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 to handle 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 about building 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 in debt or behind 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.
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 your minimum payments each month doesn't always put a dent in your debt, especially if you have a high interest rate.
Your debt-to-income ratio can 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 by Rachel Morgan Cautero.