When it comes to financial planning, it’s easy to sabotage your own success. Between constantly rising bills and expenses and the omnipresence of the American “buy-now” culture, it can be hard to set aside money for things like emergency funds and retirement savings. Add to that the very human tendency to have self-defeating money beliefs, and it’s easy to find yourself adrift financially.
The good news is that saving and investing doesn’t have to be complicated. In fact, if you can talk yourself out of some of the most counterproductive money beliefs, you’ll find yourself on the path to success in no time. Here’s a look at some of the most common self-defeating financial beliefs and how you can overcome them for a more productive financial life.
I Don’t Have Any Extra Money
This is probably the most common excuse Americans give for not saving money. And for many households, it can certainly seem as if there isn’t “extra” money for things like savings, investments or paying off debt. A simple reframing of your finances can help you get past this obstacle. Instead of thinking of saving and investment as what you do with your “extra” money, prioritize it. As soon as you get your paycheck, slice off 5% or 10% or even 20% and send it directly to your savings. Then, use your remaining funds for your monthly obligations and discretionary spending. Some refer to this strategy as “paying yourself first,” and it’s a great way to always ensure that you do have the “extra money” you need for savings and investments.
Investing Is Only for Rich People
Some people have the motivation-killing belief that investing is only for rich people and that the cards are stacked against “the little guy.” But in reality, investing has never been more open to the average American. Between the zero-commission investment houses, the omnipresence of financial news media, the rise of low-cost roboadvisors and the general availability of information on the internet, investing is no longer a “members-only” club where only a privileged few have all the answers. Many investment accounts and mutual funds have minimums of $1,000, $500 or even less, offering access to nearly everyone. And the truth of the matter is that success in investing comes from consistency, not from being wealthy to start with. Next time you think investing is just for rich people, remember this — if you invest just $325 per month at an 8% return starting at age 25, you’ll have over $1 million by age 65.
Use These Tips: 10 Simple Habits of Money-Smart Individuals
Investing Is Too Expensive
It’s true that some investments can be expensive. However, the simplest — and some would say, the best — investments are those that don’t cost much money at all. Legendary billionaire investor Warren Buffet, for example, has long encouraged everyday investors to simply use an S&P 500 Index Fund for the bulk of their investments. These types of funds track the daily movement of the U.S. stock market and have incredibly low expenses. The iShares Core S&P 500 ETF (IVV), for example, has an expense ratio of just 0.03% per year. That means for every $1,000 you invest, the fund only charges 30 cents per year! Better yet, most big-name online brokerages, from Charles Schwab and Fidelity to Merrill Lynch and E-Trade, charge investors $0 commission on most equity and ETF trades. The bottom line is that there are plenty of ways to invest at an exceedingly low cost.
I Only Have To Make Minimum Payments on Credit Card Debt
When you get your credit card bill every month and make the minimum payment, you might feel like you are being responsible by paying your bills. However, if you only pay the minimum payment on what you owe, your debt will take months or even years longer to pay off, and the additional interest you will pay can be astronomical. While you may feel like making additional payments on your credit card debt is flushing that money down the drain, in reality, it’s likely one of the best investments you can possibly make. Most credit cards charge double-digit interest rates of 15% or more. When you pay that debt off, it’s as if you’re earning that same double-digit return on the money you use to pay it. The sooner you can pay off your high-cost debt, the faster you will be on the road to financial prosperity.
I Have To Keep Up With the Joneses
Another aspect of human nature that’s counterproductive to financial success is the compulsion to “keep up with the Joneses.” While not every act in your financial life may be a response to what your friends and neighbors are up to, the fact of the matter is that people tend to move in similar social circles, and they tend to match the behaviors of those around them, at least to some degree. So, while you may not feel the need to buy a new Mercedes to “impress” anyone if everyone on your block and in your circle of friends drives a luxury car, it’s hard to drive an old beater. Now, if you’re set financially and you honestly have the discretionary income to buy whatever you want, that’s one thing. But if you are stretching to pay your bills and never seem to have enough money to save, you shouldn’t feel the compulsion to “keep up with the Joneses.” Draft a financial plan that works for you and stick to it, or else you’ll always find yourself running to keep up financially.