Maybe you've heard them–a good salary equals financial security, money always has a way of working itself out, or it's never too late to start saving.
But as it turns out, these money misconceptions aren't just untrue, they also can be downright bad financial advice.
Learn more about the most common money misconceptions, plus how tohandle your money the right way from the beginning.
A Good Salary Equals Financial Security
One common misconception is that once you make a good salary, you will be financially secure. Even with a good salary, it can be difficult to pay the bills.
It's always possible to spend more than you earn, especially if you don't have a budget. Living costs tend to go up with salary increases, so it's important to create a realistic budget and stick to it.
Even if you're a high earner, you'll need a solid financial plan that outlines your investment and long-term financial goals, such as paying off debt, building an investment portfolio, building a nest egg, or buying a home.And don't forget aboutbuilding an emergency fund in case you lose your job or cannot work for some reason. A good salary is only part of being financially secure.
Everything Will Work Itself Out
If you take the approach that everything will work itself out, you may find yourself indebt orbehind on your financial goals.
Putting it simply: If you are not actively planning and saving for life’s big events, then you will not be ready when it comes time do them. Additionally, if you have a large amount of debt and don't have a debt payoff plan, you will likely find yourself in even more debt in the future.
That's why you need to be proactive andhave a financial plan that is realistic. This plan will make it possible for you to still enjoy your twenties while moving forward financially.
Budgets Take Too Much Work And Don't Really Help
Another common misconception is that budgeting takes too much work and may not even help you change your situation.
While it's true that the first few months of budgeting can take extra effort. It also takes time to create a budget that actually works for your situation.
But here's the truth: Most people give up budgeting after a month or two and so they do not see the success that is possible by following a budget. A budget can help you stop worrying about money all the time, and help you reach your goals much more quickly. It can also help you stay out a debt, a key to long-term financial stability.
I Can Start Saving for Retirement Later
While saving for retirement is probably the last thing on your mind when you're 20-something years old and working your first full-time job, it shouldn't be.
In short, the sooner you start saving for retirement—whether it's in a 401(k), a 403(b), a traditional IRA, a Roth IRA, or other savings vehicle—the better off you will be financially. In fact, the more money you put away in your 20s, the less you'll have to save later, due to compound interest.
While you may think you have all the time in the world or may rationalize putting it off by saying you'll have a larger salary later, keep this in mind: Although your income will increase as you get older,so will your expenses. You may not have the money available to save in the future.
In addition to your basic retirement accounts, you should think about saving in other accounts, especially if you want to retire early or have other goals you want to accomplish. You should make saving for retirement a priority and stop using excuses to stop yourself from planning for your future.
I Don't Need to Worry About My Debt
Another common misconception is that you do not need to worry about the amount of debt you have as long as you are able to make your minimum payments each month.
However, only making yourminimum payments each month doesn't always put a dent in your debt, especially if you have a high interest rate.
Your debt-to-income ratiocan show you how serious your situation is. Once you have a realistic picture of your debt, then you can make a debt payoff plan.
Updated byRachel Morgan Cautero.
FAQs
Money is important to college students, but having money as one's chief aim in life is negatively correlated with subjective well-being. Money plays a significant role in a student's life as it influences their spending behavior and affects their ability to manage their finances effectively.
How is money important in our life? ›
Money allows us to meet our basic needs—to buy food and shelter and pay for healthcare. Meeting these needs is essential, and if we don't have enough money to do so, our personal wellbeing and the wellbeing of the community as a whole suffers greatly.
Do you view money as more of a burden or a help? ›
It can provide a sense of security and freedom, allowing people to have more choices and options in their lives. Ultimately, whether someone perceives money as more of a burden or a help is subjective and dependent on individual circ*mstances and attitudes towards wealth and material possessions.
Why should we know about money? ›
A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business. Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending.
How does money affect students? ›
Students with fewer money worries perform better in college and are more likely to graduate, while financially stressed students have lower grades and are more likely to drop out.
How does money affect education? ›
Yes. On average, aggregate measures of per-pupil spending are positively associated with improved or higher student outcomes. The size of this effect is larger in some studies than in others, and, in some cases, additional funding appears to matter more for some students than for others.
How important is a money essay? ›
Essay on Money: Money is the medium used by people to buy required goods and services. It is used as the source to fulfill basic needs and is also a source of comfort in life. Money is the most important source to live a healthy and prosperous life; however, it cannot be compared with the significance of love and care.
Is money a want or need? ›
Whether you're saving for emergencies, paying off debt, or building retirement savings, all financial goals can be considered needs. Achieving your Money Milestone is essential to staying financially fit and takes precedence over your wants throughout your journey to Financial Freedom.
Is money the main reason people work? ›
Money has always been a significant factor when it comes to career motivation, but it's not necessarily the only one. People are motivated by a variety of factors, including personal satisfaction, work-life balance, the opportunity to learn and grow, and the desire to make a positive impact on society.
Is money more important than your life? ›
Life is more than just money because life's richness lies in the deep connections we form, our experiences, our personal growth, and our positive impact on the world around us. While money is essential to meeting basic needs, it is not the sole reason and won't lead to a fulfilling and meaningful life.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
Does money matter in life? ›
Human beings need money to pay for all the things that make your life possible, such as shelter, food, healthcare bills, and a good education. You don't necessarily need to be Bill Gates or have a lot of money to pay for these things, but you will need some money until the day you die.
What are the five disadvantages of money? ›
The following are the various disadvantages of money:
- Demonetization - ...
- Exchange Rate Instability - ...
- Monetary Mismanagement - ...
- Excess Issuance - ...
- Restricted Acceptability (Limited Acceptance) - ...
- Inconvenience of Small Denominators - ...
- Troubling Balance of Payments - ...
- Short Life -
Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment.
Is money good or bad? ›
Money is not inherently bad.
Think of the Good Samaritan in the Bible. If he were penniless, his ability to care for the man who had been mugged would have been severely diminished, because he would not have been able to pay the inn keeper (see Luke 10:25-37).
Why money is important in our life essay? ›
Money has capability to buy anything virtually and helps us a lot throughout the life. By taking the importance of the money in our life we should never destroy or waste the money without any purpose. We should not compare the money and love because both are required separately to run a successful life.
Why money is most important than education? ›
Money can provide financial security, which education cannot. You can ensure a stable future for yourself and your family with money. Education may bring opportunities, but it does not guarantee financial stability.
