18 Common Misconceptions About Money

By Paulina Likos · July 25, 2022 · 13 minute read

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18 Common Misconceptions About Money

Even the most money-savvy person is likely to have some false beliefs about money. Maybe you were raised with misconceptions about finances, were given off-target advice from well-intentioned friends or advisors, or picked up some not-too-true intel online. These are all ways you can wind up adopting some incorrect beliefs about money. These in turn can have a negative impact on how you manage your money, hindering your path to achieving your financial and lifestyle goals.

To help make sure that’s not the case, read on to learn 18 common money misconceptions and why they simply aren’t true. Knowledge is power, and dropping false ideas can help you manage your money even better.

Why It Is Important to Have a Realistic View of Money?

Being realistic about money can help you set reasonable financial goals and reach them in the short- and long-term. Whether you are feeling financially secure or are looking to better manage your finances, practicing healthy financial habits will serve you well in the long run.

That’s why bashing money myths is important. If you believe, for instance, that carrying lots of credit card debt is “normal,” you may not eliminate that monthly balance that’s dragging down your budget, not to mention lowering your credit score. If you want to be financially fit, it’s wise to avoid the following common misconceptions about money.

1. “The More Money I Have, the Happier That I Will Be”

Yes, there is a link between money and happiness, but it’s not necessarily all that strong. People who make more money tend to be happier overall, but research reveals that millionaires are not extremely happy. Having more money doesn’t insulate you from illness, relationship issues, worries about politics and the environment, and other challenges. Also, having a lot of cash in the bank can lead to all kinds of “shoulds”: You should have multiple homes, you should spend a lot of travel, plus other expenses that can deplete your wealth.

No matter how much a person earns, it’s likely their life will have ups and downs. Understanding how to allocate the funds you have to cover needs, wants, and future aspirations is likely to help you feel in control of your finances. That, in turn, can give you peace of mind and a measure of happiness.

2. “I Don’t Need to Save for Retirement Now”

This can be a dangerous myth to believe. If you are young and are investing for your retirement, you have time on your side. Your invested money can grow thanks to compounded interest until you reach retirement age. Here’s an example: If a 25-year-old invests $200 a month and earns a 6% return, they’ll have $393,700 by age 65. If that same person only starts saving at age 35, that same money at the same rate nets them $201,100, or about half of what they’d have if they started sooner.

It may feel as if retirement is a long way away, but the sooner you begin funding it, the more you are likely to have. If your employer offers a 401(k) retirement plan, take advantage of contributing to it. If this isn’t offered at your place of work, you can open an individual retirement account (IRA) or a Roth IRA.

3. “Credit Cards Bring Debt, so I Don’t Need to Get One”

Using credit cards as a form of payment doesn’t mean you’ll go into debt. Spending more than you can afford to pay off, however, may put you on that path. If you use a credit card wisely and typically pay off the debt every month, this can be a factor that increases your credit score. However, if you are a person who tends to spend impulsively and not pay your credit card bill on time, this can put a dent in your credit score. This is why it’s important to manage your purchases and pay your credit card bills on time.

4. “If I Have Enough Money, I Don’t Need to Budget and Save”

Regardless of how little or how much money you have or make, a budget is needed to organize your finances. Budgeting for beginners can be a pillar of financial stability. You need to budget so you can keep track of your spending, your debt, and your savings for future goals. Even if you have zero debt, a budget can still help you manage your money and allocate for short- and long-term goals.

There are various techniques and tools (spreadsheets, journals, apps) for budgeting. One strategy is the 50/30/20 budget rule, in which 50% of your post-tax money goes towards necessary expenses (housing, food, utilities, and the like), 30% goes towards wants, and 20% is used for debt payments and/or saving.

5. “All My Problems Will Be Solved With More Money”

Yes, money can help take care of bills, but the old adage, “More money, more problems” may well be true, too. The secret to being financially secure is not about how much money you make, it’s about how well you manage it.

For instance, let’s say you take a new job that pays twice your current salary. If you turn around and buy a pricier home and car and book some luxury vacations, you might be in more debt and experience more stress than before. The way to prevent this is by not living beyond your means. Healthy budgeting and saving habits are what can help solve problems.

