6 Financially Harmful Lies You Need to Stop Telling Yourself

“My dog ate my math homework.”

“I’m going to clean my room tomorrow. Promise!”

“I go to the gym, like, 5 times a week.”

“Sorry I didn’t reply earlier. Your email somehow ended up in my spam folder.”

“It’s not you. It’s me.”

“Let’s hang out again soon.”

For a myriad of complicated reasons, we lie.

We omit uncomfortable truths to get out of embarrassing situations, and tell white lies to head off hurt feelings.

And then there are lies we tell ourselves, which may be just as detrimental, particularly when it involves our finances.

Don’t feel bad if you do. It happens to the best of us on occasion, and it’s not all doom and gloom if you recognize the signs early and make an effort to nip the habit in the bud.

Here are 6 financial lies you’ve probably told yourself. No finger-pointing is intended.

1. “I can afford this.”

“Afford” is a funny concept in personal finance. Everyone seems to define it differently. 

Broadly speaking, “afford” definitions can be divided into 3 camps:

1. What “afford” should mean: when buying something doesn’t disrupt your budget and has negligible impact on major financial priorities like debt payoff and retirement savings.

Example: Seraphine, 32-years old and debt-free, makes $50,000 a year and has $89,000 stashed away in savings and $2,050 in her checking account. She also has a credit limit of $5,000. She can’t afford a $2,000 transparent canoe, but she can afford an $8 take-out salad every other week.

2. What “afford” usually means: when the cost of something is lower than your current bank balance.

Under this definition, Seraphine could afford to buy that $2,000 transparent canoe, since doing so would still leave her with $50 in her checking account. (However, should she?)

3. What “afford” sometimes means: when you put a purchase on a credit card because there’s not enough money, and only plan to pay the minimum each month. 

(Allow me to clarify that I do not wish to shame anyone who cannot work or are severely underpaid by their employers and have no choice but to use their credit cards to put food on the table. This section only addresses discretionary spending.)

Under this 3rd definition, not only could Seraphine “afford” a pricey transparent canoe for herself, she could get another one for her parents, and brand new (hopefully not transparent) canoeing outfits to match. Just put everything on her high-limit credit card and worry about it another day. Seraphine is clearly putting her finances in jeopardy if she keeps spending like this.

As for readers of Casual Money Talk, if your definition of “afford” most resembles the 3rd option (that is, if you think you can afford anything that you can put on your credit card), then you’re better off making your “affordable” definition more stringent.

Just because your purchase doesn’t go over your credit limit doesn’t make it a good idea. 

Overusing your credit cards for discretionary spending means that you’re constantly walking a financial tightrope. What if you can’t make the minimum debt payments 4 months in a row? Your credit score would take a huge hit and you’d get yourself in all sorts of financial trouble.

Plus, if you merely pay the minimums on all of your loans, you will be in debt for a very long time and wind up paying a lot more for your purchases than if you paid cash, due to those ridiculous interest rates.

I understand that putting something you want back on the shelf is not fun, but if you have the willpower to only buy things you can truly afford, you will not be hurting in the long run.

After all, shopping trips are way more enjoyable when they are guilt-free and don’t put a disastrous dent in your wallet.

2. “I totally need this.”

What do a pair of Jimmy Choos, an Adam Driver pillowcase, and a $200 Lego set have in common?

They’re things we’d love to have, but don’t need.

The prudent thing to do is to set them down and walk away without looking back.

But sometimes we shop with our hearts, not our heads. When we want something extremely badly, we convince ourselves that we actually need it. 

We feed ourselves a list of made-up reasons why it is a must-have:

“I’ve always wanted one!”

“I need it for work!”

“I’m going to use it every day!”

“Imagine staring at this on my desk every day. That’ll make me so happy!”

Eventually, the emotional side triumphs over the rational side, and we find ourselves beaming broadly as the cashier wraps our lovely new treasure with the care and delicateness of a NICU nurse.

If you occasionally tell yourself “I need it” when you really don’t, that’s fine! Even Trojan warriors couldn’t resist the pretty Trojan horse. 

If you’re constantly unable to uncouple needs from wants, that’s a problem.

Needs are things you must have in order to live. Wants make life more exciting and comfortable, but are not necessary for survival.

Wants are unlimited, so if we indulge in every want that is masked as a need, then we’d be forever emptying our pockets chasing after our latest object of desire. And that would be a straight-line path to endless debts.

So, before you buy something, give yourself 24 hours to think about it.

Chances are, you’ll change your mind during that time and decide you don’t need it after all.

3. “Oh well, I’ll save more later.”

Saving money is crucial because it protects you in the event of a costly crisis, makes it easier to pay for big-ticket items, reduces financial stress, and gives you a greater sense of financial freedom.

Everyone should aim to save at least 10% of their take-home pay every month, regardless of income. 

But this is not always doable.

While missing a month of saving isn’t a big concern, the reason for skipping, how frequently you skip, and your attitude matter.

If your spouse was just laid off and you decide to temporarily pause savings to cover your bills, it’s perfectly understandable.

If, on the other hand, you never find an opportunity to save, always promise yourself that you’ll save twice as much next month to make up for it but never follow through, it’s time to face the truth: you’re lying to yourself.

