16 Dumb Things People Believe About Money That Are 100% Wrong


Let’s face it: Dumb myths about money are everywhere. When we make choices based on myths, we set ourselves up for a potential disaster.

Many of these beliefs are based on misconceptions or outdated ideas that can kill your money-making potential. It is important to understand these myths and not let them guide your financial life.

Let’s debunk 19 common misconceptions people mistakenly believe to be true about money.

Money Buys Happiness

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It’s a widespread belief that more money leads to greater happiness. While it’s true that money can buy temporary happiness by covering your basic needs, rich people are not necessarily happier people. In many ways, more money creates more problems.

There is a law of diminishing returns with money, writes the New York Times. “Money is not a reliable path to happiness,” the NYT article said.

“[Matthew Killingsworth] debunked a popular myth that money has no effect on happiness beyond $75,000 per year, but he did confirm a law of diminishing returns to money. In the end, Dr. Killingsworth found that the effects of money level off: You need to keep doubling your income to get the same happiness boost.”

Renting is Always a Waste of Money

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Many people believe that renting is a waste of money compared to homeownership. While owning a home can be a sound investment, it’s not always the best financial decision for everyone. Your lifestyle and the math should be considered before taking on a mortgage.

Renting offers flexibility and eliminates the responsibilities of maintenance and property taxes associated with homeownership. Additionally, in some housing markets, renting can be more cost-effective than buying, especially considering the upfront costs of purchasing a home.

Credit Cards are Evil


Credit cards often get a bad reputation for leading people into debt. However, when used responsibly, credit cards are one of the best ways to spend money.

Credit cards offer benefits such as cashback rewards, fraud protection, implied warranties for the things you buy, and building credit history, which can lead to better loan terms in the future. The key is paying the balance in full each month and avoiding accumulating high-interest debt.

That’s right: Taking on credit card debt is not an option.

Carrying a Balance Boosts Your Credit Score

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I’m unsure how this myth started, but it’s dead wrong.

Contrary to popular belief, carrying a balance on your credit card does not improve your credit score. On the contrary, it will hurt it. The credit utilization ratio, which measures how much of your available credit you’re using, is a significant factor in determining your credit score. Keeping your balances low relative to your credit limits demonstrates responsible credit management and can positively impact your score.

You Need a Lot of Money to Invest


Investing doesn’t require a large sum of money upfront. Instead, investing is how you earn large sums of money over time.

Many investment platforms allow investors to start with small amounts, making them accessible to almost anyone. Whether through employer-sponsored retirement plans like 401(k)s or individual brokerage accounts, starting early and consistently contributing to investments can lead to significant growth, regardless of the initial investment amount.

You Can’t Negotiate Salary


Negotiating salary is often seen as taboo, but it’s essential to maximizing your earning potential.

Many employers expect candidates to negotiate, and failing to do so can result in leaving money on the table. This is especially true when taking a new job. Salary negotiation is a standard part of the process. Don’t forget to ask for more money!

Researching industry standards, highlighting your skills and accomplishments, and confidently articulating your value to the company can lead to higher salary offers and better financial outcomes in the long run.

A Home Equity Loan Is A Debt Relief Hack


Using a home equity loan to consolidate debt or fund large expenses may seem like a quick fix, but it comes with substantial risks.

A home equity loan is like tapping into the savings you’ve built up in your home. Imagine your home is a piggy bank; the money you’ve paid towards your mortgage is the coins inside. With a home equity loan, you can borrow some of those coins. It’s a loan where you use the value of your house as collateral.

By tapping into your home’s equity, you’re essentially borrowing against your property. If you cannot repay the loan, you could lose your home through foreclosure. Before considering a home equity loan, explore alternatives and carefully weigh the potential consequences.

Related: Your ultimate guide to eliminating debt (the smart way).

All Debt is Bad


While high-interest debt like credit cards or payday loans should be avoided whenever possible, not all debt is inherently bad. Some debts are good.

Loans for investments in education, a home, or a business can be considered “good debt” if they have the potential to increase your earning power or net worth over time. It’s essential to evaluate the terms of the debt and consider the long-term benefits versus the costs before taking on any financial obligation.

Budgeting is Restrictive


“Budget” is a four-letter word in some households (even though it’s six letters long!).

Many people view budgeting as a restrictive practice that limits their spending freedom. However, a budget is simply a tool for managing money effectively and achieving financial goals. It clarifies where your money is going and empowers you to make informed decisions about your spending priorities.

Think of it this way: It’s impossible to make better decisions with your money if you don’t know where it is going. A budget reveals critical information you need to know to improve your financial situation.

Rather than feeling restricted, a well-planned budget can bring peace of mind and control over your finances.

You Must Be an Expert to Invest


Investing can seem intimidating, especially for those without a background in finance. However, with abundant resources, anyone can become a knowledgeable investor with time and effort.

Index funds and ETFs make investing incredibly easy and straightforward.

From books and online courses to robo-advisors and financial advisors, options are suited to various expertise and risk tolerance levels. Starting with basic investment principles and gradually expanding your knowledge can build confidence and lead to successful investment outcomes.

Renting Out Property Guarantees Passive Income

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Many people don’t understand what “passive income” truly is. While the idea of passive income from rental properties is enticing, it’s not always as passive as it seems. Being a landlord requires time, effort, and occasional expenses for maintenance and repairs.

Additionally, dealing with tenants and property management can be demanding, especially for those with full-time jobs or other commitments. While rental income can supplement your earnings, it is essential to weigh the responsibilities and potential headaches before diving into real estate investing.

You Need a Financial Advisor for Every Decision


While financial advisors can provide valuable guidance, not every financial decision requires professional help. In fact, most probably don’t.

With careful research and self-education, you can independently make informed budgeting, saving, and investing decisions. However, that’s not to say financial advisors are never worth the money. For complex financial matters or individuals who prefer hands-off management, working with a financial advisor can offer peace of mind and personalized strategies tailored to specific goals and circumstances.

More Income Means More Taxes


While it’s true that higher income can result in higher tax obligations, the tax code offers various deductions and credits that can offset taxable income. And in the U.S., your tax bracket will impact how much tax you pay.

Understanding tax laws and using available tax-saving strategies can help minimize tax liability regardless of income level. From contributing to retirement accounts to deducting eligible expenses, proactive tax planning can optimize your finances and keep more money in your pocket.

You Can Time the Market


You might get lucky occasionally, but nobody can consistently time the market.

Trying to time the stock market to buy low and sell high is risky. Even seasoned investors struggle to consistently predict market movements accurately. Instead of trying to time the market, focus on long-term investment strategies based on your financial goals, risk tolerance, and time horizon.

Diversifying your investments and staying disciplined through market fluctuations can lead to more stable and predictable returns.

You Can’t Afford to Save for Retirement

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One of the most damaging misconceptions is the belief that you can’t afford to save for retirement. Yes, living expenses can be high, especially for those with debt or limited income, but prioritizing retirement savings is crucial for long-term financial security.

Thanks to compound interest, even small contributions to retirement accounts can accumulate over time, providing a significant nest egg for the future. By budgeting effectively and prioritizing retirement savings, individuals can build a solid financial foundation for their later years.

You’ll Never Retire


With increasing life expectancies and evolving retirement savings options, the traditional notion of retirement is changing. While working until a certain age and ceasing all employment may not be feasible for everyone, semi-retirement, freelance work, and phased retirement arrangements offer alternatives for individuals to transition out of full-time employment gradually.

It is important to plan for retirement and save and invest as early as possible. These habits will help provide a flexible retirement lifestyle that aligns with your financial and personal goals.