The five worst money myths

Stop believing these money myths and you'll never be short of money again...

It’s depressing, isn’t it? When your salary goes in your account, and then – inevitably – disappears?

The trouble is, for most of us, the thought of trying to make cutbacks in order to have money left to save at the end of the month is, well, about as appealing as a dinner of dog biscuits.

But believe it or not, your choices aren’t simply:

1) Sit back and accept that your money is going to go into a black hole of spending on who-knows-what.

2) Sado-masochistically deny yourself all of life’s pleasures, just to save 20p here and there throughout the month.

Whether you’d like to save more, or spend less each month, there are simple steps you can take to successfully learn to budget. But most of us don’t know about them. Instead we believe these five money myths:

MYTH 1) Try to cut back everywhere, all at once

If you try to cut back everywhere, all at once, you are not only setting yourself an unrealistic goal, you are going to spend a lot of time and energy doing lots of little things that will make hardly any difference. Instead, the right approach is to focus and prioritise your cutbacks.

I’ve found our free spend tracking tool, Tracker, helpful here, because it allowed me to categorise all my transactions from different bank accounts and credit cards, and see at a glance exactly how much I am spending on different types of purchases each month.

Of course, you could do this by hand by religiously keeping a spending diary. But I prefer to let technology do my hard work for me!

Now, think about the different ways you could realistically rein in your spending in one area, and work on that primarily each month. If you think it would be helpful, you could use the lovemoney.com how to guides to adopt a related guide, and mark off each task as you go along.

If you find cutting back more difficult than usual one month, then I’d suggest working on your next biggest problem area that month, instead. Once you get to a point where you are now comfortable with your spending, then move on to focus on the next biggest problem area more permanently.

MYTH 2) It doesn’t matter what day you pay your bills on

You might think it doesn’t matter what day you pay your bills on, as long as you pay them on time. But you’d be wrong.

One of the easiest ways to learn to budget successively is to simply set up all of your direct debits and standing orders so that they go out on the same day – the first day of the month, straight after you get paid. This means that you will always know exactly how much money you have got left to see you through to your next payday.

That way, you can keep a figure in mind of how much you should spend each day, and each week, to stay within budget.

MYTH 3) You can easily control your spending

You’re only in control of your spending if you’re well-informed about it. So try to use a debit card, instead of cash, for example. That way, your spending will show up on your bank statements, and you’ll be able to categorise it using our Tracker tool.

Again, it helps if you check in your statements regularly. I try to do it every day, to make sure I am where I think I should be, throughout the month.

Obviously if you do use our free Tracker tool, it’s easy to take a quick glance at all your accounts every time you visit lovemoney.com to read our articles.

MYTH 4) It doesn’t matter when you buy yourself treats

If I’m tempted to buy myself a treat – like this month, I’m debating whether I should get some new shoes or maybe get my hair highlighted – I always try to leave off buying it until the last day of the month.

First of all, I find the temptation to get it often passes, and that I am happily living without it.

But more importantly, it’s only at the end of the month that you can actually see whether you can afford it that month. If it’s going to tip you into the red, then the answer is simple: don’t buy it. Wait until you can afford it.

In other words, reward yourself when you’re so disciplined with your money that you deserve a reward – and not before!

MYTH 5) Credit card debt is affordable

You may have credit card debt which, for you, is affordable. You’re gradually paying it off every month, and you’re not too worried about it.

Related how-to guide

Pay off your credit card debts

How to destroy your credit card debt quickly and effectively.

See the guide

But if you have credit card debt, you’ve got a big handicap when you’re trying to balance your budget. You’re effectively punishing yourself this month for the spending you didn’t count in your budget from previous months.

So, if you have credit card debt, make paying it off a top priority. Take out the best 0% balance transfer card you can get and figure out how much you need to pay off each month so that you will be interest-free by the time the 0% deal ends.

Right now, the Barclaycard Platinum with 17 Month BT Visa offers 0% interest on balance transfers for 17 months (with a 2.9% fee). You'll also get £20 off your transfer fee if you transfer more than £3,000 by 28 February.

Factor this credit card payment into your monthly budget, and ensure it goes out on the first of the month.

What are your tips?

Those are mine, but what are yours? Let us know using the comments box below!

This is a classic article that has been updated for 2011.

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