7 Myths About Personal Finance That Keep You Poor
Welcome to Smarty Purse, your guide to building healthy money habits, improving your well-being, and taking control of your financial future. In this article, we dispel 7 myths about personal finance that may be holding you back. So many people postpone saving and investing failing to reach their financial goals but you don’s have to be one of them.
This article is for you if you’ve ever thought:
- “I don’t earn enough to save.”
- “Investing is too complicated.”
- “I’ll think about money when I’m older.”
It is natural to want to save something for a rainy day but most of us do not have a specific plan how to do it or lose the interest or determination to stick to it. So saving and investing becomes a sporadic process – two months in a row we save a little, the month after we don’t, the month after it we may even take on new credit-card debt, then we go back to saving and investing…
The purpose of this article is to raise awareness and debunk some myths about personal finance. I believe change in any aspect of life cannot happen without understanding what drives our behaviors.
What is it that prevents you from saving and investing? Read the list below and then take some time to create your own. Try to come up with one argument in favor of and one argument against each item on your list.
There is a cheat-sheet at the end, save it for future reference.
🚫 Myth #1: “Personal finance is for the rich.”
✅ Truth: Personal finance is especially important when money is tight.
Do you need money to save money? I once heard a well-known personal finance influencer explain the 50/30/20 rule — spend 50% of your income on needs, 30% on wants, and 20% on savings or investments.
My first thought? “What about people who spend 100% on necessities and still fall short?”
I come from a relatively poor country, and I remember the feeling of barely getting by. Even now, living a comfortable middle-class life, I don’t take financial security for granted.
📊 Data check:
- Over 36 million people in the U.S. live below the poverty line ($31,200/year for a family of four) (source: United States Census Bureau https://www.census.gov/).
- A comfortable lifestyle in a major U.S. city may require $175,000/year — 5.6x more than the poverty line (source: SmartAsset).
- The median household income in 2023 was $80,610 (source: US Census Bureau report).
These numbers show that many people can’t follow traditional budgeting rules. But that doesn’t mean personal finance is not for you. In fact, it’s more essential. To learn more about budgeting, check:
- https://smartypurse.com/budgeting-basics-how-to-build-savings-and-grow-income/
- https://smartypurse.com/why-the-50-30-20-budgeting-rule-doesnt-fit-everyone/
💡 Key takeaway:
If you’re living paycheck to paycheck, money management is your best defense against financial instability. Even if you start small — $5 or $10 a week — you’re building habits that lead to freedom and peace of mind over time.
It doesn’t matter what your income level is, the basic personal finance principles are still valid:
Increase your income. Cut your spending. Invest in your future wealth.
🚫 Myth #2: “Personal finance is for people who struggle with money.”
✅ Truth: Financial planning is valuable at any income level.
Let’s flip the previous myth. Imagine you earn $175,000/year. You can afford everything you need and even save a little without thinking too hard. It’s tempting to assume you’re financially secure.
But long-term financial health isn’t just about what you earn today — it’s about planning for the future. Your job, industry, or economy can shift in ways that impact your income.
Ask yourself: What if you lost your income source in five years? Are you relying on one salary? Do you have retirement goals and a plan to fund them?
Financial planning isn’t about being broke or rich. It’s about being ready for the unexpected and intentional about the future.
💡 Key takeaway:
Even high earners need to plan. Wealth can disappear without a strategy. Financial planning adds security, clarity, and opportunity — no matter your income.
🚫 Myth #3: “Personal finance is for people with financial knowledge.”
✅ Truth: You don’t need to be an expert — just start small and stay curious.
Yes, finance has jargon. But unlike medicine or law, most personal finance concepts are simple and intuitive. You already practice basic finance every day — you earn, spend, and manage money.
If you want to level up your skills, you can do it for free. There are courses, YouTube videos, books, blogs, and apps designed for beginners.
Don’t want to DIY? You can outsource — use a budgeting app, hire a financial advisor, or invest through your bank.
You don’t need to be a professor of finance to take control of your money. Just take the first step.
💡 Key takeaway:
Start with what you know. Learn as you go. You’ll be surprised how quickly financial concepts become second nature.
The Warren Buffett Experiment with Hedge Funds
Even sophisticated financial professionals can fall prey to the myth that complex strategies are always superior. A famous example is Warren Buffett’s bet against hedge funds. He wagered that a simple S&P 500 index fund would outperform a selection of hedge funds over a decade.
The result? Buffett won, proving that low-cost, diversified investments often beat expensive, actively managed funds. This highlights that you don’t need to be a financial wizard to make smart investment decisions. Sometimes, the simplest approach is the most effective.
