15 Money Myths that are Keeping You Poor: Learn the Truth Today

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When it comes to managing your money, you’ve probably heard lots of advice. Friends, family, coworkers – you’ve probably heard a lot of different money views. While some of the tips you’ve received are likely helpful, there are also many money myths floating around that could easily lead you astray. That’s why, today, we’re taking these dangerous myths about personal finance head-on so you can make sure you’re doing the right things when it comes to your finances. 

Money Myth Definition

Before I get into the money myth-busting, let’s cover what I consider a money myth. 

A money myth is often a long-held belief about money that, while sounding convincing, isn’t true. The fact is that we have probably all been told at least a few of the myths on this list, and it’s often from someone we trust (like parents, friends, or even self-proclaimed finance gurus).

However, some of this advice simply isn’t true when you put pen to paper and start figuring out the math. So, let’s take on these money myths because discovering money truths will lead you to a better financial life. 

Money Myth #1. I Don’t Make Enough Money to Save

Of all the money myths, this is one of the most prolific and is one that I fell victim to myself. I always found that I was outspending my income, and I told myself, “I just need to make more money.” 

Money Truth:

It is easy to fall into the trap of thinking it’s an income problem. But here’s the truth about this money myth. It’s not an income problem. It’s an expense problem.

No matter your income, it is possible to find ways to live within your means. While this may not be easy, becoming fiscally responsible by taking ownership of your finances is the secret to financial success. 

The best way to make your income work for you is to budget, which leads us to our next money myth.

Money Myth #2. Budgets are Painful

When people think of budgeting, they often have an impulse reaction that budgeting is painful or tedious. Or they’ve tried budgeting and found that it just doesn’t work for them. 

Money Truth:

The truth is this. Whether you make $30,000 per year or $300,000 per year, you need a budget. And when you find a budget that works for you, budgeting becomes kind of fun. You learn how to make your money work for you, and you start realizing how much progress you can make.

To get started budgeting, you may need some help learning the ropes. Check out these resources to get you going:

• How to Budget for Beginners
• 17 Simple Ways to Save Money on a Tight Budget
• 60+ Simple Categories You Need in Your Budget

If your budget isn’t working for you, that just means you haven’t found the right budget for you. Here are a few posts on my favorite budgeting tools to help you get started:

• YNAB vs. Mint:  Budgeting App Showdown
• Tiller Money Review:  Is Spreadsheet Budgeting Right for You?
• 5 You Need a Budget Alternatives

Money Myth #3. A Savings Account is the Best Place for an Emergency Fund

When you set up your emergency fund, you probably think it should be somewhere it is highly accessible. While it’s true you want it to be available, keeping it in a savings account can lead to two issues.

1) It is far too easy to spend easily accessible money.

2) Money in your savings account is losing value in real dollars (due to inflation).

Money Truth:

While you must keep some cash on hand for emergencies (in a savings account), I want you to keep most of your emergency fund elsewhere.

That place is Series I savings bonds. These government-backed bonds solve both of the above problems. 

First, they’re a bit harder to access. You must hold Series I bonds for at least a year, and if you get rid of them before you have them for five years, you’ll forfeit interest. 

Second, Series I savings bonds keep pace with inflation, so the value of your emergency fund does not lose value with time. 

Series I bonds are an extremely safe place to keep your money, and if you have a real emergency, you can still access your funds within a couple of days. 

Check out my guide on using Series I bonds for your emergency fund to learn more. 

Money Myth #4. Your Salary Dictates Your Wealth

This money myth has probably led you to believe that those who make the most money are the wealthy ones. If you don’t have a high income, you probably think it’s impossible to achieve wealth. However, nothing could be further from reality.

Money Truth:

People who make a lot of money are rich, that is true. They drive BMWs and live in million-dollar houses. However, many rich people are not wealthy.

Say what? Yes, there is a difference. People with high incomes tend to have expensive lifestyles to match. Wealthy people, however, build assets to produce income and live well within their means. 

There are lots of doctors, lawyers, etc. that have mountains of debt. They can’t make enough money to cover their lifestyles. Remember, it’s not what you make but what you keep.