You tell yourself “I’ll save more next month” in order to feel better for not having saved this month. But you know deep down that you won’t save next month, or the month after that. And you’ll repeat that lie to yourself month after month. 

Let’s break this unhealthy pattern once and for all.

It’s easy. Just put $5 into a savings account right now.

If you don’t already have a savings account, you should open one as soon as possible. Meanwhile, save $5 in a piggy bank.

There, you just saved this month. Congratulations!

$5 isn’t much, but it will set the ball rolling and get you into the habit of saving.

You can gradually raise your monthly savings to 10% (or more) of your monthly take-home pay.

Create a digital reminder to save every month, and you will never have to tell yourself “I’ll save more next month” again.

4. “I don’t have a debt problem.”

It’s normal to carry a little debt. Most people do. As long as your debt is manageable, and you’re actively paying it off, don’t beat yourself over it.

However, if you’re oblivious to your debt situation, then that’s an issue.

How to know if your debt problem is serious:

You don’t have a debt problem if you’ve been debt-free (except your mortgage) for at least a year.

If the sum of your debts (except your mortgage) is less than 1/3rd of your family income, you have your debt under control. You can choose to pay them all off within a reasonable time frame if you really want to, so you’re not in trouble, but definitely keep an eye on your debts to make sure they don’t get out of hand.

Suppose you can only manage to pay the minimum amounts due on your debts each month and think that’s totally acceptable. It’s past time to snap out of denial and tackle your debts more aggressively before this situation snowballs into a full-blown financial disaster.

To get a handle on your debts, make a list of everything you owe and work on them using one of these 2 debt payoff strategies: 

Debt snowball: Pay off the smallest debt quickly. Then move on to the second smallest, so on and so forth. The debt snowball method is easy to carry out and keeps you motivated. You constantly get boosts of gratification for eliminating debts in record times. Choose this method if you need some motivation to stick with the plan.

Debt avalanche: Prioritize clearing debts with the highest interest rates and work your way down. You will save more money on interest payments this way. Choose this method if the outstanding balances on your various loans are roughly the same, or if you are self-motivated.

Both methods require that you always make minimum payments on all debts before making extra payments on one particular debt. There’s no right or wrong method here. The most important thing is to choose a debt payoff strategy that makes you feel comfortable and gets the job done. 

5. “I can do it without a budget.”

Some folks do not need a budget, at least not one they have to consult every day. They are either high-earners who spend responsibly or folks who are excessively frugal.

For everyone else, you pretty much need a budget to strategically plan out where your money goes each month. You will be doing yourself a disservice if you tell yourself otherwise.

Just because you’re on a budget doesn’t mean you can’t have fun. Sticking to a budget allows you to enjoy yourself without worrying about the consequences of overspending.

The easiest way to start a budget is to gather your income numbers and spending history, download a pre-built budget template, and fill it up to the best of your ability.

Your budget doesn’t need to be perfect at first, because you’ll probably end up tweaking things a few times after you test it out for a couple of months. It only has to be realistic and thorough enough for you to keep to it.

6. “I still have time to save for retirement.”

It is never too late to begin saving for retirement, but it is also never too soon.

Even if you’re a recent college grad, you shouldn’t ignore it. The sooner you start saving, the easier it will be to build up a sizable retirement fund.

If you’re in your 30s or older and haven’t begun saving for retirement, now is the time. If you keep procrastinating because “there’s still time,” you will regret it.

Why do we have to start saving for retirement decades in advance?

Think about it, to have a reasonably comfortable and stress-free retirement, you’d probably need, at the bare minimum, half a million dollars stashed away. 

That is a lot of money to save. If you put aside $10,000 a year, that means it’ll take 50 years to save $500,000.

Clearly, that’s not going to happen. That’s why you also need to invest your retirement savings so your money can grow on its own. 

The longer you stay invested, the more you gain because of compound interest (when your investment profits create new profits).

To see compound interest in action, consider these 2 scenarios:

Scenario #1:

Let’s say you’re 30 years old and have just begun investing. For the next 30 years, you invest $1,000 a month in ETFs (exchange-traded funds).

How much money do you think you’ll have by the time you’re 60 (assuming 5% annual market returns)?

Take a wild guess.

The answer: $797,266.17!

What’s more crazy? Your own contribution only adds up to $360,000. The rest ($437,266.17) is pure investment profit.

Investing $1,000 a month starting from 30 years of age

Scenario #2:

Now consider a similar scenario where you’re 50 years old and only just began to save and invest $1,000 every month. By the time you turn 60, you’ll have amassed $150,934.71, only $30,934.71 of which is investment profit. 

Investing $1,000 a month starting from 50 years of age

As you can see, delaying investing for 20 years means missing out on $406,331.46 ($437,266.17 minus $30,934.71) in this case. This is all thanks to the power of compound interest. 

You can also take advantage of compound interest if you start saving and investing as soon as you can. 

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Category: MindsetMoney For Beginners

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Article by: Flora Pang

Flora Pang aspires to become someone who plants trees in their spare time, writes thank-you notes to strangers, and serves in UN peacekeeping operations around the world. But to date, blogging about personal finance remains her only contribution to society. You can catch her rambling about money on Facebook, Twitter, Instagram, and (to a lesser extent) Pinterest.