When it comes to personal finance, honesty is the best policy. Be honest with banks, be honest with your family, but most of all, be honest with yourself.
It’s a frequent occurrence that people find themselves in financial trouble because they weren’t honest about their money situation. But recognizing the most common lies is one key to moving toward a more honest — and profitable — future.
Here are some of the biggest money lies we tell ourselves.
1. “It’s Good Debt”
It’s often said that there’s such a thing as “good debt” and “bad debt.” The so-called “good debt” may stem from student loans or your mortgage, which can play a role in building long-term wealth. “Bad debt,” on the other hand, is most commonly from credit cards with high interest rates. But by separating debt in this way, it’s easy to rationalize having debt in the first place. It’s true that some kinds of debt are worse than others, but it’s wisest to try to avoid debt altogether. Only by having an “all debt is bad” attitude will you aggressively try to rid yourself of of it.
2. “I’m Earning a Return of X%”
When we place money in the stock market, we often assume it’s generating a certain amount of return, based on historical averages. It’s good to be aware of these historical returns in order to understand the potential of stock market investing, but you must remember that past performance does not guarantee future results. It’s also important to have a true understanding of how well your investments are doing. Thornburg Investments issued a report in 2014 outlining how the S&P 500 Index earned an 11% annualized nominal return over 30 years, but that return was actually 6% annually once taxes, fees, and inflation were factored in.
3. “I’ll Start Saving Later”
Retirement always seems like such a long way off. We tell ourselves that we have plenty of time, and many years ahead before we need to start putting money away. But before we know it, retirement age is on our doorstep and we’ve hardly saved at all. And because we waited, we missed out on the power of compounding returns. It’s easy to come up with reasons not to save money, but very few of them are valid. Consider your retirement fund to be the first bill you need to pay each month. You won’t miss the money now, but you’ll be happy to have it down the road when you stop working.
4. “I’ll Be Earning More in the Future”
When planning our future, we often do a good job of predicting expenses, but operate under the faulty assumption that our incomes will increase. I know people who have purchased larger homes than they can truly afford, justifying the expense by arguing that they’ll be getting pay raises down the road. We all want to assume we’ll be earning more as time goes on, but there are no guarantees. Your company may freeze wages, or even lay off workers. You may decide to stop working to raise your family. To achieve financial freedom, work to ensure your spending is less than your actual current income. This way, any pay increases you receive are like bonuses.
5. “I Don’t Have Enough to Invest”
If you have money for that morning trip to Starbucks, then you have money to invest. If you have money for Netflix, or those pricey new shoes, or that bottle of wine, you have money to invest. The key to financial freedom is ultimately about what we choose to spend our money on. And if you prioritize long-term saving over buying non-essential material goods, you’ll find that you have much more money to invest than you think.
Read More: 10 Ways to Increase Your Net Worth This Year
6. “I Deserve This”
One common way people end up overspending is that they rationalize the purchase of things they don’t need. Splurging on things like an expensive dinner or even a pricey Caribbean vacation is followed by an explanation like “I’ve worked hard this year,” or “I need a treat.” This is not to say that you should never splurge or celebrate, but when this type of spending becomes routine, it can really put a dent in your savings. If you change your thinking and instead give yourself a pat on the back for avoiding an impulse purchase, you’ll be better off financially.
7. “I Saved Money on This Purchase”
It’s impossible to save money if you are spending it. If you rationalize a purchase by pointing out that it was on sale, or that you used a coupon, you are ignoring the fact that money still exited your wallet. Remember that retailers roll out coupons and sales to encourage people to spend money. The only way to determine if you truly “saved” money on an item is if it was something you were planning to purchase anyway.
8. “I Got Approved for This Credit Card, So My Debt Can’t Be Too Bad”
If a credit card company is sending you an application for a new card, they must think you’re financially responsible, right? Wrong. Even people with horrendous credit can get approved for cards. And if you already have credit card debt, the last thing you want to do is open a new card that will allow you to rack up even more. While it’s true that credit card companies would prefer that you not go bankrupt, they’re more than happy to keep accepting your payments with high interest rates.
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9. “I’m Young, I Don’t Need Health Insurance”
If you’re in your 20s and rarely get sick, it may seem like health insurance is an expense you don’t need to bother with. But tell that to the guy who got into a car accident or who tore his ACL in the pickup soccer game. Without health insurance, you’re exposing yourself to potentially catastrophic medical expenses if something bad occurs. Make sure to sign up for insurance through your employer or search for low-cost plans on HealthCare.gov.
10. “I Get Paid Well, So This Crappy Job Is Worth It”
Stories abound of people who stayed in jobs they hated, simply because it offered financial security. Don’t get us wrong — financial security is huge , and it’s not necessarily smarter to take a job you love if you can’t pay your bills. But if you live sensibly and spend wisely, you may be able to find a middle ground where bills get paid and you’re also happy in your work. Remember, too, that well-paying jobs can sometimes lead to lifestyle inflation, where you buy larger and more expensive things just because you can.