15 Myths About Money and Your Finances: What to Question and Why

Aug 14, 2020

Reading time: 13 Minutes

Your parents always say the safest place for money is in the bank.


Your best friends are buying a house to quit wasting money on rent.


Your co-worker is waiting for a raise before investing in the company 401(k).


Whether you notice them or not, messages about money surround you.


You may learn basic personal finance principles and make better money decisions based on some of what you see, hear, and read. But other "money talk" may be incomplete or filled with misinformation leading you to take on debt you can't afford or make severe financial mistakes, impacting your ability to build wealth.


While not purposely trying to sabotage your financial future, keep in mind some people aren't as money savvy as they think or sound. Plus, they likely don't know a lot about your budget, personal circumstances, or future goals.


That's why it’s important to pause before you act on financial advice you're given, or comments others make about money.


Let's take a look at 15 common financial myths and why you should question them. We'll also offer guidance to help you make choices aligning with your finances.


1. All debt is bad.

When you have debt, you've borrowed money and need to pay it back. But owing money doesn't mean all of your obligations are bad. While it's essential to focus on paying off credit card balances with double-digit interest rates, rushing to pay off the low-interest mortgage on your home might not make the most sense.


Loans helping you grow your net worth and boost your earning potential are better debt than consumer spending you can't afford.


Always be mindful of the type and amount of liabilities you take on - and have a plan for how you'll pay it back. A job loss or serious medical event can affect your income, savings, and ability to make payments.


2. It's normal to have a lot of debt.

If you have a mortgage, student loans, a car loan, and a maxed-out credit card or two, you’re not alone. According to Experian, consumer debt reached a record high of $14.1 trillion in 2019. 


Many people need to take out a loan to buy a car, house, or earn a degree.


But normalizing large amounts of debt can negatively impact your financial future by preventing you from building wealth.


More of your income goes toward payments with the more liabilities you have, so you can’t save for your future.


Instead of taking on more debt, consider using sinking funds to put money aside for expected future expenses - wants and needs. You can also try to cash flow specific items - such as an advanced degree to keep from adding to your debt load.


Avoid lifestyle inflation and stick to spending aligned with your values. Your future self will thank you for avoiding more debt now.


hand holding calculator


3. Slashing expenses is the only way to save more money and build a nest egg.

As you start managing your finances, tracking spending and using a budget are great ways to handle your debt and boost savings.


Dropping cable TV, cutting back on restaurant spending, and minding your utility usage can save you hundreds of dollars each month. But that's not the only way to save more money. You should also think about boosting your income.


Negotiate for a raise at work. Update your resume and apply for new jobs with a higher salary. If you have extra time in your schedule, pick up a side gig or part-time job to put some extra cash in the bank.


You might also be surprised how much money you can make by decluttering your possessions and selling things you no longer need or use.


4. A bank is the safest place to keep your money.

Your parents may have taken you to open a savings account when you were young. They probably keep their money in that local bank too.


When you can drive up or walk into a trusted lender to cash a check, make a deposit, or discuss loan options, you feel your money is safe. That’s also true because most savings and checking accounts with banks or credit unions (even many online lenders) are FDIC-insured up to a balance of $250,000.


But putting all of your money where it’s “safe” may instead be a risky move because of inflation.


With the average interest rate for savings accounts paying only 0.1 percent and inflation hovering near 2% in the US, your money loses future buying power each year. Talk with a financial professional and review your risk tolerance and financial goals for retirement before deciding how much money to “safely” keep in the bank.


5. You shouldn't talk about money problems with others.

It seems there’s an unspoken rule that you shouldn't talk about financial struggles. Money is a very personal topic laden with the potential for judgment and scrutiny.


While it may seem easier to hide money problems than to face them and talk about your challenges, staying silent might be worse. Your stress about money hurts your health. Financial issues are a top reason many couples split up. Kids know when you’re hiding money problems, too.


Regularly talking about money can help you solve problems and prevent them from affecting your health and relationships. When you start discussing your financial concerns, you’ll realize you’re not alone and learn that your money doesn’t need to define you. You can get help and start aiding others.


6. It's smarter to buy a house than keep on renting.

Many Americans believe home-ownership is the American Dream. But the reality is many people can’t afford to buy a home or don’t want to.


According to Bloomberg, while homeowners outnumber renters in the US two-to-one, there are still over 100 million renters. These renters likely hear the message that they're “wasting their money renting” often.


Some renters who want to buy can't qualify for a mortgage. But plenty of people prefer to lease because it's less risky and more flexible.


Renters may get move-in bonuses and have lower monthly payments. Their utility, maintenance, and repair costs are also minimized when they rent. Savings can go toward paying down debt, building emergency and sinking funds, and growing investment portfolios.



7. You don't need an emergency fund if you have credit cards or a HELOC.

Many financial gurus talk about saving at least $1,000 to cover an emergency. But your next goal should be to accumulate at least 3-6 months (or more) of expenses in an emergency fund.        


Most people feel relief when having a money 'cushion' in case of unexpected expenses. But as the balance grows in your emergency fund, you may question whether it's smart to let the money sit idle waiting for something terrible to happen. This is especially true if you have credit cards or access to equity in your home.        


Some people gamble on using credit cards or a home equity line of credit (HELOC) in an emergency. But don't forget that your crisis may affect your ability to earn an income and pay your bills. If you’re unable to pay off your credit cards each month, you'll incur high rates of interest to your lender. An unpaid HELOC could lead to a foreclose on your home.      


