Everything You Think is Wrong Day and your personal finances

Credit Sesame uses Everything You Think is Wrong Day to bust some personal finance myths.

Annually, March 15 is Everything You Think is Wrong Day. Who knew? This day is not intended to suggest that we are wrong about everything we think we know. But it invites us to revisit some of our assumptions because doing so can improve our lives.

Credit Sesame is on a mission 365 days a year to improve people’s lives by helping them better understand how their finances work. Myths hold us back financially. So, let’s use Mar. 15 as a cue to demolish some of the most damaging.

Income and credit score myth

One myth that hurts many people is that you have to be rich (or, at least, have an above-average salary) to save, invest or have a high credit score. That is not true.

It may be easier in many ways to cope financially if you have plenty of money, but people on below-average incomes have investments, savings and high credit scores.

In 2022, Credit Sesame conducted a survey that revealed that 31% of Americans with an annual income under $15,000 had good or exceptional credit scores. And 8% of those earning more than $75,000 annually had a poor or very poor score.

Surprised? That’s the point of Everything You Think is Wrong Day.

Savings and investment myth

Anyone regardless of income level can be caught unprepared for a big bill or unexpected events, such as a medical issue or car repair. If you have no savings, you may be forced to borrow. Desperation may mean you consider using payday lenders or unregulated lenders. These lenders may charge extortionate rates of interest. You may also consider stopping payment on your regular bills.

However, if you’ve built up an emergency fund, you may not need to borrow, saving yourself interest payments and not damaging your credit score by missing regular payments.

People who budget carefully, live within their means and get into the habit of saving can build an emergency fund. Once they’ve saved enough to cover emergencies, they can invest the excess in stocks or other ways of building wealth.

Nobody is pretending it is easy to do these things on a below-average income. But building a savings plan into your personal finance goals is possible.

Seven common personal finance myths

Let’s quickly demolish seven myths about personal finances that might hold you back or sabotage your efforts to build a better life:

1. FALSE: Having a household budget is hard work and stops you spending on fun things. This is not necessarily true. Smartphone apps can do the hard work now and some are free. Tracking spending lets you stop wasting money on things you don’t value so you have more left for things you do
2. FALSE: If you can fund it, you can afford it. It’s not quite as simple as that. Getting a loan offer does not always mean you can afford something. Lenders know a certain proportion of borrowers default and build that risk into their interest rates and loan charges. Taking on extra debt must be considered as part of your overall budget and personal finance plan.
3. FALSE. There are 100% safe investments. Hmmm, you may get low interest bank accounts with a set rate, but even though U.S. Treasury bonds are considered low risk investments, no one claims they are totally without risk. If anyone guarantees you a high return with zero risk, check very carefully to ensure it is not a scam.
4. FALSE: You can spend up to your card’s credit limit without penalty. This is partly true. You can spend up to your card limit and you may not incur a penalty, as such, if you pay it off every month. But you may harm your credit score if you do that. Keep your balance below 30% of your card’s limit — some say below 10% for the highest score
5. FALSE: It’s better to use a debit card than a credit card. Define “better!” Credit cards provide statutory protections if your supplier goes bust, your goods are faulty, were misdescribed or you’re defrauded. Debit card refunds rely on the goodwill of your bank. Also, using a credit card responsibly can help build payment history. In turn, this can help build your credit score.
6. FALSE. Always keep a balance on your credit card. This may not be the best idea. You need to use each credit card sometimes for it to contribute to your credit score. But paying off the balance in full every month may help your score rise
7. FALSE. You lose everything if you declare bankruptcy. It is more complicated than that. When you declare bankruptcy, you may be required to give up certain assets to help pay off your debts. However, each state has its own list of exempt assets, which may include your house, car, retirement plan, household goods and clothing. Some states let you keep more assets.

One (budget) size does not fit all

Some years ago, Lindsay VanSomeren shared her budgeting experiences on Credit Sesame’s website. She had to try lots of ways to budget before she found one that suited her. But, when she settled on one, it worked really well.

After just six months on her program, Lindsay had made real progress. And she was proud that within that time she had built an emergency fund that would cover an entire month’s expenses. This was despite her income having fallen during the previous year. She wrote:

Think of budgeting as training wheels for your financial bicycle. Once you’re able to consistently manage your spending and saving without micromanaging it, you can consider scaling back on the ledger.

Lindsay VanSomeren, 7 Steps I Used to Create a Realistic Budget, After a Few Failed Attempts

What can we learn from Lindsay? Perhaps:

• We’re all different and one size does not fit all
• Perseverance pays
• It’s amazing how much slack you might find in your household budget even when times are tough — But you have to look to uncover it

Take action on Everything You Think is Wrong Day

The biggest obstacle to improving your life may be not starting in the first place. So, whether you read this on Mar. 15 or any other day, take action now and pledge to yourself that you will improve your personal finance management.

• Spend time going through your financial statements to understand your situation.
• Download a budgeting app to track your spending.
• Consider applying for a new credit card to spread your balances with lower credit utilization.
• Open a savings account and set up an automated payment to build an emergency fun.
• Check out your investment options and balance your risks and rewards.

If you enjoyed Everything You Think is Wrong Day and your personal finances, you may like,

• 6 Reasons for a Budget Makeover in 2023
• Ten Ways to Build Credit on a Budget
• Budget Calendar: Worth Buying or Build One for Free?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.