3 common money myths that harm your financial well being
How to spot misleading financial advice and overcome our culture’s bad approach to money
I was delighted to be included recently in an Investopedia article on money myths that sabotage our personal finances by writer Katharine Paljug. The first myth listed is “you need a budget” — how great to see these harmful tenets of budget culture being challenged in established personal finance media!
Paljug’s article is brief and quotes me a few times, but the questions she sent me inspired some deep thinking about the myths we depend on personal finance, how they harm us and how we can combat them. Below I’m including an edited version of the responses I sent her (and one myth she didn’t include in her piece) to help you recognize and overcome common money myths in our culture.
Myth No. 1: You need a budget
The myth: People believe they can’t trust themselves with money unless they’re tracking and restricting diligently.
Why it frustrates me: The personal finance industry perpetuates this rule without questioning whether budgets are actually useful. And what little research we do have into budgeting actually shows they’re not.
How it harms your financial well being: Constantly planning and restricting your spending is a lot of work, and budgeting is stressful for a lot of people. Rather than help people reach financial goals, budgeting tends to encourage splurge-and-restrict cycles (like binge-and-purge cycles with dieting), which can keep people on a shame rollercoaster.
Budgeting everyday spending also puts a focus on low-dollar, discretionary spending and keeps people from looking at the kinds of big changes they could make personally or the systemic changes that need to happen to improve their financial situation.
Myth No. 2: Wants vs. needs
The myth: We try to define spending based on whether it’s a “want” or a “need,” and we tend to restrict wants and give more moral weight to spending on needs.
Why it frustrates me: Honestly defining a “want” versus a “need” is impossible. Where’s the line between, say, needing to eat and wanting a convenient and delicious meal? What if you need to go to work and raise your children — do you still want a convenient meal, or is that a want?
The wants versus needs dichotomy doesn’t add any clarity as a money management tool; it just adds judgment.
How it harms your financial well being: Some budget plans rely explicitly on allocating money toward wants and needs separately. If you can’t define these categories, you’ll be trying to make a financial plan on a weak foundation.
Myth No. 3: Good vs. bad debt
The myth: We generally shame debt in our culture, but even more insidious, we try to act as if some debt is smart to take on and some is not.
Why it frustrates me: The most frustrating part of this myth is that the kinds of debts we consider “bad” happen to be the ones that are most accessible to and most used by people with the fewest resources.
We place judgment on consumer debt, but the majority of people who use products like credit cards and high-interest loans use them to pay for everyday necessities they wouldn’t otherwise have access to. We favor mortgages, student loans and business loans, which are all products that are more accessible to people who already have more resources and want to use debt to build more wealth.
How it harms your financial well being: Debt shame can lead to an obsession with repaying debt as quickly as possible. That can mean handing all of your resources over to a financial company rather than using them to build savings, have experiences, or buy things that would bring you joy or comfort today. It can keep you from seeing the bigger picture — how you want to use money to support the life you want to live.
Why we can’t rely on ‘common wisdom’ in personal finance
The biggest problem with relying on “common wisdom” in personal finance is that it’s all based on a set of goals that don’t make sense for most of us.
“Common wisdom” in personal finance assumes our top goal is get rich as efficiently as possible. That’s not a human goal; it only makes sense in a spreadsheet.
But, because most of us have so little financial education to understand how things work, we end up taking the drive to accumulate wealth as common sense. We end up believing all of the rules we’re taught with that goal in mind are smart money moves — even when they don’t move us personally any closer to the lives we actually want to live.
Changing your mindset to counter harmful money myths
How can we overcome these pervasive myths in budget culture? Start by questioning the financial advice you receive.
Instead of looking to educators and experts and asking “What should I do?”, ask “How does this work?”
For example, don’t just ask, “What’s the best way to pay off debt?” Instead, learn how your debt products work — what kind of fees and interest come with your credit card? What happens if you stop making payments? What impact would bankruptcy have on your life? What are your options for consolidation or other methods to get more favorable terms?
Asking “how does this work” helps you get the information you need to manage money in a way that supports the life you want to live, rather than following a set of rules set based on someone else’s goals.
And, I always tell people: Trust yourself. This applies across all areas of life, but we don’t talk about it nearly enough in personal finance.
You have to listen to your gut and trust your instincts when it comes to how you want to spend money, how you’ll use debt, what kind of work you’ll do. People turn to restriction and shame so often because they don’t trust themselves to make the right choices with their money. You need some education in how things work, but when it comes time to decide how to use your money, trust yourself to make the choice that’s right for you.
🤖 Want to adjust your mindset to combat budget culture programming?
My Budget-Free Fundamentals series gives you everything you need to gain a fresh perspective on your relationship with money. In a few short lessons, you’ll gain tools to use money the way you want without relying on restriction, succumbing to shame or following advice rooted in greed. Paid subscribers have full access to this and all Healthy Rich classes — just $35 for your first year!
I just read a great book called Robin Hood Math that is all about taking our power back from algorithms and creating our own metrics. The same is true with financial rules.
I believe in knowing my required expenses; housing, food, transportation. I am currently relying on a meal preparation service for most of my meals. I am a good and healthy cook, my husband's diease dosen't allow me the time or energy to cook most days.
I think it's considered "bad" debt because lenders cannot grab items purchased with that type of debt for resale.