Think you know about money? Think again. (Unless you’re a financial expert, then… carry on.)
A lot of money myths are handed down from generation to generation. You might have heard your parents saying things like “money doesn’t grow on trees” or “investing is risky”. If you didn’t get any other financial education, then you’ll probably look back at these lessons you learned from your parents.
The problem is… they probably didn’t get a comprehensive financial education either. So, their advice might not actually be very sound. It might be based in fear or based on bad experiences they had during their lives, or even handed down from their own parents.
Not all of it may have been wrong, but it may not be as good a fit in today’s financial world as it was back in their time. For example, you often hear people talking about “real estate being the best investment” but many people who say this bought real estate during a very prosperous time in the market’s history.
So, it’s important to understand the context of advice and update based on current circumstances. Ahead, Paridhi Jain, founder of SkilledSmart, an independent financial education platform helping adults learn to save and invest their money, shares three of those advice pieces along with explanations of their context and why they’re no longer true today.
You Just Need a Budget
“A budget is just one tool,” Jain says. “It’s a bit like a treadmill. Can a treadmill help you get fit? Yeah, sure. Is it absolutely necessary to use one? No. Are there other ways to also get fit? Yes.
“It’s the same with having a budget. It’s one tool that can be really useful in helping you manage your money, but it’s not the only one. There are plenty of people who are great at managing their money and do not use a ‘budget’ per se.
“This myth can be really damaging because lots of people don’t have a good experience with budgeting. Maybe they’ve tried it in the past and it didn’t work, or it feels really restrictive to them.
“So, if you make ‘budgeting’ the only option, if you say that it’s absolutely necessary, then it’s really limiting, because if the idea of budgeting doesn’t resonate with you then you feel like there’s no other option. We’ve helped hundreds of our students start saving thousands of dollars… and ‘budgeting’ plays a pretty small part in how we help them achieve that.
“In fact, the obsession with having the perfect budget can be a distraction from other areas where your finances could really be improved. For example, sometimes all you need to do is sit down and get clarity on where your money goes. Sometimes what you need to work on is your emotional spending.
“Sometimes, once people fix the underlying causes for poor money management, a budget may not even really be necessary on an ongoing basis.
Investing Is Like Gambling
“Investing is only like gambling if you have no idea what you’re doing,” Jain continues.
“If you’re guessing, if you’re only buying some investment because you heard about it on the news or because your best friend bought it… then yes, you’re essentially ‘guessing’.
“Investing is a skill that can be learned. If you take the time to learn how to invest, what to look for in an investment, which investments align with your goals…then you’re making more educated and informed decisions. There’s a saying that ‘investing isn’t risky, it’s the investor that is risky’. The education, capability, mindset of the investor plays a really big role in how successful you can expect to be at investing.
“It’s like driving a car. If you’re a beginner, driving a car for the first time is going to be more risky than if you’re an experienced driver with 10 years of experience. The car is the same, the driver is different.”
You Just Need a ‘Good Job’ to Be Financially Successful
“A lot of people grew up being told that all you need to do is: ‘go to school and get a good job’ and that would be the way to secure themselves financially.
“That idea assumes that all you need to be financially successful is a good income. In reality, though, you can be earning really good money but if you don’t know how to save and invest what you’re earning then you won’t be able to turn that money into wealth.
“Plenty of people who have great jobs and earn good money are still living in financial stress, are still living pay-to-pay, and are still struggling financially. Earning money is just one part of the puzzle. Real, sustained, long-term financial success comes from a combination of earning money, and knowing how to save and invest that money well.”