Are These 3 Money Myths Sabotaging Your Finances?

Renting is throwing your money away. Everyone needs a budget to manage their finances. Some pieces of advice are so common in the financial world that they’re taken for granted. But whether they’re true or not often depends on your personal circumstances.

These three financial tips may work for some people, but if you blindly follow them—without adjusting them based on your finances—they could lead to stress and anxiety and could cause you to miss out on other opportunities.

Myth #1: You Need a Budget

“People believe they can’t trust themselves with money unless they’re tracking and restricting diligently,” said Dana Miranda, personal finance expert and author of You Don’t Need a Budget. But for many people, Miranda has found, the mindset that comes with budgeting is more harmful than helpful.

Some people are spending reasonably and saving diligently, even without tracking every dollar that goes in and out. If your income regularly exceeds your expenses and you’re able to meet your financial goals, you’re probably fine without a budget, which can create unnecessary mental load and stress.

For other people, the mindset that comes with budgeting does more harm than good.

“Rather than help people reach financial goals, budgeting tends to encourage splurge-and-restrict cycles,” Miranda said, comparing the phenomenon to binge-and-purge dieting. And if you overspend when you’re fighting to stick to a budget, it can create feelings of shame and anxiety that lead to further financial trouble.

“Budgeting everyday spending also puts a focus on low-dollar, discretionary spending,” Miranda pointed out. This, she said, “keeps people from looking at the kinds of big changes they could make personally or the systemic changes that need to happen to improve their financial situation.”

For example, if you work a job that doesn’t cover your basic costs of living, it’s unlikely that saving a few extra bucks on coffee each week will make a meaningful difference. Instead, look for big changes that can reduce your major expenses, like housing, or increase your overall income.

Myth #2: You Should Distinguish Between Wants and Needs

Personal finance advice often assumes that it’s simple to distinguish between “wants” and “needs,” claiming it’s possible to achieve your goals by just limiting how much you spend on wants. But dividing expenses into two neat categories is often impossible IRL.

“Where’s the line between, say, needing to eat and wanting a convenient and delicious meal?” asked Miranda.

If you work long hours and don’t have time to cook something from scratch, a convenient meal can suddenly become a need, Miranda notes, even if traditional personal finance advice would say anything other than an inexpensive homemade meal is a want.

Instead, it’s better to look at what spending makes sense for your lifestyle and whether the pleasure and convenience of it is worth the cost.

Myth #3: Renting Is Throwing Away Money

If you’re a renter, rather than a homeowner, you’ve probably heard that renting is like throwing money away. For starters, having a place to live is never throwing money away; it’s a necessity. But even outside that framework, renting can be a smart financial decision.

In many places, renting is much cheaper than owning a home, especially in major metro areas like San Francisco, Boston, and New York City.

Homeowners also have to pay for expenses that renters often don’t have to deal with, like home insurance or maintenance costs, homeowners association fees, property taxes, and extra insurance if they live in areas prone to flooding or other natural disasters.

These homeownership costs could cost you tens of thousands of dollars annually. And that money isn’t going towards building any equity or increasing wealth—it’s just maintaining your ability to live in your home.

Avoiding these homeownership costs can allow you to redirect your money to other financial goals like saving for retirement or a vacation fund. Plus, if you’re a renter, you’ll have an easier time moving for a new job opportunity or to be closer to family.

The Bottom Line

Some kinds of common personal finance advice can hold you back from managing your money in a way that makes sense for your needs and circumstances.

“Common wisdom in personal finance assumes our top goal is to get rich as efficiently as possible,” said Miranda. “We end up believing all of the rules we’re taught with that goal in mind are smart money moves—even when they don’t move us personally any closer to the lives we actually want to live.”

If traditional personal finance advice isn’t working for you, create a personalized system that does, even if it means throwing out the budget or not setting yourself up for home ownership.