Learning about money can be a bit of a trial by fire. Some were taught flawless finances by their parents, while others take courses in school. But for the rest of us, finance books, articles, and advice from friends and family make up most of our financial education. And while there are definitely nuggets of wisdom to be found, there’s also a ton of bad advice out there.
So how do you tell the difference between the solid financial truths and the money myths? It’s all about your individual situation. By applying the advice to your particular set of circumstances, you can see where it works – and where it doesn’t.
Money Myths and Mistakes to Avoid
While your results may vary, it’s easy to see some of the glaring inconsistencies and issues with some of the most popular financial advice. Whether it’s the urge to only shop sales or the idea that your checking account is the safest place for your money, debunking some of the worst money myth offenders – and a healthy dose of common sense – can help set you on the right track for dealing with finances.
1. Always Shop Early for the Best Deals
Many people get caught up in the process of early holiday shopping, and while it’s true that shopping ahead of time can snag you discounts and the best selection, think about it – when are you mostly likely to get the best deal? Four weeks before a holiday, or four days?
MarketWatch points out that retailers need to move holiday-specific merchandise as soon as possible, because items that make for good Christmas gifts, such as digital cameras, are seasonal items. Once the holidays are over, having large quantities left over means tasking up inventory room on merchandise that doesn’t traditionally sell well throughout the rest of the year. The same article noted that while you could probably score deals 20% to 30% deeper in December than in November, the same items will likely be slashed by 50% or 60% come January.
While I wouldn’t recommend last-minute sale shopping for every item on your list, I would say that it’s a good idea to hold back some of your purchases until crunch time. My strategy is to buy “must have” items to start, and then purchase fun and unnecessary items as the holidays get closer. The same principle can be applied to annual and semi-annual sales through the year, since the end of the sale is when retailers really need to get rid of product, resulting in deeper discounts.
While you may not want to buy Christmas gifts in January, shopping post-holiday sales allows you to stock up for other holidays and events, such as birthdays and graduations. That’s where planning and buying ahead of time really pays off.
2. Buy Coupons for Huge Discounts
If you search for “coupons” on eBay, you’ll find hundreds of listings. You can also purchase coupons from services such as The Coupon Clippers or Coupon Dede. Coupons are sold in lots – usually anywhere from 10 to 20 – to allow couponers to stock up on the best deals. Avid couponers scour and clip the best deals and then sell them in lots to other couponers who can use them. You can purchase those coupons to score deep discounts the next time you’re at the grocery store, so it makes sense to “invest” in the coupons, right?
Well, not necessarily. Coupons are a great way to save money, but if you’re spending in order to save, it’s a bit paradoxical. Furthermore, coupons vary greatly by geographic location and store, so you could end up buying a thick stack of toilet paper coupons, only to find that your store caps the use of coupons, or that the coupons are not good in your geographic area. If you do buy coupons, be sure to read the fine print before you buy, and understand where they are and aren’t valid.
Instead of buying coupons, take charge of your couponing and download an app (such as SnipSnap or Grocery Smarts), keep a coupon binder to stash extras, or get the Sunday paper for better ads. You’ll get the coupons you need for your region – without having to pay for shipping and handling.
3. Always Buy in Bulk
When you look at price per ounce, buying in bulk at membership wholesale stores or in the bulk area of your grocery store sounds like a great deal. But before you put that bulk-sized item in your cart, you may need to rethink your strategy.
While it’s true that bulk prices are cheaper per ounce, you also must spend more to purchase that bulk item to start. If the item is non-perishable, it could be a steal – but if you’re buying in bulk for perishable items, you might end up tossing what you saved in the trash. While it makes sense to stock up on soap and canned goods, wholesale fruit and milk may go to waste if you can’t consume it before the expiration date. It’s easy to justify the purchase and say you’ll be putting that can of vegetables in your food storage, but make sure you only buy what you’ll actually consume.
Don’t forget to factor in membership costs as well. If you plan to buy items in bulk at wholesale clubs such as Costco or Sam’s Club, you’ll pay around $50 annually, in addition to the money you spend in the store. If you have a large family that consumes a lot of food, buying in bulk could help you save money and reduce trips to the store – but if you’re a couple of newlyweds without kids, maybe the Costco membership can wait.
4. Leave Extra Cash in Checking
Your checking account sometimes acts as an indication of your financial health. After all, if you have plenty of money in your checking, that means you have funds for the day-to-day stuff like grocery shopping, bill payments, and even entertainment. But leaving money hanging out in your checking account might actually serve as inspiration to keep spending. As the cash burns a hole in your bank account, you’re encouraged to buy and spend more than you planned, simply because the money is still there. What’s more, money in your checking isn’t earning any sort of return.
