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3 Common Misconceptions That Are Killing Your Finances



Why do we make dumb money decisions that end up killing our finances?

Here’s a clue…

Chances are, you’ve got the wrong ideas about the underlying reasons why you spend.

For instance, your mother’s birthday is coming up in a couple of days, and you haven’t even gotten a gift yet. You’re already running pitifully low on cash, and you won’t even get paid until next week.

Of course, you’d love to get her something nice, but you just don’t have the money to pay for it.

So, what in the world are you supposed to do?

Do you just pretend like you forgot her birthday? Nah, you’ll never hear the end of it.

Do you go ahead, fess up, and tell her the truth that you’re broke? Well, then you’ll feel all guilty.

Or, do you completely ignore your finances, whip out your credit card, and buy a costly gift that you know you can’t afford — just to save face?

Let me guess, you’d probably go for option number three, right?

Well, don’t feel bad because we’ve all done it.

But, the real question is — WHY do we feel the need to do it?

Well, here are 3 misconceptions that might help get to the bottom of it.

Misconception #1 You Feel Obligated To Spend

Doesn’t it seem like every time you look up, there’s another event happening that’s going to cost you more money?

I mean, seriously, if it’s not a holiday, birthday, or anniversary, then it’s a wedding, baby shower, or graduation.

And while our hearts may love to shower our family and friends with cash and gifts…

In the real world, our tortured wallets are practically screaming bloody murder!

The truth is that most people are already living from paycheck to paycheck. Yet, somehow we still feel an obligation to spend.

So, how did we develop this obligatory spending mindset anyway? And on the flip side, how did the recipients develop the mindset to expect it?

For the most part, the answer is simple. A lot of it is attributed to the marketing messages we receive from retailers every single day. They have basically hoodwinked us into believing that we have to spend money in order to show love.

And if that wasn’t bad enough, we also internalize the same message to mean that if someone doesn’t spend money, then they really don’t care.

Of course, that’s probably not true.

But yet and still, we allow these socially accepted falsehoods to seep into our psyche and drain our wallets dry month after month.

Misconception #2 It’s Okay To Spend Money You Don’t Have

I know it can be difficult to break free from the mindset that spending money equals caring.

Especially if you’re the type of person who believes that you must show up for every event and you’ve always got to have gifts in hand.

However, this sort of mentality often pushes us to spend money that we actually don’t have. Which leads to blowing up your budget, racking up debt, and tapping into savings.

So, one of the best ways that you can mitigate your gift-giving expenses is by letting your discretionary income be your guide.

That’s because…

“Discretionary income is your ‘do whatever you want with it’ money.”

It’s the amount of take-home pay left over once you’ve paid all your necessities, invested, and contributed to savings.

However, if you’re not exactly sure what discretionary income is, then you probably don’t have much, to begin with.

Fortunately, you can easily find out by doing this:

  • Start with your take-home pay (after taxes). Ex. $4,000/month.
  • List all your necessities. Ex. $3,600/month (includes: food, rent, utilities, savings, insurance, and transportation).
  • Now, subtract.
  • Whatever’s left over is discretionary income. Ex. $4,000 – $3,600 = $400 (‘do whatever you want money).

The important thing to remember is that discretionary income does not lie.

And it can act as the voice of reason when you’re feeling torn between your finances and your perceived family obligations.

Misconception #3 Do What Everyone Else Does

As I mentioned earlier, retailers are highly invested in pushing the message that spending more money shows more love.

And the vast majority of us just follow along, no questions asked.

However, you have the power to reject that message.

In fact, billionaires like Warren Buffett didn’t become wealthy by following the crowd.


So in the same spirit of not following the crowd, you can create your own gift-giving rules based on your specific financial situation.

Back when I was on my mission to improve my finances, I got to a point where I said, “To heck with what everybody else is doing!”

After all, nobody else is paying my bills. So I did things like:

  • Shopped at discount stores for gifts
  • Set strict limits on how much I would spend
  • Respectfully declined to attend if I didn’t want to spend extra money that month

Yeah, that’s right! You don’t have to go to every event just because you were invited. And you don’t have to feel guilty about it either!

Because like I said, every month, there will always be another holiday or event trying to siphon your cash.

It All Boils Down To This

When you really think about it, holidays and events should be a time of celebration and togetherness.

They should not be a time to cause ourselves financial harm.

There are plenty of misconceptions surrounding the reasons why we spend. But keep in mind that…

You don’t have to feel obligated.

It’s not okay to spend money you don’t have.

And you don’t have to do what everyone else does.

Hopefully, now that you know more, you won’t make the mistake of allowing these misconceptions to keep killing your finances.

DeShena Woodard is a Financial Freedom Coach and Certified Life Coach. She is also the founder of the website Extravagantly Broke. After struggling with debt for years, DeShena paid off $52,000 in just over 2.5 years and is now 100% debt-free. Her story has been featured in NerdWallet and Now she helps 5 & 6 figure earners to stop living paycheck to paycheck, get better with money, and achieve their own financial freedom.

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