Managing money can be challenging, especially when there are so many money myths and misconceptions floating around.
These financial myths can be detrimental to your financial well-being. They can lead you to make poor decisions, cause you to overspend, discourage you from seeking help or understanding, and cause lots of stress.
Don't worry, that doesn’t have to happen to you! Here, we explore 21 money myths so you can avoid falling into these traps.
1. Money is the root of all evil (The top money myth!)
This is a popular saying, but it is not entirely accurate. Money itself isn't evil; it is our attitudes and behaviors surrounding money that can be problematic.
In fact, money can be used for so much good!
Money can be used for big things, like supporting charities or funding research. But don’t forget about the everyday things that money does, too, like making your life more comfortable and freeing up your time and energy for doing what you love.
Instead of demonizing money, reframe how you think about it and focus on using it responsibly and purposefully.
2. You can’t negotiate your bills
Many people assume that their bills, such as their cable, cell phone, or even medical bills, are non-negotiable. However, this is not always the case.
You can often negotiate your bills by calling and asking your service provider for a discount or a lower rate. It may take some persistence, but it can save you hundreds of dollars each year.
3. Building generational wealth is only for the rich
How is it that the rich just seem to get richer and richer as the generations go on? The answer?
Generational wealth. This is wealth that is passed down from generation to generation.
Many people fall victim to financial myths about family wealth.
The truth is that anyone can build generational wealth (we love money truths!) by doing things such as investing their money wisely and making smart financial decisions.
While it’s not an easy feat, especially if you are one of the first in your family to think about things like this, it’s certainly doable and a worthy goal to have.
4. Personal finance is confusing and complicated
One of the biggest myths Clever Girl Finance works to combat is that personal finance is confusing and complicated and should be left to the professionals. This is simply not true!
You can manage your money effectively by educating yourself about personal finance and creating a financial plan.
There are so many resources available, such as Clever Girl Finance’s 100% free courses, books, blogs, and podcasts, that can empower you on your journey to learning more about personal finance.
5. You should always buy the cheapest option
While choosing the cheapest option might be tempting, it may not always be the best choice. Thinking that you should always buy the cheapest item is one of the worst financial myths around.
This is especially true for one area where many people spend a lot of money – their clothes. Fast fashion is cheap and convenient, but it’s not good for your wallet.
In general, cheaper options may not last as long, require more maintenance, or be of lower quality. In some cases, it's more cost-effective to invest in a higher-quality item that will last longer and require less upkeep.
6. It's impossible to have fun and save money at the same time
Saving money doesn't mean you have to sacrifice fun and enjoyment! There are so many ways to enjoy life without breaking the bank.
Look for free or low-cost activities, like hiking, visiting a museum, or having a picnic.
Additionally, consider alternative ways to enjoy your hobbies, such as borrowing books from the library instead of buying them or renting equipment instead of purchasing it.
7. You need tons of money to start investing (A wealth-limiting money myth!)
Investing can be intimidating, especially if you believe you need lots of money to get started.
However, that is definitely not the case! You can absolutely start investing with just a small amount of money.
Many investment platforms allow you to start with as little as $5 or $10, and there are plenty of low-cost index funds and exchange-traded funds (ETFs) that can help you diversify your portfolio without breaking the bank. The key is to be consistent and start small with your contributions.
8. Credit cards are bad for your finances
There are advantages and disadvantages to using credit cards. Credit cards can certainly be useful for building credit, but they can also be harmful if used irresponsibly.
One of the most prevalent money myths is that credit cards are bad for your finances and that you should avoid them.
That’s not true at all. The key is to use credit cards wisely, which means paying off your balance in full each month and avoiding high-interest debt.
9. Renting means you’re throwing money away
Many people believe that renting is a waste of money because you do not build equity in a property.
While it is true that renting does not build equity, it can still be a smart financial decision depending on your circumstances.
Renting a home can be more affordable than owning one. It can also give you more flexibility if you need to move frequently for work or personal reasons.
Buying a home can be a wise investment, but it might not be the best choice for you. Buying a home comes with many expenses, including property taxes, maintenance, and repairs, which can add up quickly.
Don’t let common money myths like this one make you feel like you “should” buy a home when renting makes more sense for you.
10. Having a balance on your credit card can help your credit score
This is a very common financial myth, and it can lead to high-interest debt and financial stress. A balance on your credit card does not help your credit score; in fact, the opposite is true – it can actually hurt it!
