Disclaimer: These are my own, non-expert opinions based on years of experience, observation and the school of hard-knocks.
Myth: If you're deep in debt, then pay off the debt with the highest interest rate.
Truth: Actually, pay-off debts with small balances first. That 'early win' can be really motivating and can provide instant financial relief.
Myth: If you have lots of credit card debt, the first thing to do is pay off the debt with the highest interest rate or the few debts with small balances.
Truth: Actually the FIRST thing to do is START SAVING MONEY REGULARLY. If you're in lots of credit card debt, as soon as a financial emergency strikes (and it will), the temptation to solve the problem by charging to the credit card again will be too great and the cycle will continue.
Myth: But I can't save money! We're living paycheck to paycheck. Our budget is really, really tight. I can't eek out even one penny.
Truth: People can and do live on less than what you're making now. Spend a week (or better - a month) writing down every single penny you spend and what you spend it on. You'll probably find that areas where you can cut back.
Myth: Okay, so I guess I could save some money by reducing the grocery budget and using coupons.
Truth: Hmmm, coupons. Coupons usually don't help me. I find more savings by carefully comparing prices and acquiring food at places that don't even accept coupons. Often I can buy the same thing for less than the brand-name item WITH a coupon. As far as reducing the grocery budget as a first step, that is usually NOT where families waste the most money. Think of it. No matter what, we still need to eat. A clamping down on the budget tends to make us feel 'poor' so don't start by clamping down on the one budget area which will be most noticed and cause the most discomfort. Instead look at budget areas that you consider "fixed expenses": taxes, mortgage, utilities, insurances, medical expenses, non-food disposable purchases (TP, paper towels, cleaning products, etc), clothing and entertainment.
Myth: Taxes? I love that huge refund every year. We use it to pay off debt or go on vacation.
Truth: You're going to stop that cycle, right? I know it is scary but stop giving the government use of YOUR MONEY (they take enough as it is) and change your withholding to where you'll OWE a bit in April. Remember, you're going to be setting money aside on a regular basis so you'll have the money to pay the bill when taxes come due.
Myth: But my spouse won't go along with this. We argue about money all the time.
Truth: Arguments about money are rarely about finances - usually money problems are a symptom of something else going on. If your relationship / marriage is otherwise sound, then START the conversation by deciding on your shared values, priorities and goals. Once you have that list, where you'll spend you money - and your time - will become very clear. If your relationship is shaky, get professional help to work on that area first.
Myth: But living on a budget is so hard. I hate feeling poor. I want to spend my money the way I want.
Truth: A budget is actually a spending plan; it is deciding AHEAD OF TIME what you want to spend your time and money doing. Keep those values, priorities and goals in mind! And I hate feeling poor, too, which is why knowing where my money is going helps give me a sense of security. I like having a choice! I like knowing that my car won't get re-possessed, that my phone will ring because friends are calling - NOT collection agents, that my home will be my home until I decide otherwise, and that, if my boss really p!sses me off, I can quit.
Myth: We're doing everything right but we're still struggling.
Truth: This is going to sound mystical and way-out-there, I know, but you have to open the door for a better financial situation to come into your life. Even when you feel like you have nothing, donate something to charity. And make it more than you expect and something really, really good. Sometimes all we need to do is make room. Plus, realize that we live in an abundant society. What goes out the door will come back three-fold. The point: Stop struggling.
- A little about the author ... I'm known as Cookie. I'm a long time frugal fanatic so when I shop, I prefer to save money. There is no reason to spend more than we have to! However, I also appreciate convenience and fine living. I strive to strike a balance between a nice lifestyle, simplicity and frugal living. I work hard for my money so I like to make my money work hard for me.