anything else you set out to do. As long as you have a plan and are willing to work towards your goals, then it will never be too late!
Myth #23 – Personally Checking Your Credit Hurts Your Scores
Reviewing your credit report is a good way to confirm that all the information listed within it is accurate. But, when you check your credit, your scores don’t necessarily change.
The confusion lies in the difference between a soft and hard credit pull. A soft pull occurs when you or a company checks your credit to confirm personal information or as part of a job application. Neither of which affects your scores.
However, when you apply for credit then the lender will do a hard pull. This may have a small impact on your credit, but probably won’t be enough for it to matter, especially if you rarely apply for credit, have a low credit utilization rate, and pay your bills on time!
Myth #24 – You Should Pay Off Large Debts First
There is nothing wrong with paying off your largest debts first and working your way down. I applaud everyone who is working to become debt-free and better their finances, regardless of how they choose to do it!
However, it’s important to understand that paying off debts with the highest interest rate first, mathematically allows you to become debt-free faster. On top of that, it saves you money!
Myth #25 – More Money Means Greater Happiness
The most common money myth is that the more money you make, the happier you’ll be. But according to a Gallup Poll, this just isn’t true. It found that once your annual income reaches $75k then making more money no longer improves your emotional wellbeing.
The poll also found that earning $95k per year promotes a greater sense of life satisfaction. But once your income surpasses $105k, you’ll likely be less happy because of greater demands on your time and the social pressure of having to keep up with the Joneses!
It’s a sad truth that many people still manage their money based on these outdated money myths. Without realizing it, the advice they’re following may be leading them straight into the poor house!
Money myths are erroneous beliefs about money. They’re unreliable and can be completely false.
Still, understanding these money myths can help you find the truth. When you do, you can change the way you manage money and prosper for years to come!
Which money myths are holding you back from having more success? Comment below.
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