Everyone in their lives have become victims of bad financial advice. At some point, we have been given a piece of advice that left us wondering if we should have even listened to it in the first place. Unfortunately, it’s tough to weed out all the bad information that can be found in books or on the Internet, especially because so many self-proclaimed financial experts abound. Taking advice at face value, or blindly following one rule or formula, doesn’t do anything to increase your financial know-how. Here are five pieces of money advice you should ignore.
Credit cards are bad
Credit cards are lifeless — it’s human behavior that’s problematic. If you are unable to resist swiping the magic plastic for an extended period of time or use it to fund your outrageous shopping sprees, your issues go way deeper than a credit card. If used responsibly, credit cards offer great rewards and eliminate the need to have a wad of cash in tow. They also provide buyer protections. You just need to be disciplined enough to pay off the balance each month. Besides, you’ll want to keep one around for travel arrangements and online purchases. For both, they are a better choice than using a debit card.
Buying a house is ALWAYS the best investment
Of course property can be a good investment, but it is not ALWAYS the best one. The real estate market is known for its volatility. So if someone tells you, with absolute certainty, that your property’s value will never decline, think again. Remember that property is leveraged, so if you are borrowing 70% of the value of the property and it rises in value, your profits are exaggerated by your borrowing. Likewise, if the property falls in value, your losses are exaggerated.
Car loans are a way of life
You may not necessarily need a car loan. The idea that it’s essential that you get a car loan implies that you should be able to buy a car ‘suitable’ to you which will inevitably be more that you can afford. For a depreciating asset like a car, especially a loan on a brand new car, this is false thinking. You don’t deserve or need a car that far above your means. Just wait a little longer driving a crappy car if you really have your heart set on something nice and save.
You have to sign up for life insurance
You need life insurance if those depending on your income would suffer financially from your death. The most obvious example is when you have kids, debt and a one-earner household, because the death of the breadwinner would be financially tragic. When you’ve paid off the house, the kids are gone, the savings account is topped off, and your death is just an excuse for your remaining friends to get together and have a drink, your need for life insurance is over. You can go for a term policy if and when you think it is time to buy.
Skimp on 401(k) savings
This is one bad piece of financial advice pertaining to retirement. Sometimes life pelts you with not-so-great surprises; you’re short on cash due to medical bills, home repairs or college expenses. Your budget is already tight, but you should not sacrifice your 401(k) contribution. If you do so, be prepared for major tax-time sticker shock.