Everyone knows someone who insists on sharing terrible advice. They give advice with such authority, but they actually have no idea what they are talking about when they speak. In fact, their advice simply tends to make everything worse. They may have the best of intentions, but they simply continue to get things wrong and lead everyone else astray in the process. Sometimes, this sort of bad advice is not a problem. It is irritating when you end up taking your friend’s advice and go on a date with someone who turns out to be a terrible match for you, but there is no lasting harm done. You lost a few hours and potentially the cost of a meal, nothing more. That is not the case when it comes to dealing with financial myths. At best, common financial myths will have you missing out on opportunities to make easy money or prepare yourself for the future. At worst, they can ruin the unfortunate soul who buys into them. Do not be one of those people who take the wrong advice and end up hurting their future. Here are seven pieces of financial advice you should ignore.
“Use loans to buy things, or buy things on debt.”
There are some things that almost no one can realistically pay for outright. Most people, after all, do not have thousands of dollars laying around that they can use to cut a check for a car after their old one dies or are able to throw down $250,000 for a house in one sitting. For such enormous and important purchases, most people need to either pay in installments or take out a loan. Some people, however, make a habit of buying things on debt or getting loans when they really do not need them. There are no words for how terrible of an idea it is to do this. Debts have to be paid back, and loans come with interest. It is far better to live within your means than it is to abruptly find yourself losing your home or your car because you could not pay back the loan you should never have gotten in the first place.
“Carry a balance on your credit card.”
One of the most common pieces of bad advice given to people is that they should carry a balance on their credit card. Credit card companies would love it if everyone carried a small balance on their card. The companies could then charge everyone interest and make more money off card holders. Carrying a balance, however, is a bad idea for the person who owns the card. Interest rates on credit cards tend to be very high. They are made worse by the fact that balances tend to grow out of control. If you get used to carrying a balance on your card, it is easy to justify letting it increase just a little. There is not, after all, that much difference between a balance of $150 and $170. That $170, however, steadily increases over time to become $190, then $210, then $250 until you have built up a far larger balance than you can pay back in one sitting, and you are stuck paying interest on it. Do not fall into this trap. Pay off your balance every month, and if you find your credit card is making you more likely to live outside your means, cut up the card and go back to using checks, cash or debit cards.
“There is good debt and bad debt.”
Many people have come to view debt like dogs. Some dogs behave and make their owners very happy. Other dogs chew on shoes, pee on furniture and drive everyone around them crazy. Both types of animals, however, are still dogs. In the same way, debt is debt, and debt is never something to celebrate.
Debt is never a good thing. There may be good reasons to have debt. There may be debt that was the result of something important, exciting or necessary. That does not make the debt itself good. To be financially stable, you need to pay off any debts you have as soon as possible. That does not mean you need to live off ramen noodles and peanut butter for six years so you can pay off your mortgage a few months early, but unload any debt you have as soon as it is feasible.
“Renting is just throwing money away.”
Most people aspire to own their own home one day. They envision a place that is all their own, complete with decorated walls, a garage and a yard. This is an admirable goal, but it is something that most people have to work up to doing. That said, some people are insistent that renting an apartment, townhome or house is a waste of money. Renting, however, is actually the best option for many people. A number of people spend years changing jobs and cities before settling down in a single place. When you are looking at moving across the country, the last thing you want to deal with is selling a house. This is one of the main problems with owning something too early. Not only will someone who is not financially ready struggle to find a place they like within their budget, they are far more likely to end up saddled with the house when they want or need to move.
“Don’t bother worrying about retirement when you are young.”
When you are young, retirement can seem like it is a long way away. It can and will, however, sneak up on you. You will need to start saving well in advance of your retirement, but how young do you need to start? Some people will claim that young people do not need to worry about it yet. It may not be a pressing concern, but it is a mistake not to bother saving for retirement when you are young. When you are young, you have fewer obligations. You do not yet have to contend with paying for children, a mortgage or supporting aging parents. You may need a certain amount of cash flow when you are getting started, but do not neglect your retirement fund. Save when you are young, before more extensive obligations begin to take precedence.
“Have a six month emergency fund.”Having an emergency fund is a very good idea. If you do not have one already, you should be sure to set one up as soon as possible. That said, six months worth of money is not always the right number for everyone. Some people will need more money squirreled away in case of emergencies. Others will need considerably less. How much you need to save will vary wildly depending on your own personal circumstances. If you are someone who either does freelance work or works in a field where it is normal for a person to be without work for periods of time, you likely need more than a couple months of money tucked away. On the other hand, there may be circumstances under which you only need two or three months of money saved for emergencies. This will vary based on your job, your family situation and your location. Someone living in Florida, after all, does not need to have one eye on the potential for an earthquake taking out their home or office. They do, however, need to worry about hurricanes causing problems far more than someone in San Diego.
“Buy as much house or car as possible.”
This is a variation of buying things on debt. Just like buying things on debt, this is a very bad idea. If you buy as much house, car or other item as you can, you are putting yourself on very thin financial ice. If you were to lose your job or suddenly have another expensive financial obligation, such as an injury or the unexpected birth of a child, you will likely find yourself struggling to keep up with the bills for the enormous house or expensive car that you bought. Even if something serious does not happen, you might find yourself starting to live outside your means.
Do not assume that you will make up the money you spent when you sell either. Car values depreciate and the housing market is always in flux. There is a very real possibility that buying too much of an expensive investment will end up costing you money in the long run.
When you really think through some of these common financial myths, it rapidly becomes apparent that they are terrible ideas. Unfortunately, many of these myths are shared with such confidence that people believe they have gotten themselves confused. The fact that many of them deal with more complicated ideas such as investing does not help. Do not, however, let yourself be fooled. Common sense goes a long way even when one is dealing with complex and difficult topics. As the saying goes, however, common sense is not very common anymore. Do not throw yours away. Avoid buying into these common financial myths and wrecking your future on bad advice.