Consider shifting your emergency fund into a high-yield online savings account. You can then pay emergency expenses on your credit card or HELOC if you choose, but you'll also have the cash set aside to make payments on that debt.


person counting cash


8. You need to have a lot of money to invest.

If you're living paycheck to paycheck or struggling to add to your savings account each month, you probably aren't considering putting away money for retirement.


But you should start investing - even if you can only contribute a few dollars each month.   That's because of the magic of compounding. Compounding helps your early years of investing "snowball" over time. Even small investments can grow exponentially over a few decades. (Try this compound interest calculator to see how your money can grow over time!)


This is why you don’t want to wait until you pay off all your debt or earn a higher salary to start investing. If you think investing is confusing or hard, you can begin micro-investing through an online app like Acorns or Robinhood.


Major companies, including Schwab, Fidelity, and Vanguard, welcome new investors and provide a tremendous amount of information about investing on their websites to get you started.



9. A high income makes you wealthy.

A high income means you make a lot more money than many others. But high salaries don't always translate into higher net worth.            


As your paycheck grows, it takes discipline to avoid spending money on more of your wants. A bigger house, a luxury car, and more expensive vacations won't make you rich. That old saying, "the more you make, the more you spend" describes lifestyle inflation.              


You can adjust your budget and enjoy some of your income along the way. But achieving an adequate level of wealth requires paying attention to your spending, focusing on your financial goals, and long-term investing for your future.


10. You'll need to work until at least 65 (or longer) until you can retire.

There’s no shortage of headlines claiming that you'll need to work until you're 65 (or older) before you can afford to retire. And it’s true; many older Americans are facing a retirement crisis.


Choosing to work at 65 is one thing. But depending on working until at least 65 is a problem.


Many people can't work in their 60’s because of personal health issues or caregiving responsibilities for a loved one.          


Rather than banking on working through your 'golden years' - adopt a save early and often mindset. Compound growth will help build your nest egg. Despite what you read, it’s possible to retire before age 65 and have enough money to last your lifetime.


11. You don't need a will or estate plan unless you are rich or have children.

Planning for your death is not an easy process. But it's one of the most important things you'll ever do.      


Some people think they can skip making a will or estate plan until they have kids, a lot of money, or property. But if you don't have a will, you'll die in intestacy. So, rather than those close to you handling your assets without beneficiaries, an administrator from probate court will distribute them.        


Without making a legal will, the people you want to receive your assets or distribute them may never even get them. Don't make assumptions when it comes to your final wishes. When you research your state’s intestacy laws, you might be surprised to learn who’ll get your possessions or how they’ll be divided up between loved ones.


12. Life insurance is just for wage earners.

People purchase life insurance to protect the finances of their loved ones in the event of their death. Many think of it as a replacement for the salary of the person who passes away. Life insurance payouts can relieve some of the financial burdens on the loved ones left behind.          


But it's essential to think about the contributions of stay-at-home parents, too. It could cost thousands of dollars each month to replace all of the services a stay-at-home parent provides.      


Don't be short-sighted when it comes to buying life insurance for a parent who stays at home. While they may not be a W-2 employee bringing home a paycheck, their value to your family (and your finances) is worth protecting.


13. You work hard and deserve to buy nice things.

You’re conscientious and put your best effort in at work each day. But you also like to spend money as a reward for your productivity.    


There's nothing wrong with spending money you've earned on nice things you can afford. But you may need to be careful about how often you make purchases with this mindset. You may be able to afford wonderful things, but not every wonderful thing you want.


Take time to consider your needs vs. wants. Set up a sinking fund to save for something you've been waiting to buy. Or add a line-item to your budget to include affordable self-care options. Do whatever you can to avoid taking on debt when you reward yourself for a job well done.


14. You should work with a professional to manage your finances.

There's nothing wrong with hiring someone to help you manage your money. But that doesn't mean you should skip taking an active role in improving your understanding of your current and future finances.


Many people are led to believe that investing is difficult and requires someone with experience and certifications to make recommendations and follow investments. But keep in mind that some financial services come with hefty fees that can add up over the decades you’re investing for retirement.


While there are plenty of excellent financial advisors worth their expense, you have other options, too. First, boost your financial literacy. There are thousands of personal finance books, blogs, podcasts, and courses that can teach you the basics of investing. You can also hire a fee-only financial planner rather than someone paid by commission on products.


Only you can decide your comfort level with your finances, but don't trust all of your financial planning to someone else.


black family walking on the beach


15. The more money you have, the happier you'll be.

Having enough money to pay for all your needs and some of your wants, while also putting away enough money for a comfortable retirement, can keep you smiling.


But there’s a saying that ‘money can’t buy happiness,’ too. There are plenty of millionaires and lottery winners who can buy whatever they want but still aren’t very happy.


While those who struggle to pay bills would experience less emotional pain if they had more money, research on high income shows a threshold (approximately $75,000) where more money no longer improves your emotional well-being.


Since everyone experiences happiness differently, it’s crucial to figure out what you need to boost your emotional wellness. Chasing a bigger paycheck may not be the answer.


Final Thoughts on Money Myths

After looking through these financial myths, there’s a good chance you could add more to grow the list. Pick any money topic and you’ll notice there’s no shortage of opinions on how to spend, where to invest, or ways to save more money.


If you realize you’ve shared some of the same (or similar) money messages with others, think about how your words could affect their actions. Expounding on how you took out the biggest mortgage you could because rates were low might have worked out great for you. But it could spell financial disaster for someone else.


Always remember that personal finance is personal. If someone gives you financial advice, make sure you do your research before taking action. While sharing your own experiences with money can help others, suggesting they follow your lead may not help them at all.


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