By CNBC

Filed under: Savings Accounts, How to Save Money, Saving

Think you’re financially savvy? When it comes to their personal finances, people carry around notions all their lives that may or may not be valid. For example, you’ve heard that money can’t buy you love, but can it buy happiness? Most people believe that it can’t — but science may prove them wrong.

Here are seven personal finance myths that happen to be everyday beliefs about the way we consider and handle money. Many of these myths fool even the smartest of savers. The latest research will help you discern the facts and see through the smoke.

Budgeting Is the Best Way to Save Money

A study by researchers from Brigham Young University and Emory University shows that consumers who shopped with a spending limit spent up to 50 percent more on a single item than consumers without a budget.

Jeff Larson, the study’s co-author and an assistant professor of marketing at Brigham Young, says when consumers set a budget for a specific item, they oftentimes limit their searches to items priced close to the budget’s upper limit. If given $1,000 for a flat-screen TV, for instance, consumers are likely to limit their selection to televisions priced between $800 and $1,000 before looking at each TV‘s features.

“We don’t claim that this indicates that you shouldn’t ever budget, that budgeting is overall a bad thing,” Larson says.

The effect is only present when shopping for single items. “Aggregate budgets” used for multiple products, such as groceries, generally help the user save money, Larson says.

He adds that consumers can potentially reverse the effect by limiting their selection based on qualities and features before looking at price.

“Instead of saying ‘I’m willing up to spend $1,000 on a TV,’ you say ‘I want a 42-inch TV,'” he says.

More Earnings Mean More Wealth

“The more people earn, the more they tend to spend,” says Stephen Goldbart, co-author of the book “Affluence Intelligence” and co-founder of the Money, Meaning and Choices Institute, a San Francisco-based company that provides advisory services for wealthy clients. “As people acquire more money, they almost immediately start purchasing things that they’ve felt they’ve always wanted rather than thinking about what percentages that they should put away and the consequences of changing their spending habits.”

This may explain why lottery winners are more likely to go bankrupt as those who didn’t stumble into thousands, according to researchers from the University of Kentucky, the University of Pittsburgh and Vanderbilt Law School. Or why 78 percent of NFL players are bankrupt or under financial stress within two years of retiring and 60 percent of NBA athletes are broke within five years of leaving pro sports, according to data from Sports Illustrated.

To ensure that higher earnings translate into higher net worth, Goldbart says, “Be conscious as a consumer. (Ask yourself:) ‘Is the purchase or …read more
Source: FULL ARTICLE at DailyFinance