18 Most Dangerous Money Myths

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Last Updated: 06/07/2022

There are a lot of dangerous money myths out there that keep broke people broke.

There is no shortage of bad advice about money out there.

It could be other people pointing you in the wrong direction. It might be things you tell yourself to explain your current situation or behavior. Regardless of the source, believing in these dangerous money myths could jeopardize your financial health.

Let’s put some financial myths to bed:

1. I Don’t Need a Budget

You might think of budgeting as a dull and painful exercise involving a lot of math and punishing yourself. Or maybe you’ve tried budgeting in the past and couldn’t stick with it.

The truth is budgeting is one thing you can do that will improve your finances almost immediately, whether you make $40,000 per year or $400,000 per year.

Living on a budget doesn’t mean that you can’t have any fun or buy yourself anything nice. A budget is simply a roadmap for how you spend your money. Your budget is a tool for ensuring that you’re spending money according to your priorities.

Once you find a budgeting method you can stick with, you’ll rest assured knowing your money is working for you.

2. I Don’t Make Enough to Save Money

When you live paycheck to paycheck, it’s easy to assume you don’t make enough money to build your savings. It might not be a matter of not making enough, however.

It could be that you’re not making financially sound decisions. Start tracking your spending and look for expenses you could lower or eliminate. It could be something small like not stopping at the coffee shop every morning or something more significant like moving to a cheaper place.

Once you free up some money, start by saving what you can. Saving something is better than saving nothing, even if it’s not as much as you would like. Prioritizing your savings and building your saving habit is more important than the dollar amount when you’re starting.

3. You Should Have a Certain Amount Saved by a Certain Age

Everyone knows saving money for retirement is important, but how do you know if you’ve saved enough? You might think you can measure your progress by comparing yourself to your peers. Or you may have heard general savings rules like you should have three times your annual salary saved by age 40 for a comfortable retirement.

Comparing yourself to others can hurt more than it helps. Doing that can cause negative feelings or spur you to do something financially unsound, like taking on too much risk chasing an arbitrary number.

Exactly how much money you should have in savings is a complicated question. Everyone has different financial circumstances, needs, and annual expenses. Blanket statements that pass for financial advice don’t help.

Instead of focusing on accumulating a multiple of your annual salary, figure out your annual living expenses. Focus on saving enough to cover your yearly living expenses from retirement age on.

4. If It’s On Sale, It’s a Bargain

Everyone loves a good bargain. Even if you’re not paying full price for the things you buy, you could still be wasting money.

Buying something you don’t need or wouldn’t otherwise buy just because it’s on sale is a waste of money. So is buying in bulk then throwing out half your purchase because you didn’t use it before it went bad. Choosing a product based on price instead of value often costs you more in the long run.

5. A Higher Price Equals Better Quality

Paying more doesn’t always mean you’re getting a better product. It’s a perception many brands and retailers like to reinforce, but it’s possible to find less expensive alternatives.

Store brands, generics, and lesser-known brands can give you the same quality for less. When you pay more for essentially the same item, you’re paying for the brand name, not the product.

6. Paying in Cash is Always Better

One of the more common money myths is that cash is king. If you struggle with overspending, don’t track your expenses, and are not budgeting your money, then paying in cash will help you get control of your spending. If you pay your credit card in full and on time every month, thus avoiding interest, many credit cards come with valuable perks.

Credit card rewards programs allow you to earn cashback or points you can redeem for travel, gift cards, or merchandise. Making all your payments on time can also increase your credit score, making it easier to get better interest rates on a mortgage or other loan when you need one.

7. Buying a New Car Is an Investment

Buying a new car can give you peace of mind if you can afford it. It will likely be more reliable than a used car and under warranty, which will lower your maintenance costs during the warranty period.

But a new car is not an investment. The moment you take delivery, your vehicle starts depreciating.

Your car’s value typically decreases 20 to 30 percent in the first year. Most people borrow to buy a new vehicle, making matters even worse.

Borrowing money to buy a rapidly depreciating asset is not investing. That is how cars keep you poor.

Well-maintained older cars can be as safe and reliable as a new car. If you do the research and buy the safest, most reliable vehicle you can afford in cash, you won’t need to take out an auto loan. Save the money you would have spent on a car payment, then trade up.

8. Renting Is a Waste of Money

One of the biggest money myths is that renters are wasting money or paying their landlord’s mortgage instead of building equity. The real truth is that owning a home is not ideal for everyone.

While many people dream of homeownership, buying a house and maintaining it are expensive. A mortgage requires good credit and a 3.5 to 20 percent down payment. Additional costs include maintenance, property taxes, insurance, HOA fees, moving expenses, and furnishing your new home.

A mortgage could be cheaper in the long run, but renting is not wasteful spending. Renting offers some financial flexibility, as you’re not saddled with a mortgage or any of the costly expenses of owning a home. When you rent, it’s also easier to pick up and go in response to life changes.

