We live the Information Age where we have infinite resources at our fingertips. While there’s tons of helpful advice, there’s also quite a bit of misinformation floating around when it comes to personal finance. We all have preconceived notions about money management, most of it stemming from our childhood, which trickled its way into adulthood. While there’s an extensive list of great advice on how to handle your money, the duty of a friend is to tell you the truth and help you make informed decisions. Here are some common money myths and the reality behind each one:

Myth #1: When I start making more money, I’ll start saving.

Variations of this myth include: “When I get a raise/promotion”, “When I get my tax return”, “When I start my new job”, “When the New Year begins”, etc.

“Financial literacy is not a side effect of wealth. Wealth is a side effect of financial literacy.”

Unknown

Reality: “If you can’t manage $1,000 you can’t manage $10,000. You don’t suddenly learn how to handle money by amassing more if it. Ever wonder why most lottery winners lose all their money within a few years?”** It’s usually from a lack of financial literacy. You don’t become wealthy by making more money. You become wealthy by learning how to manage your money. Your frugal friend became debt-free and saved $10,000 (cash) on a $30,000 salary. You don’t have to make a shit ton of money, you just have to know how to handle it. Looking to learn how to handle it? Start by reading these books.

Myth #2: Loaning money to your family (and/or friends) shows that you care

Give a man a fish, and he will be hungry again tomorrow; teach him to catch a fish, and he will be richer all his life.

Matthew 4:19

Reality: Sometimes we genuinely fall on hard times and need help. However, please be mindful of the habits of those you’re lending to. Are they partying and going out every weekend? Do they have the brand new iPhone, but can’t figure out how to pay their rent? Or are they constantly working hard and still can’t seem to make ends meet? Keep in mind that if they’re frivolous with their own money, why would it be any different with yours? Loaning money may be hurting them instead of helping them.

Teach a man how to fish, and you feed him for a lifetime. How do you feed them? By sending them to this website, sending them a library card so they can check out personal finance books, sending them links to personal finance articles, videos, etc. Ask them how you can help in a way that doesn’t involve giving them money. Let them build their financial muscles. They’ll love you in the long run. If they don’t, at least you got to keep your cash.

Before you lend, ask yourself these questions:

  1. Is this an amount I can afford to lose?
  2. Will this money help them or hurt them?
  3. Will this make the relationship awkward?
  4. How will I feel if I don’t get my money back?

Personally, your frugal friend DOES NOT LOAN MONEY TO FAMILY OR FRIENDS. In the RARE occasion that I do, it is as a gift/donation, and I do not expect it back. I understand that we all fall on hard times, I get that, but I also believe that 95% of money problems are self-inflicted by the choices we make (myself included). Some people have a habit of spending money before they get it. Others spend money before they pay their bills, then recite a sob story on how their electricity is about to get cut off. Your frugal friend will listen to your sob story, I’ll even give you a hug… then I’ll offer to go over your finances/create a budget with you. I’ll send you a free Suze Orman or Dave Ramsey book in the mail, so you can educate yourself about money. I’ll even offer to discuss the chapters and answer any questions you may have. Funny thing is, I’ve actually had people ask me for money, but turn down FREE FINANCIAL HELP. Some people don’t want a long-term solution. They just want an easy fix. Moral of the story: Keep your money and keep your friendship. Why should you give your hard-earned money to someone that doesn’t respect their own money? What makes you think that they’re going to respect yours?

Myth #3: “Carrying a credit card balance helps increase your credit score”

“Every time you borrow money, you’re robbing your future self.”

Nathan W. Morris

Reality: Not sure where this myth came from but please do not believe the hype! The best thing you can do for your credit score is to pay off your balance in FULL every month. If you can’t pay off your card in full, try to pay more than the minimum balance, or at least PAY ON TIME to avoid late fees. Late fees are literally like throwing money out of the window. Even if you pay the minimum payment, don’t waste another $25-50 on late payments. Late fees reflect horribly on your credit score.

Also, do your best to keep your credit card utilization below 30%. If you want to calculate what 30% is, simply take your credit limit and multiply it by .3. For instance, if your credit limit is $5000, keep your balance below $1500 (5000 x .3 = 1500).

Myth #4: “My partner manages our money, so I don’t need to worry about it”

“Money is an opportunity to reach unity in relationships. When couples work together, they can do anything.”

Unknown

Reality: It takes two to tango, and two to manage money. God forbid something happens to your significant other. Do you know the passwords, account numbers, the exact amount in your account? How much is going in and out? If not, it’s time to talk. Teamwork makes the dream work.

