At some point, we’ve all been given financial advice that later left us scratching our heads in disappointment or confusion.
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.
But there is help to figure this out. For instance, CreditCards.com says bad financial advice usually has at least one of the following qualities:
- Comes from someone with a vested interest.
- One size fits all.
- Framed as the only option.
- Promises quick and easy results.
Here are six common tidbits of financial advice you may want to ignore:
1. Credit cards are evil
Credit cards do not have any inherent qualities, good or bad. It is human behavior that determines whether they are beneficial or problematic.
If you are unable to resist swiping the magic plastic for an extended period of time or if you use it to fund outrageous shopping sprees, your issues go way deeper than a credit card.
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 will want to keep one around for travel arrangements and online purchases. For both, they are a better choice than using a debit card, because they offer more protections.
For more on the advantages of plastic, see “10 Hidden Benefits of Credit Cards.”
2. Following a militant spending plan will set you free
Well, not really. What happens to avid dieters who have cravings but continue to suppress the urges until they can’t take it anymore? They give up and resort to comfort foods. Lots of them.
Incorporating mad money into your spending plan is OK. On the other hand, deprivation is not a good idea and will usually backfire.
If you are trying to curb purchases, be realistic. Take small steps and modestly reward yourself from time to time. Also, begin with the end in mind and incorporate plenty of visual reminders so you will focus on the financial goal you are working toward.
Need help getting started? Check out “How to Develop an Effortless Budget You’ll Stick To.”
3. Sign up for life insurance — or else
If you are 25 with no dependents and minimal assets, how much life insurance do you really need? The answer: none.
Money Talks News finance expert Stacy Johnson says:
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.
When it is time to buy, do your wallet a favor and go for a term policy.
4. 10 percent is the sweet spot for retirement contributions
Saving 10 percent of your income used to be the standard advice, but not anymore — particularly if you didn’t start setting aside money early in your working years.
If you did not get an early start, you will need to save a higher percentage of your income to reach retirement goals.
For example, people in their 40s who have not saved much for their golden years likely will find that 10 percent is not nearly enough.
How much will you need? Figure out what you will spend on health care, food, shelter and other necessities. Now consider what you will get from Social Security and other sources. Filling in the gap will be your responsibility.
5. You should buy a house because it is a good investment
Were you around for the last housing crisis? Being a homeowner for several years, I can definitely attest to the fact that homes do lose value and do not always appreciate as rapidly as you would like them to.
That does not mean buying a home is a bad idea. One of the beauties of owning a home is that a fixed-rate mortgage locks you into a set cost each month. You will make the same monthly payment for years while the price of rent goes up.
Eventually you will own that home free and clear. That is an investment in your future financial security.
But remember that buying a home is not a surefire path to riches. Take it from me, being underwater — where your outstanding mortgage exceeds the value of your house — is not a pleasant place to be.
6. Home equity loans are a great way to get out of a hole
Under a mountain of credit card debt and looking for a way out? Home equity loans may seem like the perfect solution because of the competitive interest rate.
But if you fall on hard times and default on the loan, everything goes downhill from there. In a worst-case scenario, an inability to pay back the loan could end up with you losing your home.
Have you received other questionable advice that I didn’t mention here? Sound off in our Forums. It’s the place where you can speak your mind, explore topics in-depth, and post questions and get answers.