We’ve all received financial advice that later left us scratching our heads in disappointment or confusion.
Self-proclaimed financial experts abound. Unfortunately, it’s tough to separate out the bad information found in books or on the internet.
But we can help you separate the gold from the dross. Here are some 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. Human behavior determines whether they are beneficial or problematic. If you are unable to resist swiping the magic plastic, your issues go deeper than a credit card.
Used responsibly, credit cards offer great rewards and eliminate the need to have a bunch of cash in hand. They also provide buyer protections. You just need to be disciplined enough to pay off the balance each month.
If you are looking for the perfect credit card, stop by our Solutions Center. Once there, search for the perfect credit card for you, whether you prefer cash-back rewards, a low interest rate or some other perk.
2. Following a rigid spending plan will set you free
What happens to avid dieters who have cravings but continue to suppress those urges until they can’t take it anymore? They give up and resort to comfort foods. Lots of them.
That’s why incorporating mad money into your spending plan is OK. If you never have any fun with your money, deprivation will usually backfire, causing you to break down and go on spending benders.
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 “The Secret to Achieving Your Dreams Without Making a Budget.”
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 is likely “none.”
As we write in “7 Questions You Should Ask Before Buying Life Insurance“:
“A parent of young children typically has a high need for life coverage, especially if he or she is the family’s primary wage earner. However, if you have no spouse or dependents, a life policy might not be necessary.”
4. 10% is the sweet spot for retirement contributions
Saving 10% 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% is not nearly enough.
How much will you need? Figure out what you will spend on health care, food, shelter and other necessities. Then, consider what you will get from Social Security and other sources. Filling in the gap will be your responsibility.
If you need help zeroing in on a specific amount, consider sitting down with a fee-only financial adviser.
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 that homes do not always appreciate in value as rapidly as you would like them to and that they do lose value.
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 pit
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. In a worst-case scenario, an inability to pay back the loan could end up with you losing your home.
If credit card debt has left you feeling overwhelmed, stop by our Solutions Center and find an expert who can help create a plan to turn things around.