Two Sense dives into what makes personal finances so intimidating and tackles some common misconceptions that are widely talked about.
In the spirit of Halloween, let’s talk about why finances can be so scary. There are so many myths that float around the internet, and in society in general, that lead to confusion and misunderstanding when it comes to money. When we better understand something, we set ourselves up for success. This is why it’s so crucial to dissect some of these misconceptions so we can make strides together and reach financial freedom.
- “You need prior budgeting experience to create a budget for yourself”– Not true! You honestly do not need to be an expert to budget. What you will need is patience and time set aside for making sure you have your receipts or bank statements each month. Depending on your preference, you may choose to do your budget weekly, bi-weekly, or monthly- most people find it easier to go by their paycheck frequency.
- “You need a fancy spreadsheet to be successful at budgeting”– Actually this isn’t really true. It all comes down to personal preference, but you can use a simple paper and pen to dive into your numbers. I have coached individuals who prefer to use a notepad app on their phone or just utilize a simple chart that we create together on the computer. The less complicated of a task we can make this for ourselves, the higher the success rate will be. Many people do not feel comfortable looking at the numbers on their statements because it is a reflection of their spending habits. This is why I always mention the importance of just having a simple way to keep track of your “ins and outs”- what is coming into your account versus what is being spent.
- “I can’t become financially stable because of my paycheck frequency”– There is always a way! Whether you get paid weekly, bi-weekly, monthly, or per diem, there is a way to stay organized with your finances. For example, if you get paid weekly, you can calculate what you typically have coming in each week and multiple that by 4 to get a monthly total. The most crucial part of a budget is figuring out a realistic, but affordable, number for each of your spending categories. Once you have your categories and their spending limits sorted out, you can easily divide that into 4 to get a weekly budget amount or leave it as a monthly amount. This is all based on what you and your family chooses and how you can be most efficient and effective.
- “Everything you buy that’s “On Sale” saves you money”– Sorry, this is not always the case. I have been at several major retailers before where I have seen them move a pallet of TVs, for example, into the main aisle and put a big “sale” price on top. When I do some digging, the price never changed or they ended up increasing the “original price” to create the illusion that the sales price is lower and competitive. Just beware of retailers that do things like this because you really aren’t saving money at all and may just be purchasing that item under the assumption that you are truly saving.
- “Poor credit is irreversible and lasts forever”– This is definitely not true, unless you choose to leave it that way. Bad credit can be reversed within a 1-2 year time frame, seeing noticeable results within the first 6 months. Personally, I have had friends and family members who simply never wanted to look at their credit report since they “knew it was bad” and decided to ignore it. Year after year of ignoring it led to being declined for mortgages, credit cards, and loans. Ignoring bad credit or damaged credit is not the solution- you must begin fixing it as soon as possible. On-time payments and being consistent are major factors in improving and maintaining your credit.
- “Owning a home is a key factor to being financially free”– Not quite. Jumping into homeownerships is not going to lead you to financial freedom right away, especially if you are not quite ready yet. There is always pressure put on our younger generations to “go buy a home” since it is “better than renting.” Yes, being a homeowner is better than renting when you are financially stable enough to not just afford buying it, but be able to maintain it as well. Sometimes when we are renting our home, it allows us to prepare for our future financial goals such as buying a home. You really do not want to jump into buying a home and not be able to afford the costs that come with repairs and maintenance. This is why I always preach about the importance of saving money. If you are currently renting and are looking to buy a home, plan out a goal date so you know what you are working towards.
Personal finances may be scary at first, but talking through your goals with a financial expert can be helpful. Always remember to write your goals down and be precise and descriptive. You want to focus on the end result so you can stay motivated to reach the finish line. When it comes to financial freedom, you define what that means for you and nobody else. If financial freedom means no longer living paycheck to paycheck and having little-to-no debt, then that is what it is for you. Stay focused and motivated- YOU GOT THIS!