Check out this guide on Rich vs. Wealthy to learn more. 

Money Myth #5. I Deserve This

Lots of people choose to reward themselves with spending. This could be because they just got a big bonus at work or accomplished a big goal.

Money Truth:

While there is nothing wrong with buying yourself something nice, you should do so in moderation. When you choose to buy yourself something, only do so if you can make it fit in your budget.

Because the truth is, if you spend money you do not have, you will spend a lot more time regretting it than that brief moment of joy when you made a purchase. 

Money Myth #6. It’s on Sale – It’s a Deal!

I know so many people who make purchases mainly because something is on sale. They view this as “getting a deal.”

Money Truth:

Let’s take Black Friday, for example. If an $800 TV is on sale for $500, many people may choose to buy it. But here’s the truth. You didn’t save $300. You spent $500.

Now, of course, if you are planning to make a purchase anyway, by all means, try to get it when it’s on sale! But don’t make a purchase just because you feel like you’re getting a deal, and don’t buy things you don’t need just because they’re on sale.

Since we’ve now covered the most prominent money myths regarding spending and saving, let’s now talk about some investing myths. 

Money Myth #7. I Am Young, I Don’t Need to Think about Retirement

When you’re in your 20s, retirement is probably the last thing on your mind. You figure this is something you can start thinking about later in life as you get older. However, nothing could be further from the truth and of all the money myths, this is one that can cost you for years to come.

Money Truth:

If you want to retire at age 65 (or earlier), you MUST start thinking about retirement in your 20s. 

Let’s assume that you invest $750 per month at a 7% return through when you turn 65. 

If you start when you’re 25, you will have $1.85 million by the time you turn 65. If you start at age 35, you’ll have less than half that amount – $877,000 – by the time you retire. 

If you take nothing else away from this post, make it this. You must start investing as young as possible.

Money Myth #8. It’s Too Late to Get Started Investing

Let’s look at the opposite of the previous money myth. Maybe you think it’s too late to start investing. 

Money Truth:

It’s never too late. Your choices are A) start investing as soon as possible or B) commit yourself to financial failure.

No matter when you start, you can make progress towards reaching your financial goals.

Let’s assume you’re 45 years old. If you start investing $750/month at a 7% return, you could have nearly $400,000 by the time you retire. What’s my point? It’s never too late to start.  

Money Myth #9. I am Not Making any Progress

Making progress with your money can feel like a long journey. It requires making decisions day-to-day on the smallest of purchases to see results long-term. It’s often difficult to tell if you’re making progress towards your goals, which can make it hard to stay motivated.

Money Truth:

If you’re budgeting, investing, and avoiding bad debt, you are making progress. What you need is a way to track your progress to help keep you motivated.

The best tool for this is Personal Capital because it can help you track your net worth, progress towards financial goals, and much more. 

Money Myth #10. You Need a Lot of Money to Invest

This next money myth is all about how much money you need to invest. Many people think investing is only for the wealthy and that without a lot to invest, there’s no point starting.

Money Truth:

No matter how much you can afford to invest, it’s worth doing.

Let’s assume you can only afford to put $5 per day towards your investment goals. If you did this for 40 years, you’d have $370,000.

Perhaps you’re saying to yourself that you can’t find $5 per day. What if you took your lunch to work? What if you made your own coffee in the morning? What if you found housing that cost $150 less per month? Anybody and I mean anybody, can find $5 per day.

Check out this guide on How to Invest with Little Money to help you get started. 

Money Myth #11. Investing is Too Risky

Lots of people think investing in stocks and bonds is complicated and risky. Perhaps you’ve heard horror stories of people that got burned on investments, and that has left you skittish. 

Money Truth:

Here’s the truth. Believing that investing is risky is one of the most dangerous money myths. Choosing not to invest is risky. If you don’t invest, any money you do have will lose its buying power over time, and you’ll never be able to afford to retire.

Sorry to be blunt, but it’s the truth. If you want financial independence, you have to invest.

