The Money Advice You Shouldn’t Always Listen To
We’ve all heard it before — advice from so-called money experts that tell you what you should and shouldn’t be doing with your money. While some advice is certainly helpful in general, it’s important for people to get advice that can directly help with their current, unique situation and needs. And sometimes, it’s not what you should do with your money, either, but what you shouldn’t do with it. Here are a few bits of bad money advice that may be better left ignored.
1. Only Use Cash to Monitor Your Spending
Some people think that carrying cash helps you be more vigilant about how much money you’re spending on a day-to-day basis. While this might be helpful advice for someone who tends to swipe their card nonchalantly and doesn’t check their statement activity often, it could backfire for others.
For instance, are you likely to misplace your wallet often? What about building your credit — an important factor to locking in low rates? Going cash-only removes the opportunity to build credit, and it’s not a sure bet that you’ll spend less. So, use cash conservatively, and use your bank statements and online apps to stay on top of your spending.
2. Put All Your Money in a Nest Egg
Many money experts will tell you to put your money in a nest egg so that you have it there as savings. The problem with this is that your money is not working for you. It’s not compounding interest or going into investments that can pay you back with more money.
While it’s certainly important to have a cushion (at least six months of savings on top of whatever else you’re saving your money for), find other places you can put your money. You can try a pension or retirement fund, real estate, stocks and so on. But seek support and guidance from a financial advisor.
3. Life is Short; Spend Your Money
Some people will say that instead of putting your money in a nest egg or investing it, that you should just spend your money because life is too short. Though you should definitely enjoy meaningful experiences and do what makes you feel happy and that you are living your life to the fullest, it never hurts to put money away from emergencies, retirement, and for the next generation. It’s all about striking a balance.
4. Take Out As Many Student Loans As You Need
Student loans aren’t all bad, but you shouldn’t assume it’s your only option. Many people believe that having a college degree is the most important thing you can ever get in your life, even if you have to go into debt to get it. These same people believe that you’ll be able to pay off your student loan debt because you’ll be able to get a job that will pay you enough to be able to do that comfortably. But, this isn’t always the case, and student loan lenders can be predatory with high interest rates and difficult repayment terms and plans. You might find it hard to get ahead. Instead, take your time to look at grants and scholarships.
5. Save Up 20% For a Downpayment
If you’re thinking of buying a home, you may hear people mutter about the idea of putting 20% down. This isn’t a terrible idea, but think it through for your current situation and available interest rates. Putting 20% down is enough to lower your mortgage payments and not have to pay PMI. However, when interest rates are as low as they are (though this could change), it’s possible to get an FHA loan with 3.5% down. It may be worth it to take this route instead to keep the money in your savings and investments. Do your calculations for two scenarios, and decide which is best for you.
Be Careful With First Time Homebuyer Programs and Grants
There are homebuyer programs and grants that can assist you with funds for your down payment. However, like with student loans, you have to check the terms of these grants. Some of them will require you to stay in the same home for a number of years before you can leave it and/or sell it, otherwise you may have to pay a penalty.
6. Wait Until Later To Start Saving for Retirement
These days, it can take time to land your first full-time job, and because of that, people may choose to put off saving for retirement until they have a job that matches a 401(k). This might make sense because you feel you need to build up a cushion for yourself in the meantime. However, you’ll just be putting off savings longer and longer. The sooner you save, the better. Even if it’s a small sliver of your income, it’s good to get in the habit and have that money working for you — employer match or not.
Additionally, if you work as a freelancer, part-time or in a gig-economy, a 401(k) might never be in the picture. So, take action to save yourself with other solutions for saving. Consider investments, purchasing an asset, or putting your money in a Roth IRA. A financial advisor can help you get on the right track based on what you can afford to save today.