Instead, try budgeting carefully enough that your checking account zeroes out by the end of the month by transferring money into savings and retirement accounts, and keep only what you need for month-to-month expenditures in your checking account. By keeping only what is needed in your checking account, the temptation to spend is lessened. It works in the same way the envelope system works, because you’re not tempted to spend more than is necessary.
5. Quit All Bad Spending Habits Cold Turkey
While it sounds great in theory, the truth is that quitting your bad spending and saving habits cold turkey could set you up for total failure. Sure, living on rice and beans may save you money, but if you fall off of the saving wagon, you could end up feeling discouraged and even less motivated to improve your finances.
While changing your spending habits, paying off debt, and saving more is admirable, it should be taken on in smaller steps by making minor changes. If you love to eat out, save it for Saturday night and make a commitment to eat at home more often. If clothes shopping is your downfall, work a small amount into your budget so you aren’t tempted to stray. As you take on small changes, they’ll develop into better habits over time.
6. Cheaper Is Better
As a general rule, purchasing items that are less expensive – and actually within your budget – is a good decision if you are strapped for cash. But if you always go for low prices over quality, you could end up spending more money over time. By always looking for the bottom line, you could miss out on items that are of better quality and that will last longer.
It’s a lesson that has taken me time to learn. Years ago, I would have snapped up a pair of shoes just because they were on sale. But those shoes would inevitably fall apart, cause sore feet, and eventually end up being given away. Now, I budget more carefully for quality items that I know will last for a long time. This doesn’t mean I always spend $400 on a pair of shoes, but it does mean that I research, read reviews, and shop around to find the best deals on a pair that I know will last. I spend less and I get more for my money. By knowing how long you’ll need something to last versus how much you’d like to pay, you can balance quality and price to make sure you’re getting the best deal for something that will last as long as you need it to.
The same goes for paying for services, such as insurance. While an insurance company might offer a low-priced premium, make sure you know what you’re getting – as well as what you’re not getting. There’s a reason certain products and services are so cheap, and that often means sub-par quality.
7. Debit Is Always Better Than Credit
While using debit is usually preferable to credit for day-to-day expenses, credit can definitely come in handy on some of your big-ticket purchases. If you have the cash in your account, it may make more sense to pay with your credit card and then pay off the amount immediately, rather than using your debit card. This is because credit cards often offer extra protection for larger items.
For example, your credit card agreement could include extra insurance against damage or theft if you use it to purchase a television. Furthermore, some credit cards can also extend manufacturer warranties. Credit card rewards points can also add up and give you cash back or money toward other items, while paying off your credit card monthly improves your credit score. While you shouldn’t charge items you can’t afford to your credit card, using a credit card to buy some of your bigger items makes good sense as long as you pay it off quickly to avoid accruing interest.
8. Trust the Bank
If there’s anything the real estate market crash of 2010 taught us, it’s that consumers need to protect themselves when dealing with banks. It used to be commonly assumed that a bank would never loan a homeowner more than he or she could afford to pay back. Of course, foreclosures and short sales tell a different story. In fact, banks routinely offer credit cards, home equity lines of credit, refinancing, and other products to those who may not be able to pay them back.
Even if you bank with a financial institution that you know and trust, don’t let the bank make financial decisions for you. Even if you have a good credit score and money in the bank, it doesn’t always tell the whole story – and only you know your true financial situation. Signing up for a new credit card because you were pre-qualified or allowing yourself to be talked into a home equity loan could land you in hot water.
Be your own catalyst for financial services. Don’t wait around for a pre-approval offer and then suddenly feel like you need a new credit card. Shop around based on your current needs, and don’t be afraid to look outside of your current financial institution for solutions. Know what you should be able to qualify for based on your salary, assets, and credit score, and be wary of an institution that promises you more than what is realistic.
9. Mother or Father Knows Best
When the bulk of what you know about money comes from your parents, you might think you’re on the right track. But remember that your parents were in their prime in a completely different social and economic climate. What made sense in the 1970s or the 1990s may no longer hold true today. For instance, buying a home as soon as you’ve left your parents’ place may not be as prudent as saving for a down payment and waiting until you’re sure you can afford a mortgage before buying.
By setting your own budget and managing your money differently than your parents, you’re not being ungrateful or disrespectful. Instead, you simply acknowledge that your parents managed money in the way that was best for them, but may not be best for you. Whether it’s investing differently, breaking the debt habit, or maintaining a monthly budget, you can thank your parents for giving you solid footings when it comes to financial responsibility – even if you don’t handle your finances in exactly the same way.
Any online search can tell you that there are thousands of opinions, theories, and ideas when it comes to managing, saving, and spending your money. Before you take anyone’s advice, however, realize that money management is highly personalized. Your favorite blogger might have found great success using coupons, but that doesn’t mean it’s a hard and fast rule. By ignoring the hype and going for what works best for you, you can avoid myths and financial urban legends that could end up costing you a pretty penny.
Have you heard any other money myths that don’t work?