To read more about the bet: https://www.investopedia.com/warren-buffett-usd1-million-bet-8779290#:~:text=By,Adam%20Hayes%2C%20Ph
🚫 Myth #4: “Personal finance is about risky stock market investments.”
✅ Truth: Investing can be low-risk and accessible, especially with diversified strategies.
Many people equate investing with gambling, envisioning high-stakes bets and volatile markets. However, investing doesn’t have to be risky or complicated. In fact, avoiding investments altogether can pose a greater risk to your financial future.
Understanding Risk:
All investments carry some level of risk, but not all risks are equal. By understanding and managing these risks, you can make informed decisions that align with your financial goals. Diversification, or spreading your investments across various assets, is a key strategy to mitigate risk. This approach can help protect your portfolio from significant losses if one investment performs poorly.
Long-Term Perspective:
Investing with a long-term perspective can help smooth out short-term market fluctuations. By staying consistent to your strategy and avoiding the temptation to make fast profits, you can benefit from the overall upward trend of the market over time (disclaimer: past performance is not indicative of future results).
💡 Key takeaway:
Stocks are just one item on a very long investment menu. Diversification, investment-horizon, and risk-mitigation strategies offer solutions for every risk appetite.
🚫 Myth #5: “I need to be good at math to manage money.”
✅ Truth: Basic arithmetic is sufficient.
Managing your finances doesn’t require advanced math skills. Simple addition, subtraction, and understanding percentages are often enough. Numerous tools and apps can assist with calculations, making money management more accessible.
Bar charts, tables with valuation multiples, technical analysis – these sound new and confusing? Then, go with something simpler and slowly learn your way up. Do not forget you have ChatGPT and Gemini, they are very good at explaining even the most complicated concepts in simple terms.
💡 Key takeaway:
Don’t let math anxiety hold you back. Embrace the tools available and focus on building good financial habits.
🚫 Myth #6: “I am too young to worry about personal finances.”
✅ Truth: There is no minimum age for managing money.
There is no age requirement or limit for personal finances. It is never too late or too early to start. The process is exactly the same – set your financial goals, manage your budget to allow for enough savings, invest to reach your financial goals over the desired time horizon. The profile of the investment portfolio (the mix of cash, stocks, bonds, real estate, etc.) however should change as we grow older.
All else equal, when we are young we can accept more risk simply because we have a longer investment horizon to recover potential losses.
💡 Key takeaway:
Every age is a good age for managing your finances. The earlier you start the better.
🚫 Myth #7: “Personal finances is all about cutting fun.”
✅ Truth: You can reach your financial goals without big sacrifices.
Do we need to give up on things we like to cut our expenditures and reach our financial goals? Are personal finances all about saving more by reducing costs?
I have heard the opinion that minimizing what we spend is the most powerful tool to manage our budget since we have full control over our expenditures while our income streams depend on external factors some of which unpredictable.
I do not buy this. First, we do not always have control over our expenditures – rising prices, health emergencies, urgent home repairs, even burglaries are some examples that may force us to spend more than we plan or want.
Second, cutting expenses has a limit, you cannot cut down to 0, you have basic needs to cover. Income generation, on the contrary, has no limit. At least in theory, we can increase our earnings infinitely.
💡 Key takeaway:
Personal finances is also about increasing income while keeping costs stable or increasing at a lower rate.
There is no formula that works for everyone. If you are not willing to give up on luxuries you currently afford, this may still be in-line with reaching your long- and medium-term goals.
SmartyPurse is about making conscious, deliberate decisions. If you really like this expensive restaurant, you can still go there with your friends. However, if these are not really your friends and the food is only average but you have a hard time saying “no” to things, better learn to say “no”.
📋 Myth-Busting Cheat-sheet
| Myth | Reality | Takeaway |
|---|---|---|
| 1. Personal finance is for people with money. | It’s crucial when money is tight. | Start small; habits matter more than amounts. |
| 2. Personal finance is for people who struggle with money. | It’s valuable at any income level. | Plan for the future, regardless of current wealth. |
| 3. Personal finance is for people with financial knowledge. | You can start without being an expert. | Learn as you go; resources are available for beginners. |
| 4. Personal finance is about risky stock market investments. | Investing can be low-risk and accessible. | Diversify and start small to build wealth over time. |
| 5. I need to be good at math to manage money. | Basic arithmetic is sufficient. | Use tools and apps to assist with calculations. |
| 6. I am too young to worry about personal finances. | It is never too early or too late to start. | Same principles apply to every age but the risk profile might be different. |
| 7. Personal finances is all about cutting fun. | Increasing income allows for more saving and spending. | You can still spend on luxuries if you manage your income streams well. |