6. “I Need at Least Three Months of Income in My Emergency Savings”

It’s typically recommended to keep three to six months’ worth of living expenses in an emergency savings account. This can provide a cushion if, say, you were to experience a job loss or receive an unexpected medical bill. Some experts recommend that people have still more money stashed aside, but there are plenty who can’t even muster one month’s worth of expenses in savings. A recent survey found that 49% of Americans said they couldn’t afford a surprise bill of $400.

If you’re part of that group who feels an emergency fund is out of reach, overcome your financial anxiety. Start saving a small amount (perhaps $25 a week or a month) and build towards having $1,000 in a rainy day fund. By allocating a little bit of cash consistently, you can build up savings and be prepared for unexpected expenses.

7. “Money Can Buy Me Friends and Love”

Some people believe that having more money would make their personal lives fall into place, like something out of a movie. But think about it, true friends and partners are not with you for your money. They value who you are as a person.

If you tend to think that money could solve your relationship problems, challenge that belief. Look for other ways to improve that area of your life, like building your personal networks and working to enhance communication.

8. “The Rich Live In Big Houses, Drive Nice Cars, and Wear the Most Expensive Clothes”

If you watch reality TV or follow luxury influencers on social media, you might believe that the signs of having “made it” and being rich is all about living large. But the reality is that many rich people do not live in mansions, nor do they have a fleet of Bentleys. Media imagery might make you believe that rich people spend extravagantly, but many millionaires respect their money and live a modest lifestyle. They know that the more you spend, the more difficult it will be to accumulate wealth.

9. “If I Have More Money, I Will Have More Security”

One of the biggest money myths is that with more cash comes more security. Having financial security is less a measure of how much you have than it is of how well you save and invest. If you win the lottery and spend it all on, say, traveling around the world on a private plane, you may well have less security than the person who earns a modest income but consistently contributes to their employer’s 401(k) plan and snags the company match.

Again, this points to the value of setting up a financial plan and saving wisely. Being mindful with money in these ways is an important aspect of financial security.

10. “Money Increases My Odds Of Meeting People”

Having more money may provide opportunities to travel or go out often, but you can also do that in a more frugal way. You don’t have to join a private club or go out to Broadway shows every week to meet new people. You can expand your social network for free, and that includes volunteering opportunities. Donating your time and energy to, say, a local museum or other nonprofit can connect you with like-minded people with no money required.

11. “I Need to Be Rich In Order to Travel”

This is another popular money misconception. You do not need to be rich to travel. People at any income level can go on vacation; you simply need to have a budget. Starting a vacation fund (a savings or other kind of account earmarked for travel) can be a good starting point to begin saving.

Also, take advantage of the many ways to afford a great trip for less. Airbnb, VRBO, and other businesses offer rentals that may be cheaper than hotel rooms. Plenty of credit cards award travel perks when you use them, whether frequent flyer miles or discounts on lodging.

12. “It’s Normal to Have a Lot of Debt”

It’s true that 77% of American households have some kind consumer debt. But keep in mind, not all debt is created equal. Some debt is considered good debt. Think about a mortgage: It’s typically a fairly low-interest loan that builds your credit report (if managed responsibly) and allows you to build equity in the home and therefore wealth.

Bad debt, on the other hand, is high-interest debt, such as credit card debt, where interest rates are high (currently around 20%) and you aren’t building equity. Just because a lot of people may have this kind of debt doesn’t mean you should. It can snowball and keep you spending a chunk of money monthly that could otherwise be saved or invested. Most financial experts urge people to work hard to avoid this kind of bad debt.

13. “I Should Avoid Talking About My Money Problems With Others”

Talking about money issues may seem like taboo but it shouldn’t be. It is healthy to talk about money troubles to close family and friends, because they may have ideas about how to approach a solution. Perhaps they experienced a similar issue in the past and can offer advice on how they handled it. But if you find it uncomfortable to talk to family or friends about your money concerns, you can speak to a professional. For instance, there are non-profit credit counseling organizations, like the National Foundation for Credit Counseling (NFCC ), that can help you if you are burdened with debt and feel overwhelmed.

