Common Money Beliefs That Aren’t True
It’s not the things you don’t know, but rather the incorrect things you believe, that cause many of the real challenges in life. A few errors in your thinking can be a detriment to your finances. Enhancing your understanding of money and personal finances is an effective way to get on the path to prosperity.
Common money myths:
1. Income equals wealth. People that make more have a tendency to spend more. Lottery winners are notorious for losing everything. Many of the families that earn over $1 million per year manage to outspend their income. You can earn a very high income and still live paycheck to paycheck.
· Wealth is what’s left over after you’re done spending. The more money you’re able to save, the more you can expect your wealth to grow. A high income provides opportunity. It doesn’t provide a guarantee.
2. You need a budget to manage your money. A great many people spend a huge amount of time on their budget - trying to get it just right, tweaking it, tracking, redoing it, starting over - and still don’t get ahead. A budget isn’t what you need. It sets most of us up for failure. Yes, you need a system to manage your money, but a budget is not it. There are better ways.
3. More money equals more happiness / Money has nothing to do with happiness. Studies have consistently shown that more income results in greater levels of happiness to a point. The break-even mark appears to be $75,000 per year.
· If you’re earning less than $75,000, you can expect your feelings of happiness to increase with a greater income.
· If you’re already earning that much or more, more money isn’t going to make you feel any better.
4. I don’t need a will if I don’t have a lot of assets. Everyone with children or assets needs a will. Unless you want the courts to decide who will raise your children and receive your assets, you need a will. A simple will is only a few hundred dollars. You might even be able to do it yourself for less.
5. Owning is better than renting. From a financial viewpoint, it depends. Mortgage interest is deductible, but it’s still a significant expense. Homeownership also includes property taxes and maintenance. The upside is the potential for appreciation and a place to call your own. Crunch the numbers and decide for yourself. Don’t just compare the price for rent to the mortgage. There are lots of other costs to home-ownership that add up.
· Renting is generally advantageous in the short-term until you can save enough to build a good solid financial foundation – cash for a 20% downpayment, closing, moving costs and move-in costs, a healthy emergency fund (houses are expensive), and funds for your goals – both needs and wants.
6. Quality and price go hand-in-hand. There are many examples of this statement being false. Buy quality so that what you buy lasts, but do your research and comparison shop. Generic drugs are identical to the brand name version and cost much less. Companies price goods and services in order to maximize profit. That means the perceived value affects pricing, not the actual value.
· Many items are priced to accommodate expensive marketing campaigns. The Beats headphones are considered by experts to be only worth half the common retail price. In this case, you’re not paying extra for higher quality.
· When you buy a car, for example, consider the cost of the additional options. Do you really need them? What else could you do with the $5,000 or more that they are costing you? Would a better use for that money be a deposit in your emergency fund? Is the perceived value of those options worth the trade-off?
7. You should buy everything on a credit card to get the rewards. Not quite. Credit cards are a wonderful invention if used properly. However, credit cards also make it way too easy to spend money you don’t have. And one late payment can damage your credit. Use credit cards wisely for pre-funded purchases or paying some bills.
If you use credit cards for your monthly “fun” spending, you’ll have to track every penny to make sure you don’t overspend. Most people don’t – and then end up in debt. Always set your credit card(s) to autopay so that you are never late on payments, and so that you can’t spend more than you make. If you’re too tempted to overspend with a credit card, get a charge card instead so that you don’t go into debt.
Are your erroneous beliefs limiting your financial growth? Consider all of your money beliefs and question if they might be incorrect, too. Having accurate beliefs enhances decision-making and results. Avoid buying into the myths.