The very best way to improve your score is by paying off your balance in full every single month and keeping your credit utilization low.
11. You can’t retire until you’re 65 years old (or older)
While 66 is the age at which you can start receiving full Social Security benefits, you can retire at any time as long as you have enough saved up to support yourself. The sooner you begin retirement planning, the better off you’ll be later.
Even if you are only able to save a tiny amount each month, it’s better than nothing. Your future self will be thankful when you can leave the workforce far earlier than you expected!
12. Investing is hard
Investing might sound scary to a beginner, but it’s not as complicated as it initially appears. There are lots of resources that can help you learn how to invest your money in the best way.
Looking for a place to learn about investing? Try one of Clever Girl Finance’s free investing courses! You’ll learn all the basics about investing and be on your way to reaching your financial goals by leveraging the power of investing.
13. Your 401(k) can serve as your emergency fund
While it’s true that you can borrow from your 401(k) in an emergency, never rely on it as your primary emergency fund.
You should strive to have a separate emergency fund with at least three or up to six months’ worth of expenses saved up. This will help you pay for unexpected expenses without ever having to dip into your retirement savings.
14. You can't save if you have debt
Having debt can make it challenging to save money, but it is not impossible. The key is to prioritize your debt payments while still making an effort to save and cut back on expenses.
Begin by setting a savings goal and creating a budget that allows you to make regular debt payments while still saving a small amount each month.
Look for categories where you can cut back on your spending. Dining out or entertainment are usually great places to start.
Additionally, there are many debt repayment strategies available, such as the snowball or avalanche method, that can help you pay off your debt more efficiently.
15. If you have a credit card, you don’t need an emergency fund
An emergency fund is a key part of any financial plan.
One of the most detrimental money myths floating around is that a credit card can serve in place of an emergency fund. Don’t fall for this!
An emergency fund's purpose is for covering unexpected costs, such as a medical bill or car repair, without having to rely on credit cards or loans.
Except as a last resort (or if you plan to pay off the amount, in full, by the end of the month), credit cards shouldn't be used in place of an emergency fund.
16. You should pay off your mortgage as soon as possible
While it is true that paying off your mortgage quickly can save you money on high-interest payments, it may not be the best choice for everyone.
If you have high-interest debt or other financial goals, it’s often better to prioritize those goals instead of paying off your mortgage early.
17. Don't worry about retirement until you’re older
This is one of those common money myths that are absolutely false.
Retirement may seem like a far-off goal, but it is important to start planning for it as early as possible. The sooner you begin saving cash, the better.
In fact, it’s wise to start saving for retirement as soon as you start working. As proof that it’s never too early to start saving for retirement, even teenagers working part-time jobs can benefit from this type of saving and investing!
18. Student loans are the best way to finance education
Don’t be fooled by this myth targeted at young people: taking out student loans isn't your only option to finance your education. It’s not the only way to pay for school.
In fact, you can explore other ways of paying for school, such as scholarships, grants, work-study programs, or even delaying college for a year or two to save up money.
19. You can never pay off debt
While it might feel like you will never be debt free, don’t believe this myth! With hard work and dedication, anyone can pay off their debt and achieve financial freedom, no matter how high their debt might currently be.
One approach to paying off debt faster is by paying off high-interest debt first while making minimum payments on other debts. Remember, you are not alone in feeling like you are drowning in debt, and there is a way out.
20. Money is a private topic and you shouldn’t talk about it with others
Money can be a sensitive topic for some, but it’s important to talk about it openly and honestly with your loved ones. This is especially true for the people you are making financial decisions with.
What does talking about money look like? It might include discussing your financial goals, creating a budget together, disclosing your salary, or even seeking out professional financial advice as a family.
Whatever you do, don’t be afraid to share your finances with those you trust.
21. Money can’t buy happiness (The greatest financial myth!)
Money can’t buy happiness. Or can it?
This is one of the money myths that nobody can seem to agree on. While it’s a complicated concept, there is definitely truth to the fact that money can buy happiness – to an extent.
Money can’t buy happiness in and of itself, but it can provide a means to the things we value in life, such as free time and peace of mind. Money will always be a big part of our lives, identities, and well-being.
Don't get stuck by believing these money myths!
Managing your finances can be difficult, but it is possible to avoid being duped by any of these common money myths.
By educating yourself about this and knowing how to stay away from the myths, you can achieve your goals and improve your financial well-being.
As you learn, you'll also become better at understanding money topics and making smart choices for your finances.