Financial misconceptions can prevent people from making informed decisions, often leading to costly mistakes.
These common myths about money could be holding you back, but with the right mindset and actions, you can avoid their pitfalls.
Here are four pervasive money myths—and how to overcome them.
1. Saving Small Amounts Doesn’t Make a Difference
Many people believe that saving small amounts isn’t worth the effort, especially if they’re behind on their goals. This mindset, however, could keep your finances stagnant.
Small, consistent contributions add up over time. Even saving $10 per week can lead to meaningful growth when paired with compounding interest. The key is consistency, not the amount.
Open a savings account—even if you can only start with $10—and automate your deposits to build the habit. Tax-advantaged accounts like a 401(k) or Roth IRA can amplify your efforts, especially if your employer offers a match.
Pro Tip: Earn as much as possible on your emergency savings. SoFi Checking offers 4% interest and a $300 signup bonus.
2. The Stock Market Is Too Risky
The stock market has historically offered an average annual return of around 8% when adjusted for inflation, according to long-term studies of major indexes like the S&P 500. Avoiding it altogether can mean missing out on potential growth.
Diversifying your portfolio with stable options like index funds or mutual funds can help mitigate risk. Instead of putting all your eggs in one basket, spread your investments across various sectors and companies.
If you’re still hesitant, consider working with a financial advisor or using a full-service brokerage firm for personalized guidance.
Pro Tip: If you’ve got at least $100,000 in investments, SmartAsset can match you with vetted financial advisors for free.
3. You’re Too Young to Start Investing
A common misconception among young people is that investing can wait. But starting early allows you to take advantage of compounding returns, which grow exponentially over time.
Even if you’re under 18, you can begin investing through a custodial account managed by a parent or guardian. Once you enter the workforce, consider contributing to your employer’s 401(k) plan to get an early start on building your retirement savings.
Delaying investing means missing out on the growth potential that comes with time. Even small amounts invested in your 20s can significantly outpace larger contributions made later in life.
4. You Don’t Know How (and Don’t Care to Learn)
Planning for retirement feels overwhelming when you’re unsure how much you’ll need or how to get there. However, online tools make it easier than ever to estimate your savings goals.
Retirement calculators from platforms like Fidelity, Vanguard, and Charles Schwab can provide a rough estimate of how much you’ll need based on your lifestyle and income. To refine your plan, consult multiple calculators and compare results.
Consider delaying Social Security benefits until age 70 to further enhance your retirement savings. This can increase your monthly payouts significantly, giving you more financial security in your later years. Be sure to also diversify your investments.
Pro Tip: One modern way to diversify is with real estate and venture capital. Companies like Fundrise, offer both with investments as small as $10.
Break Free From Money Myths
Misconceptions about saving and investing can hinder your progress, but they don’t have to.
By challenging these myths and taking small, consistent steps, you can create a financial plan that works for you. Start today—your future self will thank you.
