Common money myths explained: Myths that hurt your finances

Summary:

• Common money misconceptions often come from avoiding uncomfortable truths about spending, saving, debt and long-term financial planning.

• Budgeting, tracking expenses and cutting back can help improve money habits. 

• Being honest about money habits—with yourself and with a partner—can make it easier to build trust and reach financial goals. 

• Debt can sometimes help pay for major necessary expenses or invest in education. It should always be used responsibly.

• Saving for retirement early gives your money more time to grow through compound interest. 

• More money doesn’t automatically create happiness. How you spend, save and share money often matters more.

Some of us consider ourselves to be good at budgeting but don’t keep track of spending. A special splurge here and there can seem affordable but could bust your budget without a plan to cut back elsewhere. It’s also easy to think a paycheck is being spent wisely while putting off saving for emergencies and retirement. So what can lead to common money misconceptions?

“Many people are uncomfortable with talking about money in general,” says April Rudin, a financial services consultant. “This contributes to discomfort and leads to many of the half-truths” people tell themselves.

Here are six common money myths explained, along with recommendations for how to shift your mindset and build a stronger financial plan.

If your closet is full of new purchases, you’ve been eating out every night and you’ve told yourself you’ll trim expenses next month but don’t, you may be falling for a common money myth. It’s easy to ignore overspending, especially if a lot of little purchases are adding up. But creating a budget can help. To kick-start your new spending plan, consider returning recently purchased items that you can do without, find new meals to get excited about cooking at home and download an app to help you manage your money.

Guilt, fear or personal attitudes about money are just a few of the reasons why partners might not be upfront with each other about their money habits. Yet hiding how you manage your money could affect trust in a relationship as well as the ability to meet joint financial goals. Openly communicate about how money will be managed—for both joint and individual accounts. Also consider planning a regular date night to discuss financial matters and make plans to fix any problems that pop up.

Thinking that the stock market is reserved only for wealthy Wall Street power brokers could be a costly money myth.

You can overcome your hesitation by learning more about investing. You can especially learn a lot during volatile markets. As you do more research you’ll find that investing does come with risks, but you can start small and build an investment portfolio that matches your comfort with risk.

Some people believe debt is bad, full stop. But this could be another money misconception. Talbot Stevens, an author who writes about debt, explains that debt can be a helpful financial tool when used wisely. “Governments, businesses and most wealthy individuals use debt to grow their economies and wealth,” he says.

Taking on debt through a personal loan, for example, could be a good way to pay for a large purchase such as house repairs or replacing a car. Similarly, student loans are an opportunity to invest in your or a child’s education.

During your busy working days, it’s easy to put off saving for those golden years. There’s tons of time for that later, right? This type of thinking is all too common. In reality, time is one of the most valuable tools you have to grow your savings.

Starting early can have a major impact. A person who saves $500 per month from age 25 could end up with nearly $1.2 million by age 65, while someone who waits until 35 to begin saving the exact same amount ends up with only $567,000, according to the North American Securities Administrators Association. That’s the magic of compound interest—the interest earned on your initial money and on funds that have accumulated over time. Delaying saving by just a single decade can literally cut your retirement nest egg in half.

It’s common to think that having more money means all of your financial worries will vanish. Newfound wealth often brings with it a new set of problems, too. How you spend your money affects your happiness more than how much you have. For instance, people experience greater happiness from spending money on others rather than themselves and from spending on experiences rather than material goods.

Whatever your financial situation, there are money myths you should be aware of because they could hold you back from financial success, happiness and peace of mind. Remember:

• Most money mistakes happen because we avoid looking closely at how we actually spend and save.

• We also fall for financial myths, like believing investing is only for the rich or that there’s always time to start saving in the future.

• Better habits come from being honest with yourself, paying attention to your spending and making small, everyday choices that build toward long-term goals.

Financial questions don’t always wait for a weekday. Capital One Cafés are open on weekends with Ambassadors who can help you with your banking questions.