6 Money Myths That are Holding You Back Today - Money Psychology

Our beliefs about money - how to make money, keep it safe or multiply and even what money really means have been shaped in part by our upbringing, the environment and our own experiences. 

Your relationship with money is likely to have changed over time. And this is to optimistically say that we became wiser with money, say after learning from our mistakes or those of others or actively seeking knowledge on how money works and how to be better with it. 

Have you found yourself questioning some generally held beliefs about money? Did you follow some traditional conceptions of making, growing and safeguarding money and found they might not have been exactly correct? Or are you doing just fine?

Whatever the case, there generally is what can be regarded as truths and myths about money. And your ability to distinguish between the two could make a huge difference in your financial journey. 

For starters, a myth is a widely held belief or idea which is thought to be true or factual but it is false. 

A truth, on the other hand, is an indisputable fact no matter what happens in relation to it. It is always valid regardless of context or parameters. However much a fact or a truth is twisted, it can never be changed. 

With that in mind, it becomes apparent that one has to keep evaluating their beliefs about money to identify what may be angling towards myth and course correct. 

A few weeks ago, we saw in our continuing series on Money Psychology that there are money mindset shifts that pay off. 

Growing up hearing, learning and adopting financial advice from different sources, it is best to look at what we have believed all along and decide what the best for our financial goals is. In fact, sometimes we are not even aware of some of the myths we believe in regarding money and thus the only way to remedy this is identifying them and then unlearning them for our financial wellbeing.

Often, myths around money may seem as absolute truth, either because we know no better, we learned them from sources we hold in high regard or have never bothered to question them. This week we look at some common money myths to ignore because they could be holding you back.

1.  Big income makes me wealthy

While a high income translates to you making a lot more money in comparison to others, it does not always translate into a higher net worth.  

This means that as we strive to earn more money, we have to bear in mind that how that income is put to work/multiplied is more important than just earning more.       

It takes discipline to avoid spending your money on what can generally be described as wants - things that you do not necessarily need at the financial stage you are in. There is no shortage of examples of people who move to bigger houses and generally instantly upgrade their lifestyle once they get a pay rise. Such decisions could make you look wealthier on people but less wealthy than before in reality. 

To enjoy some of your income along the way or later in life, you could change your mindset towards creating wealth by paying attention to how you prioritise saving and investing. This mindset change will help you change your focus and lead you on a better path towards the financial goals you have set for yourself.

2.  I don’t earn enough so I can’t save

Priorities are different and when it comes to money, the ability to save is dependent on one’s choice to forego some comforts now so they can line their nest egg.

Entertainment and other non-essential expenses are usually the culprit when it comes to people’s inability to save. While these differ from person to person, the fact remains that the mindset towards saving is what determines what one can forego or not.

Again, for those who cannot find it easy to save, it is usually the struggle between wants and needs. Some in this category may really have the best ideas about saving but they don’t have the extra money to put into savings. At this point saving becomes a want and not a need.

In her book titled All Your Worth: The Ultimate Lifetime Money Plan, US Senator Elizabeth Warren and Amelia Warren Tyagi popularised the "50/20/30 budget rule" where one divides their after-tax income and allocates 50% of it to needs, 30% spent on wants, and 20% is put in savings.

For clarity, needs are those things you cannot survive without while wants are things people spend money on but they are not essential.

To successfully line your savings nest, start small and work towards getting better. The most important thing is to start and then build a habit. The habit of saving is also intentional so get into it and change your mindset.

3. I can’t get into debt since all debt is bad

Debt is money borrowed by a party (person) from another in an arrangement that gives the borrower conditions under which the money will be repaid.

For some, owing money means they have made some wrong financial decision, but this is not necessarily the case. 

Loans that boost your earning potential and help you grow your net worth can transform your life. This is as compared to getting in debt to finance a lifestyle you cannot afford with your current earnings. 

To be safe, always be careful of the kind of loans you take and while at it, always have a plan on how you will pay it back. Be cushioned against a job loss or a serious illness, both of which could affect what you have including your savings and the ability to make repayments.

4. Money is safest in the bank

Today, anyone with a cell phone can open a bank account in an instant. This was not the case two decades ago when holding a bank account was a preserve of the salaried few. 

While it is generally true that keeping money in the bank as compared to a mattress bank or savings jar at home, there are considerations to be made. 

The money you have in the bank at the beginning of the year will, yes, be the same amount on your current account at the end of the year if you do not make withdrawals. But this is if you do not think about inflation, which for example was about 5.3% in 2020 meaning the Ksh10,000 in bank in January 2020 was actually worth Ksh5,300 less in December 2020. 

The same applies for money deposited in a savings account that does not offer an interest rate higher than the annual rate of inflation. ‘

With that in mind, it makes more sense to put your money in investment vehicles that assure you an interest rate higher than the inflation rate including high yield savings accounts.

There are also low-risk investment options such as treasury bills and treasury bonds that can guarantee regular interest payments making you more from what you have. 

You can then maintain money that you need for regular transactions in your current account and be assured your savings always earn you more. 

To make the most out of what you have, seek professional financial advice and review your financial goals before making a decision on where to put your money.

5. I don't need/ can’t afford an emergency fund

People are social and in many cases, a problem for one becomes a problem for the society. In case of emergencies, there is a tendency to fundraise in communities to deal with whatever issue is at hand.

Individually, one way to avoid this is having an emergency fund.

However, due to many reasons, there are some people who cannot raise enough for emergencies despite the relief that comes with having money to use as a cushion in such cases.

Many financial advisers tell people to save as much as they can, usually a percentage of their earnings, to use in case of an emergency. The rule of thumb is to have at least 3-6 months of living expenses in savings to cater for expenses in an emergency. 

To boost your emergency kitty, you can shift your emergency fund into a high-yielding savings account. 

6. I don’t have a lot of money to invest

For those struggling to make ends meet, having or adding to a savings account each month is probably not a priority. Regardless of one’s financial situation, though, one can start saving or investing a little every month towards their financial stability.

As a motivation, bodaboda riders in different parts of Kenya have become showcases of how a little can go a long way if invested well.

In Nakuru, a team of riders who started with saving Sh100 weekly now boast of being a Housing Cooperative Society. Even though they later increased contributions to Sh1,000, the theory of starting small has been proven right. 

The Kianjahi Housing Cooperative Society Limited is among similar societies that have become a micro-investing case study.

While these myths are not exhaustive, you can pick any of them and rework how to spend, decide on where to invest and ways you choose to save money.

Since personal finance is personal, always take advice from people cautiously because what could have worked for them could probably not work for you. Always research before taking action on advice received.

Again, there are many misconceptions regarding money. The best is to understand if they are tactical or mindset-oriented. Whichever way, the best way out is to know where you stand so you can make an informed decision.