Regrettably, personal finance is a subject that is rarely taught thoroughly. This fact is unfortunate since our handling of money profoundly influences many aspects of our lives. One of the effective ways to boost your money management skills is to read books on personal finance. But be cautious about whose advice you choose to follow and make it a point to do some research separately.
Understand that not all financial advice holds true or may help you meet your objectives. Here, I’ll highlight three examples of misguided financial advice that I’ve had to sift through, which I believe nobody should ever heed.
1. THE CONCEPT OF ‘GOOD’ AND ‘BAD’ DEBT
Throughout my young years, the notion of debt continually buzzed around me. I held the belief that there were beneficial and detrimental debts. Based on family advice, by the age of 18, I understood credit card debt as ‘bad,’ while considering student loans and mortgages as ‘good’ debt.
However, after college, I was in over $20,000 of debt with no employment in sight, which led me to reassess my earlier belief about ‘good’ debt. I’ve now grasped that all debt is, in essence, just debt.
Regardless of what you bought with the borrowed money, repayment is inevitable. If that thought unsettles you, it’s best not to consider any debt as beneficial. There might be instances where going into debt is unavoidable, especially when you don’t have immediate cash at hand. In such cases, you might convince yourself that your debt is ‘good’ as it allows you to make necessary expenses. Nonetheless, it’s essential to step back and evaluate your broader financial targets, questioning how debt interferes with those.
A significant drawback of being in debt is paying interest. Rather than categorizing debt as good or bad, concentrate on achieving long-term financial stability. Make conscious decisions to evade or reduce the debt you take on and consider consolidating your debt with a personal loan for more efficient management.
2. PURCHASING A QUALITY CAR REQUIRES A LOAN
Another common yet misleading piece of advice is the notion that you need to secure a loan to buy a quality car. Car loans can stir up debate, with some endorsing them wholeheartedly while others outright oppose it, sticking to second-hand cars they can pay for in cash.
To identify what suits you best, examine your priorities and objectives. Be mindful of who is advising you to take out a car loan, as it may offer insights into their intentions.
Despite the fact that cars lose value over time and will inevitably need repairs, you don’t necessarily have to spend $25,000 on a brand new car that’s beyond your budget. There are many reliable used cars available that offer value for your investment. Although the task may be daunting, you can find a quality used car within your budget and might even be able to buy it in cash to bypass debt.
A constant need to trade your car for a newer, ‘more secure’ model can lead to an unending cycle of car loans. Know that you don’t have to constantly be in car-related debt to drive a nice car, and always ensure to do your independent research to avoid falling for poor financial advice.
3. NO HASTE TO SAVE FOR RETIREMENT
Perhaps the most damaging advice is not to worry about retirement savings till you’re older. I didn’t appreciate this advice when a friend, thinking I was ‘worrying,’ suggested I had ample time to save for retirement. I was simply planning and preparing.
A Go Banking Rates survey referenced by Time magazine last year revealed that one in three Americans has not saved anything for retirement, while over half have saved under $10,000. What happens when they can no longer work or reach the typical retirement age of 65?
The stress and uncertainty of not having adequate retirement savings can be mitigated by beginning your retirement planning as early as possible. Early savings and consistent investing allow your money the time to grow.
When you start young, you’ll save less money over the long haul. You won’t feel as pressured, and occasional savings are better than none at all. There’s no need to compromise your present lifestyle to secure your future. Start investing with no minimum and low fees with Ally Invest.
FAULTY ADVICE CAN DAMAGE YOUR FINANCES
As you’ve seen, poor financial counsel such as the examples above can be detrimental to your finances, both now and in the future. That’s why it’s crucial to follow sound personal finance advice and cross-examine whatever advice you receive to ensure your decisions are in your best interest.
What’s the most ill-advised financial advice that you have ever received?
