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No matter where you are on your financial journey, by now I’m sure you know that there’s a lot to learn about money. And when it comes to your money, it’s not necessarily the things you don’t know (though this is important too) but rather the incorrect things you believe, that cause many of the real challenges in life.
I’m talking about money beliefs. What we believe about money as a result of what we’ve been told or even how we were raised. Unfortunately, a lot of what we’ve believed about money isn’t true and all it takes is a few errors in your thinking to ruin your finances and your financial future. Improving your understanding of money and personal finances is the most effective way to get on the right track and on the path to prosperity.
Here are a few common money beliefs you should stop believing:
Income equals wealth.
Actually, people that make more have a tendency to spend more. Think about lottery winners. They are notorious for losing everything and fast. 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. Trust me, I know. Wealth is what’s left over after you’re done spending. The more money you’re able to invest in appreciating and income-producing assets like investment real estate and index funds, the more you can expect your wealth to grow. A high income provides opportunity but it doesn’t provide a guarantee.
Find out where you stand with Personal Capital’s Net Worth Calculator!
Money has nothing to do with happiness.
Studies have consistently shown that more income results in greater levels of happiness, especially if it helps us to meet our basic needs. For years, the break-even mark appeared to be $75,000 per year. Meaning if you’re earning less than $75,000, you could expect your feelings of happiness to increase with a greater income. But if you’re already earning that much or more, more money wouldn’t make you feel any better. However, a recent survey by the Wharton School showed a rise in people’s well-being and sense of control as they earned more, above $75,000! Seriously, how good would YOU feel if you had enough money to take care of what matters to you?!
Wills are for rich people.
Let me tell you, I’m not rich (yet) and I have a will! To be honest, it was one of the most empowering money moves I’ve made and it gave me a different kind of peace of mind. Listen, everyone with children or assets needs a will. I’ve heard how taxing and messy things can get, especially amongst relatives, about the belongings of someone who has passed away. So unless you want the courts to decide who will raise your children and/or 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. A couple of sites you can check out are: Trust & Will and US Legal Wills.
Owning is better than renting.
The “American Dream” isn’t what it used to be. No shade to homeowners. I’m a homeowner but knowing what I know now about homeownership, I would still be renting. From a financial standpoint, whether one is better than the other just depends. Mortgage interest is deductible, but that’s a lot of debt (and risk) to take on for such a little deductible when you compare the two. Plus, the additional costs of homeownership like increasing property taxes and repairs, aren’t talked about enough. There’s no calling maintenance when something is broken. As a homeowner, everything is on you and if you’re not prepared for the home-related “what ifs”, you are setting yourself up for a financial catastrophe. Crunch the numbers and decide for yourself.
Quality and price go hand-in-hand.
Or as I heard recently, “You get what you pay for”. There are many examples of this statement being false. For example, generic drugs are identical to the brand name version and cost much less. The truth is companies price goods and services in order to maximize profit. So 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.
Index funds never win.
Who said that?! Over time, index funds outperform the majority of managed funds. More often than not, the lower expenses and turnover rate of an index fund are more important than a professional stock-picker. By buying index funds, you get to take advantage of the ability to match market returns for very little expense.
If you’re new to investing, haven’t started yet, or have investments but want to make sure you’re investing in the right thing, check out Delyanne the Money Coach’s Slay the Stock Market course!
You should never have a credit card.
I almost laughed out loud at this one. Credit cards can be another useful tool if used properly. Credit cards can help you build and maintain an excellent credit profile and you’ll need that if you ever want a job, insurance, to rent or apply for a mortgage. However, credit cards also provide a means to spend money you don’t actually have. This can be a challenge or a godsend, depending on your individual circumstances. It was a challenge for me, as I ended up in $50,000 credit card debt!
Do any of these erroneous money beliefs sound familiar? Can you tell what money beliefs are actually limiting your financial growth? Consider all of your money beliefs and question if they might be incorrect, too. Having accurate beliefs enhances your money decision-making skills and results so do your best to avoid buying into the myths.
More on the Blog:
6 Signs Your Finances Are in Trouble
8 Ways to Curb Your Overspending