The beginning of a new year is when a lot of people reprioritize and set goals for themselves. After a long, honest look at your financial health, you might be ready to take control of your money. However, some of us hide behind untruths so we don’t have to take responsibility or make changes. If you want to get ahead financially, now’s the time to let go of common misconceptions about money.
I Don’t Earn Enough Money
A modest income does limit your options. The less you earn, the longer it’ll take to realize some of your money goals, such as saving for retirement, building a cash reserve and paying off debt. However, getting to where you want to be financially is within reach. You don’t have to earn big bucks to improve your financial life, but you will need to reprioritize spending and plug money leaks.
How often do you eat out for lunch? How much do you spend for cable? How many impulse purchases do you make a month? Every frivolous purchase puts you farther away from goals. Even if you only blow $20 a week on needless stuff, that’s $20 a week (or $80 a month) that could have paid down a credit card or put toward your future.
If you reduce spending and follow a budget, it’ll be easier to spend less than you earn, and you’ll have more disposable income for achieving your financial goals.
If I Ignore It, It’ll Go Away
Unless you file bankruptcy and a court wipes out your balances, debt doesn’t go away. Creditors may stop calling after a while, but this doesn’t mean they’ve forgotten about what you owe.
In most cases, the creditor will report the delinquent account to the credit bureaus. This lowers your credit score and delinquent accounts remain on your credit report for up to seven years. Some creditors will also forward your information to a collection agency or seek a judgment from the courts, which puts another red mark on your credit report.
Hiding from debt never ends well. Creditors may seem like the enemy, but they can help you get through a tough time—if you communicate and let them know what’s going on.
You Only Live Once
While the statement might be true, the idea behind the statement can take your finances on a rollercoaster ride. In 2013, the average household spent about $2,482 a year on entertainment, just over $200 a month. There’s nothing wrong with the occasional splurge every now and again. You work hard and you deserve a reward. But a routine of splurging and always spending money on a “good time” can have a damaging impact on your personal finances.
Not being able to restrain yourself has a domino effect that touches different areas of your financial life. It’ll become harder to save for the future and pay down debt. And if your lifestyle prevents saving a rainy day fund, you’re only one emergency away from getting into credit card debt.
I’d Be Happier If I Earned More Money
Money can solve a lot of problems and improve your overall lifestyle, but it doesn’t guarantee love, peace of mind, good health or personal satisfaction. So if you’re chasing the almighty dollar thinking it’s the cure all for depression or any other bad feelings, you’re kidding yourself.
Interestingly enough, even if your happiness level were to rise with each pay increase, a 2010 Princeton study found that emotional happiness peaks at $75,000 a year. In other words, earning more than this amount doesn’t significantly improve day-to-day happiness.
I Don’t Have to Think About Retirement Now
Stop thinking retirement is something you only have to worry about when you’re older. Your retirement account isn’t going to miraculous appear and grow on its own. From experience, I know the challenge of prioritizing saving for retirement, especially when it’s 30 or 40 years into the future.
When you’re young and just starting out, open an IRA or a 401(k) may be the last thing on your mind. If you’re getting married, having kids, buying houses and paying off student debt, you may put retirement planning on the back burner. And understandably, your money only stretches so far. But there’s no denying the growth potential when you plan early.
If you start saving for retirement at age 32 and save 10 percent of your $60,000/year salary, you’ll grow your savings to about $646,771 in 30 years at a 6 percent rate of return. On the other hand, if you began saving seven years earlier at age 25, your savings could grow to $954,015 by the age of 62.
Unless you’re willing to adjust your thinking, you may never improve your financial picture. The sooner you learn how to recognize lies and excuses you’re telling yourself, the sooner you can get on a healthy track financially.
If you’d like more help with this, check out my new course: Tame Your Finances (& Save $5,000 in the Process) to learn more!
What money lies have you overcome?