14. “It’s Better to Buy a House Rather than Rent”

Buying a home is the quintessential American dream, but it’s not necessarily the right move for everyone. Whether to rent or buy ultimately depends on your personal situation and your aspirations.

You may have heard that renting is a waste of money but it can provide flexibility for those who are not ready to buy a home or not interested in doing so. For instance, perhaps your work requires you to relocate often, or you only want to buy a house when your baby is older and you can pick the right school district. Or you just might not want the major expense of a mortgage, taxes, and home maintenance in your life. Whatever your situation may be, it’s important not to feel pressured into buying unless it’s the right move for you.

15. “I Need to Be Rich In Order to Invest”

You do not need to be rich in order to invest: Let’s bust that myth right away. You can start investing with as little as $10, and you might even invest if you have debt. Investing is often a path to wealth. Yes, it has its risks, but over time, it is likely to give you a very healthy return. For instance, at the start of 2022, the annualized 10-year return for the Standard and Poor’s (S&P) 500 was 15.43%.

You don’t need to be a market expert before you dive in. With today’s robo advisors and investing apps, investing has become easily accessible and convenient. Of course, you might prefer to work with a human advisor. Whatever you are comfortable with, investigate fees before you begin investing so you are prepared for any costs you will need to cover.

16. “High Salary = Wealthy”

A common money misconception is that earning a high salary makes you wealthy. That is not necessarily true. People who earn a lot of money can spend a lot of it too. The key to building wealth is saving and investing your money so it can grow over time. Wealthy people have a money-preserving and money-growing mindset.

To look at it from another angle, let’s say one person earns $50,000 a year, lives within their means, and saves and invests wisely. Then there’s also a person who earns $500,000 but they own multiple houses, spend freely on luxuries, and haven’t yet gotten their act together in terms of saving. The person who has the lower salary might actually be the wealthier of the two.

17. “I Can’t Improve My Finances Unless I Work With a Professional”

You might be more comfortable working with a financial professional, but you don’t need one to manage your finances well. It’s totally your choice. If you are looking to improve your finances, you can do so by reading up on cash management tactics or by listening to a podcast. There are plenty of apps that can help you budget and track your spending to better your financial situation. (Many banks offer these as well.) In addition, there are a variety of online calculators that can help you assess money moves like refinancing your student loan or mortgage.

18. “I Need to Work Until 65 In Order to Retire”

Another money misconception to correct: There is not a one-size-fits-all age for retirement. Deciding the age at which you can retire depends on many factors. While the typical retirement age is 65, you may retire earlier or later depending on whether you have enough funds to manage your future expenses. These days, many people continue to work in some capacity after the age of 65, since Social Security benefits are greater if you delay tapping them until age 70.

The Takeaway

Myths about money can stand in the way of your making the most of your finances. By avoiding these misconceptions, you’ll be better able to take control of your cash, budget, save, and invest wisely. These moves can not only grow your wealth and help you achieve your goals, they can enhance your peace of mind, too.

If you’re ready to put your money on a growth path, why not open an online bank account with SoFi? When you do so with direct deposit, you’ll earn a competitive APY, and pay zero account fees. What’s more, we also give you access to a network of 55,000+ fee-free ATMs.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.


What are some negative beliefs about money?

There are many negative beliefs about money. Some include believing only rich people should invest their funds and that a person doesn’t need to think about retirement saving when they are young. These misconceptions can keep people from reaching their financial goals.

How might a misconception about money affect you?

A money misconception can prevent you from taking control of your finances. If you believe, for instance, that debt is normal, you might carry a balance on your credit cards and wind up being saddled with debt for a long time. In truth, high-interest credit card debt is not something to be treated as a fact of life; it should likely be paid off ASAP.

How do I change my beliefs about money?

To change your beliefs about money, it can help to broaden your perspective. Do online research about money management, listen to podcasts, and talk to friends whose money management you respect. Begin to look at the interest rates on your credit card and student loans, try budgeting apps, and take other small steps that begin to put you in the driver’s seat financially rather than believing prevailing wisdom.

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