Personal finances in this day and age are tough, there's no doubt about it. The world is trying to dig itself out of a recession, many of us have huge credit card and college loan debt, and many of us are stuck in first jobs and internships with low pay. Yet, we're bombarded with a pro-shopping culture day in and day out. How do you control it all? One way is to debunk some major personal finance myths that allow our hard earned cash to fly out of our wallets. Get to know these five money tips and you could be on the right track to saving.
Sometimes Budgeting Can Backfire
Researchers at Brigham Young and Emory Universities conducted a study that showed those who set a spending limit on a single item ended up spending 50% more than those who didn't. The key here are the words "single item." For example, if you're out buying a dress for a special occasion, allowing yourself to spend $200, you're automatically going to look at dresses that are in the $200 range, glancing over perfectly adequate options that cost much less. One of the study's researchers, Jeff Larson, told Bankrate.com, "We don't claim that this indicates that you shouldn't ever budget, that budgeting is overall a bad thing." He suggests looking for an item with certain qualities that have nothing to do with price, instead of price alone. And that's what's called "aggregate" budgeting, for multiple items such as groceries or utilities, it's an effective way to set price limits.
Learn From Your Parents
In T. Harv Eker's book, Secrets of the Millionaire Mind, he lays out some common myths that prevent people from maximizing their disposable income. He says, in general, we tend to totally rebel against or totally model our parents' attitude about money. That's a powerful idea. Think about how you were raised to consider money as good, bad, plentiful or scarce. Your spending habits in the future could depend on it.
There Are Few Things You Can't Live Without
One of the most common ideas about lifestyles is that there are certain little "luxuries" we must have. Sometimes it's because we compare ourselves to our peers or what our friends have. Sometimes we let advertising get the better of us. Understand that aside from food, clothing and shelter, everything is a want instead of a need. Think about how many bags, shoes, etc. you felt you "had to have" in the moment to create a "perfect" look — and then how often you really wore it. We're all guilty of this. So don't feel bad, just think about it the next time you take out cash or a credit card.
Minimum Payments Will Never Get You Out of Debt
Not even close. Paying minimum payments on your credit cards is actually keeping you in debt. President Obama made some legal changes that force credit card companies to show on your monthly statements how long it will take to pay off your card with the minimum payment versus paying around just $10 extra per month. And the results are staggering. Usually paying a bit more will have you debt-free in a few years, whereas the minimum gives you a 10-, 15- or 17-year sentence. Ouch. Think of it like this, even one or two dollars extra every month on your credit cards will get you out of debt faster than paying only the minimum.
Here's a little mind trick that can help you resist the urge to spend unnecessarily. The more you lust after something your bank account just can't handle, the more you feel guilty, even ashamed, which causes you to want that thing with an irrationally high desire. Instead, try telling yourself, "I'm choosing to rein in my finances right now." This puts you back in the driver's seat, and allows you to walk by knowing you made the right choice.