Money involves more than math. In fact, it’s also the stories we pick up from family & friends as well as the world around us. While a lot of those stories sound harmless, some of them may actually cause financial issues, and here are eleven of these harmful beliefs. Which ones do you think do the most harm?
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Saving only when income rises
A raise feels like the perfect time to start saving, although research shows people usually don’t save more after getting one. A sense of present-bias kicks in. We value today’s wants & push tomorrow’s needs off the list, meaning that our extra income gets absorbed by lifestyle creep instead of building savings.
Rewards & gift cards aren’t real money
Rewards points & gift cards don’t always feel like real money. That’s why people spend them faster. However, research shows that when people use credit or cards instead of cash, they often end up buying more. It’s the same thing with gift certificates. You loosen the reins & suddenly buy extras you’d normally pass up, which keeps you struggling.
Earning more will solve money problems
Another common belief is that a bigger paycheck will automatically fix your financial problems. But surveys show that many high-income earners still live paycheck to paycheck, despite the fact that they’re earning six figures. You have to make changes to your spending habits. Without them, your higher income will simply raise the lifestyle bar, so you’ll stay trapped in a cycle of spending.
Financial windfalls don’t need a plan
A lot of people think they can spend tax refunds or inheritances freely because they’re “extra” money. This is what behavioral economists call mental accounting. However, it often leads to splurging instead of saving, with the money lost possibly being just what they needed to get ahead. They wasted money they’d otherwise protect.
Small raises don’t matter
It’s easy to shrug at a 2% raise. What could it change? Yet over time, even those little bumps stack up & help your retirement contributions or Social Security. Every future raise would also build off your new base pay, which is why the Federal Reserve says that steady wage growth is better than waiting around for a big break. Don’t make this mistake.
Believing you’re just bad with money
Plenty of people claim that they’re “bad with money,” as though it’s something that’s fixed in stone. But you stop trying once you start believing that. In fact, research shows that people with this mindset avoid planning & skip budgeting. They end up reinforcing the very thing they claim about themselves, keeping them trapped.
Thinking you’ll never get out of debt
A similar idea is thinking that you’ll forever be in debt. After years of sending in minimum payments, many people think they’ll never be free of it. That’s not good. This sort of belief kills any motivation to try snowballing payments or negotiating rates, so you’ll be stuck paying interest forever. It doesn’t have to be this way.
Saving out of fear is good planning
So many of us save cash without any real purpose. We think that fear alone counts as preparation, although the truth is that the money just sits there in accounts that don’t grow. Such behavior is known as “fear saving.” It keeps people frozen & their bank accounts stagnant, rather than investing funds where they could actually work.
Owning nice things means financial stability
Yes, a shiny car or fancy watch may look like success. But that doesn’t mean the numbers add up behind the scenes. Research shows that materialistic spending habits are often tied to more debt & less savings, meaning that looking wealthy doesn’t mean that you’re financially stable. It simply drains the resources you could’ve used to build actual security.
Believing zero-sum economic views
It’s a common belief that when someone else wins, you lose. Economists call this zero-sum thinking. While it might not sound like much, this sort of thinking prevents you from taking risks or sharing, even collaborating. A negative mindset blocks you from pursuing opportunities that could benefit you. Why treat yourself so negatively?
You just need to make the minimum payment
The bill says “minimum due,” and you can cover that, so you should be fine…right? Not really. The Consumer Financial Protection Bureau warns that those payments stretch balances for decades & triple the cost in interest. As such, thinking that “minimum equals affordable” is why so many of us stay in debt instead of clearing it.
Sources: Please see here for a complete listing of all sources that were consulted in the preparation of this article.
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