When choosing to invest, you can create a portfolio that aligns with your risk tolerance. The secret is creating a well-diversified portfolio and developing a mentality to ride the market’s ups and downs. If you can do that, you will win.

Check out this ASF guide on How to Start Investing to learn how to begin. 

Now that we’ve covered the most significant investing myths, it’s time to talk debt.

Money Myth #12. All Debt is Bad

If you’ve been listening to too many Dave Ramsey podcasts, you have probably come to think that debt is the enemy. Our world is filled with debt – credit cards, student loans, mortgages, and much more. But not all debt is bad.

Money Truth:

I love debt. Yes, I love debt. Why? Because it is possible to use debt to create additional wealth. For example, have you ever wondered how people make so much money in real estate? The answer is debt. Using other people’s money to build additional wealth for yourself is a powerful tool (and is something I am actively pursuing by buying rental property). 

Of course, there are harmful types of debt. Credit card debt is bad debt. Payday loans are bad debt. Student loans can be bad debt, but they can also help you drastically boost your income, in which case they are good debt. Mortgages, when used to purchase a property you can afford, can be good debt.

So, stop seeing debt as the enemy, and instead start viewing it as a financial tool. You can learn more about the types of debt here. 

Money Myth #13. Debit is Better than Credit

I just said credit cards are bad debt. And that is true. Unfortunately, however, this has led many people to believe that debit cards are always better than credit cards because they avoid any possibility of debt. 

Money Truth:

If you’re inclined to use credit cards to go into debt, you’re right. Debit cards are better than credit cards. But if you’re the type of person that pays your bills in full every month, credit cards are a fantastic financial tool.

Here’s why I am a big fan of credit cards. The big banks create credit cards that have perks to reward you for spending. Credit card rewards can be in the form of cashback, travel, and much more.

Credit cards also often carry additional consumer protections (like rental car insurance, lost luggage insurance, etc.). 

I put every penny I possibly can on my credit cards, and I earn massive perks as a result. Check out the three credit cards for every wallet to learn more about my points-earning strategy.

Again, though, credit cards can be a valuable financial tool if, and only if, you pay your bills in full every month. You can also check out this post on the 11 Pros & Cons of Debit Cards You Need to Know. 

Money Myth #14. You Should Pay the Smallest Debt First

Dave Ramsey likes to promote a strategy called the debt snowball (it’s one of his 7 baby steps). Using the debt snowball means that you will pay off your smallest debt first and work towards your largest debt. The thinking is you will see progress from paying off a little debt and be motivated to continue with the larger debts. 

Money Truth:

Amongst all the money myths I’ve heard, this is probably one of the most harmful. While from a psychological perspective, this advice makes sense, from a mathematical perspective, it costs you money.

When paying down debt, always pay the debt with the highest interest rate first. It doesn’t matter whether it’s big or small – this is the approach that will save you the most money.

By following this approach, you’re doing what is best by the numbers. If you need some help seeing your progress, refer back to money myth number nine on tracking your progress.

Money Myth #15. Buying is Better than Renting

This money myth is perhaps the most prolific in all of personal finance. Your parents will tell you that you’re throwing away money on rent. You’ll think that a big fat mortgage is just a means of paying yourself. 

Money Truth:

Here’s the reality. Homeownership is expensive. It’s not just a mortgage payment. It’s property taxes, maintenance, realtor commissions, and much more.

I am not saying it doesn’t make sense to buy. I am saying you have to consider whether it makes sense for your situation carefully. In many cases, especially for young professionals, it does not make sense to buy a home. 

Check out these posts to learn more:

• Renting vs. Buying Pros & Cons:  Should I Rent or Buy My Next House?
• Don’t Buy a House:  5 Reasons You Should Keep Renting

15 Money Myths Busted:  Start Making Progress Today!

I hope that learning the most prolific money myths has given you some ideas to consider regarding your own money beliefs.

Remember, just because someone you trust has shared their money beliefs doesn’t mean their money beliefs are right. Instead, seek out the truth about money. Put money myths to bed and start making progress in your finances.

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