You’ve probably heard these more than once in your life… ‘Money is the root of all evil!’ ‘Investing is only for the rich…’ ‘Creating a budget is sooo boring and restrictive…’ Where these sayings come from, we don’t exactly know. But what we do know is that they’re simply not true.
The sad thing is that believing those statements will do you more harm than good. Living by those statements could make you lose your hard-earned money year after year and leave you in the dark about where your money flows. If you want to flourish financially, it’s a good thing to let go of those beliefs. We want you to thrive financially, and that’s why we are here to turn the tide. Let’s bust the most widespread money myths, so you can improve your financial situation and work toward a better future.
Below we will debunk six of the biggest money myths one by one, once and for all. For example, did you know that you don’t have to buy a home to start building wealth? That you can invest with as little as $20? And that having a budget doesn’t have to restrict you from having fun at all? Let’s dive into these (and more!) and say goodbye to those limiting beliefs for good!
Myth #1: Money Is the Root of All Evil
Let’s start with the biggest misconception of them all, that money is the root of all evil. You’ve probably heard it more than once in your life, and maybe you tend to believe it as well. But, if you look at money this way, it’s harder to make it work for you. This saying is a misquoted Bible verse that has worked its way into the collective consciousness over time. Again, how it got there, we don’t know. But what we do know is that it’s not true.
Money is merely a tool and cannot be evil in itself. The person who uses it is the one who can make it evil, though. Sure, you can use money for evil things, but you also need it to put a roof over your head, feed your family, and fund your car to get from A to B. Where’s the evil in that? Also, money enables opportunities, such as education to set you up for a better life, travel to explore new places and cultures, or even start a business.
Using money in the right way has the potential to open doors to make your life easier, more comfortable, and better overall. The unethical pursuit of excessive money—that’s the thing that can be evil. But that’s all up to the one who uses the tool, not money itself. Money itself is not the problem.
Myth #2: Debt Is Always Bad
You might think that debt is inherently bad, but not all debt is created equal. Yes, some types of debt are objectively bad, such as payday loans. This type of debt has an average APR of almost 400%,which means that for every dollar you borrow, you need to repay 4 dollars. Or think about carrying a balance on your credit card each month, which can get you in a vicious debt cycle. This debt cycle can be very challenging to get out of by yourself and give you a sense of stress nobody wants.
However, a mortgage is a form of debt as well, which you can use to finance your home. With every mortgage payment, you own a larger part of your home, with which you build wealth over time. Using debt to build wealth over time, and managing this debt can be a smart move. So no, debt is not always bad.
Myth #3: You Can Only Build Wealth if You Buy a Home
While getting a mortgage and managing it well can be a smart long-term money move, you don’t need one to build wealth. While it is fairly commonly taught that buying a home is one of the main ways one can build wealth, you certainly don’t need to. Buying a home is just not for everyone. Maybe you like to move around a lot or need to based on your job. As buying a home comes with quite a hefty lump sum fee upfront (think about closing costs, prepaid taxes, and prepaid insurance), regularly buying and selling your primary home may do you more harm than good.
There are other great ways you could build wealth, such as buying into the stock market. The stock market is a great way to put your money to work for the future, as the stock market grows at an average rate of around 10% per year. (How’s that for passive income?). If you keep your money invested, after that year, compound interest could kick in. What does that mean? The return you make on your money will continue to snowball, which could result in exponential returns on your investment after some time. Einstein didn’t call compound interest the 8th World Wonder for nothing…
Myth #4: Investing Is Risky
Many people think investing is risky, but this couldn’t be further from the truth. If you diversify your investment portfolio, investing may not be risky at all. Diversifying your portfolio may sound complex, but this isn’t the case either. An effortless way to buy into the stock market and diversify your portfolio from the get-go is by investing in index funds.
What are index funds? An index fund is essentially a basket of shares from several different companies. For example, you could invest in an S&P 500 ETF (ETF stands for Exchange-Traded Fund), with which you buy a weighted basket of shares of all companies listed on the S&P 500. Investing in index funds means you create a diversified investment portfolio from the get-go, as you buy into all companies on the S&P 500 at once.
Investing in such a way could potentially leave you with a safe investment with a low probability of going to zero (what are the chances ALL companies on the S&P 500 go bankrupt?) and has an average annual rate of return of around 10%. Sure, the potential gains may be higher if you pick single stocks to invest in, but if your risk appetite is relatively low, investing in index funds could be the way for you to invest. Investing doesn’t have to be risky if you don’t want it to be.
#5 – Investing Is Only for the Rich
This brings us to the next money myth: investing is only for the rich. Again, this is simply not true. With as little as $20 you can invest in the stock market and put your money to work for you. You can invest in things such as index funds or even fractional shares, which are ways to invest if you don’t have thousands of dollars lying around.
Investing could be a smart move, even if you don’t have a lot of money to invest, as it’s a great way to beat inflation. In the past couple of years, the inflation rate has been higher than the average return on savings accounts, essentially making you lose money if you merely save your hard-earned cash. Investing sometimes yields higher results (the S&P 500 has an average yearly return of around 10%, remember?) than both the average savings and inflation rate. This could make it a great hedge against inflation, helping you to not lose money in the long run.
And to add to that, the days of the expensive stockbroker are over. There are cheap, user-friendly online stockbrokers all around, which could make investing both cheap and easy these days.
#6 – A Budget Is Boring and Restrictive
Creating a budget and sticking to it may seem like a daunting task. And sure, while it may be challenging to set up, if you have your budget it’s merely required to check in it once in a while. Also, a budget doesn’t have to be restrictive. Think about your priorities, and put some money aside for this. That way you don’t have to feel guilty if you buy something just for the heck of it.
If you like eating out, and you make enough money to fund this habit, budget it in and go for it! Or maybe you’re into sneakers. If your income allows it, budget it in to buy a new pair each quarter. It’s about making it work for you, not restricting you.
A budget is a great tool to help you reach your financial goals. It gives your money a purpose. With a budget, you decide where your money goes, allowing you to plan for your future. Also, we’ve all heard the saying that knowledge is power, and it’s no different when it comes to money. Making a budget and checking in once in a while educates you about your spending habits. This awareness allows you to make smarter money moves that work for you. Think about your budget as a roadmap to your financial future, not a cage.
Need help with setting up a budget? Or do you want to start investing in index funds, but don’t know how? Download the free BetterWallet Financial Checklist, which tells you the financial numbers you need to know, guides you in building your financial foundation, and explains which accounts you can leverage to build wealth for the future.
Shed Those Limiting Beliefs and Work Toward a Better Future
Before reading about these six money myths, did you hold any of these beliefs? We hope that after going through these myths and reading why they’re not necessarily true, you have a newfound financial power to harness and work toward a better future for both you and your family.
To recap, money is NOT the root of all evil. If you have good reasons to not buy a house, there are other options to build wealth as well, such as investing. And is investing only for the rich? No way! Everyone can invest and you could start with as little as $20 per month, even if you do not like taking risks. Even better, you could make a separate entry in your budget for your investments, setting money aside to invest and make it work for you.
Money is here to help you make the most of your life, not restrict you in any way, shape, or form. It’s merely a tool, and making it work for you and your unique situation has the potential to set you up for a better life. Shed those limiting beliefs, and start working towards a better financial future!