Myth #5: “Frugal equals cheap”

Frugality is not about not spending , it’s about not wasting — your money, your time, and your resources. It’s about buying and using only what you need.

Grant Sabatier

Reality: Frugal does NOT equal cheap. Frugal is defined as, “sparing or economical with regard to money or food”. Do you see ‘cheap’ anywhere in that definition? Being frugal means saying “yes” to items and experiences that add value, joy, and fulfillment to your life.

Forever channeling my inner Bugs Bunny

Your Frugal Friend is LITERALLY THE MEME ABOVE, and I’m not ashamed about it. Paying full price for certain items, like cars, clothes, iPhones, and television DO NOT add value, joy, or fulfillment to my life. Now when I see an epic flight deal, a great happy hour, or if you want to hop in the car and get away for the weekend, I AM DOWN! Being frugal has allowed all of my experiences to be paid for with CASH or my debit card.

I literally compare everything I’m thinking about buying to traveling. For instance, I correlate most items to the price of a plane ticket and/or vacation.

Example:

New iPhone– $699

Your Frugal Friend– $699 FOR A PHONE?! That’s a 7-night all-inclusive vacation to the Dominican Republic including flights, airport transportation, food, and unlimited booze. (I actually went to DR for this price and had a BLAST. It’s an experience I’ll never forget…especially that 48-hour hangover 🙂 )

Do you see the difference? It’s not about the price, it’s about the VALUE it adds to my life. Value is different for everybody. For instance, my Mom would NEVER spend $699 on travel, but she will gladly buy a new television, gifts for others, house appliances, or a car. That’s what makes her happy and adds value to her life. Different strokes for different folks.

Myth #6: “I have plenty of time to save for retirement”

” The sooner you start to save the more your money will earn over time. “

David Weliver

Ever wonder why it’s so hard to pay back student loans? Two words: COMPOUND INTEREST. Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. Basically, it’s when your balance accumulates interest, and that balance gains interest from that balance. Think of rolling a snowball, it starts small, then gets bigger and bigger and bigger. Here’s the kicker: the earlier you start saving, the bigger your snowball can become.

To help you understand how time and compound interest are related, here’s an example from VeteransUnited.com:

Twenty-five year old Madison invests $2,000 annually over 10 years in her company’s 401(k), with an average growth of 10 percent. When she retires, at the age of 65, her investment would have grown to $556,197.

On the other hand consider Cooper, age 34, who invests $2,000 annually over 30 years into his 401(k). At age 65, Cooper who has invested three times as much as Madison will have $328,988 in his retirement account.

Moral of the story: The sooner the better. Madison started 9 years earlier and has $225,000 more than Cooper to spend during her retirement, even though Cooper invested THREE TIMES MORE THAN MADISON. Also, Madison only invested for 10 years. Cooper invested for 30 years, and Madison still accumulated more money due to the power of compound interest.

Still not convinced? Here’s an in-depth article on reasons you should start investing early. Even if it’s just $10, it’ll be worth so much more in the future.

Myth #7: Student Loan Debt is Good Debt

“The only good debt is debt that is paid off”

Dave Ramsey

Reality: THERE IS NO SUCH THING AS GOOD DEBT. Like what does that even mean? It’s such an oxymoron. I’m all for investing in yourself, but at what cost? Student loan debt is a CRISIS that currently totals 1.5 TRILLION DOLLARS. People are getting stuck in this hamster wheel called compound interest. It’s disheartening to see hard-working people knee-deep in debt before age 30. 18-year-olds are signing loans that they can NEVER declare bankruptcy on. Most of these young adults can’t even balance a checkbook but are taking out five-to-six figures of debt that can stick with them well into their 40s. Parents are deferring their retirement, taking out second mortgages, and using their life savings to put their children through college.

We do it in hopes of a better life, but what good is a life where you feel crippled by how much debt you’re in? What good is a life where you feel like you have to put your hopes and dreams on in the name of higher education and “bettering yourself”? Please do your research and don’t just default on taking out a loan. There are plenty of ways to pay for college and student loans.

Any other money myths that you’ve heard of? Who did you hear them from?? How did it impact your finances? Let me know in the comments below. Stay frugal, be brilliant!

**Quoted from the IG account @moneyhackingmama. Not sure if it was originally hers or a repost, but I’m not trying to get shut down for plagiarism, so here’s my disclaimer.