Many of us grow up learning the same things our friends, family, and schoolmates believe about money. Unfortunately, most of those things are just money myths. Well-intentioned and striving to do good and what’s right, oftentimes we haven’t really studied all angles to verify the truth of those beliefs, don’t get upset though as it’s not your fault. Those you knew trusted everyone they knew, the same as you, and passed on the best they could. Here are X money myths to stop believing now.
Money myth #1 Investing is only for the wealthy
It’s a common misconception that the only people able to do any investing are those that have money already. No family is born with money, all families had to build from nothing. That fact means that everyone now that has money, came from nothing at some point.
While having capital speeds up acquiring cash flow generating assets, your time also counts as an asset. Using your time to put deals together, evaluating a property or business, and bringing them to others is a way many have gotten started. Many investors and business owners use their time to educate themselves on the topic in order to produce better results.
Money myth #2 Money is all about getting out of debt
If this is the case then why don’t the wealthiest people and companies in the world focus on it? Seriously though think about it why don’t they?
There is a saying that goes “What you focus on expands”. While your say your focus is “get out of debt” the real focus there is simplified down to “debt”. Since the focus for so many gets reduced to this it ends up becoming a never-ending story of lowering debt, transferring debt, and getting rid of one only to replace it later.
Money myth #3 You know all there is to know about finances
It’s common for all of us to get complacent. After years of school who wants to learn about money outside of what school, family, or religion taught you? With everyone else trying to get out of debt, saving for retirement, and not talking or reading about money, why would you want to?
Along with this idea could be included the idea that if your partner manages the money you don’t need to understand. Since finances are one of the leading causes of divorce then I highly recommend you two get on the same page regarding money and money myths. Partners die eventually in every relationship so you will have to manage it at some point. Better to get an understanding of it while young instead of trying to do so when tragedy strikes.
Money myth #4 Credit will get you through emergencies
One reason this money myth gets done a lot is that we get used to not building an actual emergency fund. I think we have all been there living paycheck to paycheck. It can be tough to break the habit of not saving when struggling. Making it a habit of putting even $1 away is helpful for building the habit, and then increasing as income allows.
Using credit to cover emergencies is a bad idea for many reasons. One reason is that in doing so you put yourself in a position of owing more to the credit card over time than the emergency initially cost in the first place. Another reason is that if you do it once then doing it again is that much easier. Along those lines, if you’ve done so once, and another thing happens in short order and you don’t have enough credit for that then your credit cards may go to collections making matters worse.
While you may have great credit and high credit limits now, that’s not always been the case, has it? In addition, banks and credit card companies have and do reduce people’s limits from time to time. Thinking you will always have sufficient credit to cover things is setting yourself up for problems in the future.
Money myth #5 No need to track expenses
In my own finances, I recall one month going out to eat a lot and wondering the next month how much I had spent. I had spent several hundred dollars, which as a single person was enough at that time to buy groceries for a whole month. I recall hearing a story from someone else about how he and his wife had spent nearly $1,000 in one month eating out.
A friend of mine says that one of the biggest problems he had while building his business was NOT tracking expenses. He now coaches new business owners to get in the habit of tracking them because it helps the business so much.
These two examples above highlight from an individual, couple, and company perspective just how easy it is to spend money. For that reason, we should all have at least a basic budget set up to help keep our finances under control. Making responsible money choices is for everyone.
Money myth #6 High credit score guarantees approval
There are a lot of factors when it comes to being approved for a loan like the type of loan, lender, loan terms, and other factors. When applying for a loan, lenders want to know your full financial picture, which they then use to determine if you qualify and at what rate.
Money myth #7 Debit is better to use than credit
Using a credit card wisely is a great way to improve one’s credit. Using a debit card all the time might seem like it’s saving you from problems but there are risks there too. If you lose it, or your card numbers get stolen they have direct access to your bank account.
Using a credit card limits your liability. If you get into the habit of using a credit card and then paying it off immediately you can help avoid getting into a debt trap. Purchase protection on credit cards can be beneficial if you suspect fraud on your card.
Money myth #8 Pay off your biggest debts first
When you are trying to reduce your expenses by paying off debt, the fastest way to do so is by paying the debt off, which will give you the most cash flow back. Meaning paying all your extra money to a mortgage first will take much longer to free up cash flow than paying off a several hundred dollars per month car payment.
Instead of paying off the biggest debts you have, look at which ones you can pay off in the quickest time frame but that will net you a large amount of income to put towards the next, and then the next, etc.
Money myth #9 Buy more because its on sale
Goodness, how often do you go to the store with the intention to buy 1 or 2 of something and end up getting more just because it’s on sale? I have done this more than once.
If you think about it though, when you intend to buy one thing at full price, and then buy 2 or more discounted items, you are spending more than intended. Thereby, you are not saving money in your budget you are exceeding it.
Money myth #10 Working hard equals more money
Have you ever gone to work and busted your tail off only to find yourself totally exhausted days, weeks, or months later? Yup, been there also. Working overtime every pay period can lead not only to exhaustion but possibly burnout where all you think about is not working at all.
Money myth #11 Only a working spouse has a use for life insurance
While it’s true that in many families only one of the partners works, everyone’s life is valuable. Having life insurance for each spouse and child can help tremendously to cover your finances if the worst were to happen.
Money myth #12 The lower the price the better
There is a balance to be made when selling a product between price, quality, and convenience. Meaning that if the product costs very little then it’s very convenient for the consumer, but low quality. If it’s a quality product then it’s a higher price but less convenient.
Just because something you buy is low-priced does not mean it’s the better option for you. How many pieces of clothing, jewelry, dishes, or even cars, have you purchased because it was low priced only to have them break shortly thereafter?
Conclusion
Most of what we believe about money we learned from our parents, friends, and families. School doesn’t provide much in the way of how to manage money, or where it comes from either. Educating yourself about money is the only way you can truly improve your financial situation. It’s not your fault though as it is the status quo for nearly everyone.
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