9. I’m Young, So I Don’t Need To Plan For Retirement

Retirement isn’t something you think about much, if at all, when you’re in your twenties. But saving for the future isn’t something you should put off.

Waiting until later in life to start saving for retirement only works if you have a large enough income and the discipline to start saving for retirement after years of ignoring it. The problem is you can’t assume your income will increase steadily. Employment opportunities dry up, companies go broke, and entire industries practically disappear.

Good money habits start early. The sooner you start building your retirement fund, the less you have to worry about your financial future and the sooner you can reach financial independence.

10. You Have to Be Rich to Invest

Lots of people think investing is only for the wealthy or that it takes a lot of money to get started. The truth is you don’t need a lot of money to start investing.

Thanks to fractional shares and no-fee brokers, you can get started with as little as $10. Spare change apps like Acorns allow you to invest small amounts of money by rounding up purchases and investing the money.

No matter how much you can afford to invest, the sooner you start, the better. If you review your budget and your spending habits, you should be able to find an amount you can invest every month. Investing a little bit every month will help you reach your financial goals faster, and you can always increase the amount later.

11. It’s Too Late To Start Investing

Starting to invest when you’re younger does afford you the advantage of time, but it’s never too late to begin investing.

Younger investors have more time to ride out stock market ups and downs. Starting when you’re older means your goals and strategies will be different compared to a recent college graduate. You can still make progress toward your financial goals no matter when you start.

12. Investing is Too Risky

You might think investing in stocks and bonds is risky and complicated. Or maybe you’re fearful because you’ve heard about people losing their nest eggs to bad investments. The truth is that investing does carry some level of risk, but not investing carries considerable risk too.

If you do not invest, the money you have loses its buying power over time due to inflation. That could put financial independence and retirement out of reach.

Instead of putting your money under your mattress or in a savings account, create an investment portfolio that aligns with your risk tolerance. If you create a diversified portfolio and take a consistent long-term approach, you can ride out the ups and downs and win in the long run.

13. A 3 to 6 Month Emergency Fund Is All You Need

Having 3 to 6 months of living expenses put aside is a good start, but it might not be enough. If you find yourself out of work, you need enough money saved to carry you through the entire time it takes to find a new job.

Depending on what you do for a living, it can take much longer than three to six months to find employment. If your role is highly specialized or your income fluctuates, your cash reserves may need to be significantly larger.

14. I Don’t Need an Emergency Fund Since I Have Plenty of Credit

Some people feel that as long as they have a credit card with enough room, an emergency fund is unnecessary. That might suffice for a one-off emergency like a car repair, but what if you lose your job?

Can you put your rent or mortgage payment plus all your living expenses on your credit cards? Can you do that for several months or until you find work?

Putting all your living expenses on a credit card is a sure-fire way to make a bad situation worse. You could be starting your new job with thousands of dollars in debt.

15. Two Working Parents Are Better Than One

One of the more common money beliefs is that for a family to afford basic expenses, two incomes are necessary. It really depends on your total household income and your cost of living.

It costs money to work. Commuting expenses, work clothes, dry cleaning, lunch, and other incidentals add up. Add in the high cost of child care, and the lower wage earner might not be retaining very much of their income, especially if you have more than one child in daycare.

There are also considerations beyond money. Being there when your child needs support is priceless.

Living on one income with kids is possible. It might require budgeting, lifestyle changes, and solid money management, but it can be done.

16. One Partner Should Handle All the Finances in a Relationship

Who manages all your bills, accounts, and investments in your relationship? If it’s not you, you could be financially vulnerable.

What if you break up? If one of you becomes incapacitated or died, would the other be able to handle all the money matters along with the anxiety and grief?

Having one person control the finances for both of you creates a money imbalance in your relationship a partner could exploit. Letting your partner control the money could also let them control you.

It’s your financial life. It would be best if you had visibility and input into it.

17. There Is Good Debt and Bad Debt

Lots of people believe there are two types of debt: good debt and bad debt. You might put student loans and mortgages in the good debt category while credit card debt goes in the bad debt category. That might make you feel better about carrying six figures in student loans, but the truth is that any debt can lead to financial hardship if you can’t meet your obligations.

That doesn’t mean that all debt is bad. Using debt to get an education, start a business, or purchase real estate or rental properties are valid reasons for taking on larger debts. Taking on these types of debts and investing in yourself could help you move forward in life.

Debt is debt. Banks and other creditors don’t care whether you owe them money because you paid for a luxury vacation you couldn’t afford on credit or borrowed money to buy your first home. If you can’t make the payments, you could wind up in court.

18. Keeping a Credit Card Balance Builds Credit

You might have heard that carrying a small balance on your credit cards monthly is good for your credit score. It’s not true, but the myth persists.

Carrying a credit card balance does not help your credit score. Keeping credit card debt just costs you money in interest. Maxing out or carrying a high balance on your credit cards hurts your credit scores because it increases your credit utilization ratio.