Breaking down common money myths: What you need to know
Money myths have a way of embedding themselves into our financial mindset, often holding us back from achieving our financial goals. In this post, we’ll debunk several common myths that might be steering you in the wrong direction and offer practical strategies to replace them with healthy money habits.
Myth 1: Carrying a Credit Card Balance Improves Your Credit Score
This persistent myth suggests that leaving a balance on your credit card can boost your credit score. In reality, carrying a balance doesn’t benefit your score and only adds unnecessary interest charges. Your credit score primarily depends on paying bills on time and keeping your credit utilization ratio low. The best practice? Pay off your balance in full every month. Doing so not only avoids interest but also keeps your credit utilization in check—a win-win for your financial health.
Myth 2: Credit Cards Are Only for Emergencies
Many believe that credit cards should only be used in emergencies. While it’s tempting to keep a card on hand “just in case,” this approach can lead to high-interest debt if you’re unprepared to pay it off quickly. Instead of relying on credit for emergencies, aim to build a robust emergency fund. Having three to six months’ worth of expenses in a high-yield savings account can turn emergencies into manageable inconveniences.
Myth 3: Renting Is Throwing Money Away
This myth implies that renting offers no financial benefits compared to homeownership. However, renting provides flexibility, predictable costs, and freedom from maintenance expenses that homeowners often face. Homeownership can be a great investment in some cases, but it comes with hidden costs like property taxes, insurance, and unexpected repairs. Renting allows you to prioritize other financial goals, such as saving for retirement or building an emergency fund.
Myth 4: I’m Young, So I Don’t Need to Save for Retirement Yet
One of the most damaging myths is that young people can afford to delay saving for retirement. Starting early allows your money to benefit from compound interest, where your investments earn returns on previous returns. Even small contributions made in your 20s can grow significantly by the time you retire. Waiting until later in life means you’ll need to save much more to achieve the same results. The earlier you start, the easier your path to a comfortable retirement will be.
Myth 5: You Don’t Need a Budget if You Make Good Money
Earning a high income doesn’t mean you’re exempt from budgeting. In fact, many high earners still live paycheck to paycheck due to untracked spending or lifestyle inflation. A budget is not about restricting fun—it’s about ensuring your money aligns with your goals. Tracking your income and expenses lets you optimize your spending, save for the future, and avoid financial stress, no matter how much you earn.
Myth 6: Investing in the Stock Market Is Too Risky
For many, the stock market feels as unpredictable as gambling, leading to hesitation about investing. However, unlike gambling, investing in diversified funds or index funds over time is a proven way to grow wealth. The key is understanding the long-term nature of investing. While the market fluctuates in the short term, historical data shows it trends upward over time. By starting early, staying consistent, and avoiding panic during market dips, you can build substantial wealth with confidence.
The Bottom Line
Money myths can hold you back, but arming yourself with knowledge is the first step toward financial freedom. By replacing myths with sound strategies—like budgeting, saving early, and investing wisely—you can take control of your financial future and achieve your goals.
Want to dive deeper into these topics? We explore them further in our latest podcast episode, where we discuss real-world strategies for breaking free from these myths.