5 Questionable Beliefs about Money
By: Louis Petrik
Tags: Money, Self Improvement, Investing, Finance, Wealth

5 Questionable Beliefs about Money

Beliefs determine our behavior — here’s what you should rethink

Photo by Jp Valery on Unsplash

Money isn’t an easy topic.

In many societies, we don’t talk about it openly — but what does stick are certain beliefs.

Here are 5 believes I hear over and over — yet they are dangerous to our financial decisions.

1. “Money does not make you happy.”

Money alone does not make you happy — so the saying goes.

That’s partly true — a study¹ by psychologist Daniel Kahneman shows it.

Roughly speaking, the study shows that the more income we have, the happier we are. But this increase in happiness stops at an annual income of $75,000 on average. When we earn more, it doesn’t make us happier.

The statement that money doesn’t make you happy is only partially true.

But how does it happen that money only makes you happy up to a certain point? It’s probably because money can offer us self-realization and security. But we get used to every prosperity one day.

So, even more, income doesn’t necessarily make us happier if our essential needs are already covered. It is important to note that we are not all the same, of course. The study examined many people to arrive at its results — so there are always deviations.

Naturally, more anxious people can certainly strengthen their sense of security with even more income.

In summary, it can be said that, to a certain extent, money can make people happier — and for good reasons, not because of materialistic consumption.

Money does not always lead to more happiness, but the absence of money leads to unhappiness. Not being happy is better than being unhappy.

Getting your finances in order first is not a bad idea. After all, almost everything in life is based on money.

2. “Today, there is no more interest on bank deposits.”

Anyone who has ever looked at how much interest they get on their bank balance will be disappointed. He will find that the interest is usually less than one percent.

That’s not just a low return — in real terms, we’re actually losing money due to inflation. So parking large sums of money in a bank account for a long time is not a good idea — almost everyone knows that today.

People are always raving about the past. There would have been interest rates of 3–6% in the past, which were really worth it. These figures, however, are to be enjoyed with caution.

While it used to be much higher interest rates on paper, not much of it remained in real terms. The reason for this is simple: income from interest on bank balances is reduced primarily by inflation.

An investigation² that takes into account the factors of inflation, interest, costs, and taxes clearly proves this.

Within the last 118 years, it was not possible to increase one’s wealth with bank deposits. The interest, even if it was relatively large, was eaten up by inflation.

Interest turns our money into more money.

Inflation, however, devalues our money.

Both balance each other out.

Even though interest on bank deposits has never been attractive, considering inflation, costs, and other factors, we consider bank deposits to be a solid investment.

Many people park large sums of money in an account, hoping that interest rates will rise again. In reality, at best, their money doesn’t lose value — there are no gains.

It is better to invest in other asset classes. Your bank account should be more for consumption and reserves. The rest of the money you should invest — the stock market, real estate & loans are a good option.

3. “Debt is dangerous.”

With debt, we usually associate having made bad financial decisions. After all, we have spent more money than we actually have.

What have we spent this money on? Often on consumption.

This is called consumer debt — we need to distinguish it from other forms of debt clearly.

When we have consumer debt, we owe someone else money. Usually, we have to pay that money plus interest back. On the other hand, we have bought something which is usually immediately consumed or loses value.

Financially for us a very unpleasant situation.

But we can also take debts for investments. Although we have to pay back the money plus interest, on the other hand, we have an investment, i.e., assets. These assets ideally increase in value over time so that we can make a profit despite the interest.

This is exactly how some people invest in the real estate and stock markets. Borrowed capital can be used to increase the absolute return on an investment strategy massively or to make it possible in the first place.

So if you have to take out a loan because you want to buy a property, for example, remember: Your debts are matched by assets in such cases.

4. “If I already spend so much money…”

This way of thinking has made many large companies very rich.

Imagine you go to Apple’s website — you’re looking for a new iPhone. After browsing a bit, you find the new iPhone 12 — it’s priced from $699³.

That’s a lot of money, but you can use it for the next few years. Then you realize that you’ve chosen the iPhone 12 mini — the “normal” iPhone 12 is $100 more expensive.

Here we go — “If I’m already spending so much money,” that’s the attitude that many of us have — and that makes companies like Apple rich.

So you opt for the regular iPhone 12, and now you can still choose the storage size. 64 GB of storage might sound a bit much, but another 64 GB only costs $50 more.

Here, too, we fall back into the “if I’m already spending so much money” pattern of thinking.

We end up paying a few hundred dollars more than expected, including storage that we may never use. But it just feels better.

What just happened is that our brain only looked at the prices in contrast. Because the basic model already costs so much, the rest seems like peanuts. We don’t only have this problem when buying technology.

What Apple and others do is called upselling. It works thanks to our weakness in estimating numbers within a context.

People buy a house for $300,000 and get the floor heating for another $10,000 when offered, even though they usually walk around in warm slippers.

If we don’t learn to break our buying decisions down into their parts, we often pay 20–30% more. Over the course of a lifetime, that’s a small fortune we spend foolishly.

Consider the offers separately from each other. Would you pay $50 for 64 GB of storage? If the answer is no, look for cheaper alternatives like cloud storage.

5. “Money corrupts the personality.”

When we think of capitalism, CEOs, and big corporations, we often have rather negative images in mind—endless greed, oppression, and rich men who destroy the world while smoking cigars.

This is the stereotype — at least in many countries of this world. But the truth is different. Of course, some people will walk over corpses for money — but it’s not the money that leads to this.

What rational reason is there that money makes you a worse person?

Usually considered as bad behavior by rich people in the public eye is decadent consumption. Expensive cars, watches, and clothes, although the money could have been spent “better.”

The truth is that for many people, such consumption is also the motivation to become rich. Even though it is sad, it must be made clear that money is not the origin of behavior.

Rather, money potentiates the character of a person.

If you are a “good” person before you have money, you will probably use your money for many good. Understanding a person’s motivations is most helpful in understanding his values.

Sources

[1]: http://content.time.com/time/magazine/article/0,9171,2019628,00.

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[2]: https://www.gerd-kommer-invest.de/nullzinsen-und-anlagenotstand/

[3]: https://www.apple.com/shop/buy-iphone/iphone-12