In the world of personal finance, it seems that everyone has their own one-of-a-kind tip on how to successfully handle your money. While some advice is credible, other advice is absolute garbage! Before working in the finance and investment field, I received an overabundance of financial tips from everyone who knew my interest in finance. Although I tried to be cautious, I did “try out” some of their tips – some to my benefit and others to my disadvantage. Thankfully, I did my research and was able to avoid several financial/investment disasters, which were enthusiastically advertised to me by some reckless and uninformed advisors.
Even though I am in the midst of a successful financial career, people still feel obliged to inform me on the proper way to handle finances. I always remain open to suggestions and success stories; however, I always do extensive research before changing the way I handle my personal finances.
Below are 7 of the worst pieces of financial advice that I’ve been given.
1.) You should never own a credit card
Let me preface this with the following statement: if you are irresponsible with money and tend towards heavy spending, DO NOT have a credit card. Although credit cards can be an amazing tool to earn financial rewards, they can also financially destroy you.
However, credit cards play a vital role if you are taking the steps to build a good credit score. During college, I got my first credit card and used it to increase my credit score. (This was the only reason I was able to purchase my first rental property a year after graduating college.)
I make 100% of my purchases using credit cards, but never spend more than I can pay off at the end of each month. (I have never paid interest on any of my cards – this is KEY!). By making all my purchases on the cards, I have earned thousands of credit card points and been able to pay for almost all of my vacations with my rewards and cash back.
2.) You NEED a new car – it will leave a good impression on your clients and peers
There may be an element of truth to this point, but let me explain why you should disregard this advice – especially if you don’t have the money.
A vehicle is NOT an investment! A vehicle is a depreciating asset – meaning as it ages, it rapidly loses its value. Stop viewing a vehicle as a social status symbol. A second-hand vehicle will still be “new” to you and it will also not leave a painfully large dent in your wallet. The average American takes 60 months to pay off a new car loan. This car typically depreciates about 22% in its first year.
I cannot tell you how many times I have been commended for driving an older vehicle. Many of my wealthy clients have been more impressed with the fact that I value financial stability over “appearing” wealthy and sophisticated.
3.) Don’t invest until all your debt is paid off
If you are highly insecure about your debt, then maybe you should focus on paying down your loans first. But, let me explain to you another way of looking at it.
Let’s say that your student loan had a 6% interest rate. However, what if your 401(k) had an 8% increase for the year and a 3% employer match. By paying down your student loan and postponing any contribution to a 401(k), you are essentially refusing free money (the 5% difference) that will compound over time into much more than your student loans will ever be.
4.) Refinance and consolidate all your debt into one loan
This is a touchy subject for many people because they believe that loan consolidation helps them keep track of their debt. This may be true – making it a good decision for some people.
However, this is why I would choose not to do it.
Let’s say that you have a car loan of $5,000 with a 4% interest rate, a student loan of $20,000 with a 6% interest rate, and $3,000 of credit card debt with 18% interest. If you want to consolidate these 3 debts into one $28,000 loan, there is usually a 3% consolidation fee included. On top of that, the consolidated interest rate could be a higher average rate than it would have been if you had kept the previous interest rates separate (Example: 9% consolidated interest rate plus the additional 3% consolidation fee vs. your previous average interest rate of 6.9%).
5.) Invest your home equity line of credit in the stock market
This is a crazy gamble! In the past, there have been several times that I could have made thousands of dollars by investing loan money in the stock market. However, I am a financially conservative person and refuse to make that kind of a gamble with money that isn’t mine. If you make this gamble and you lose, it could result in a financial disaster.
6.) Negotiating unexpected bills is pointless
Wrong! You can ALWAYS negotiate! You never know until you ask. I have been able to get hundreds of dollars off our vacations, bills, insurance, loans, etc. because I was willing to ask a few questions and negotiate the cost.
I know many people are timid or unwilling to negotiate, but you just have to take the leap! Take a deep breath, and ask for a better deal.
7.) Your wedding day is an investment, so spend as much as it takes
When did spending a whole year’s salary on a wedding become the normal thing to do? Your wedding day is the beginning of a new life together. Why start this new phase of life with unnecessary debt?
Kevin O’Leary, best known for his role as an investor on the ABC’s “Shark Tank”, recommends modeling your wedding after his – beer and pizza for the reception! Instead of having a lavish wedding, he and his new wife used their wedding savings to support their entrepreneurial aspirations.
Regardless of what you decide, NEVER spend more money than you have.
When it comes to your finances, always try to make educated decisions. Never take a leap of faith just because a friend or mentor told you to invest in something or spend it somewhere. Always talk to a financial authority and do some research yourself. In the end, you can’t blame anyone but yourself if things go wrong. However, with proper research and preparation, your risks will be dramatically decreased.
If you have any questions about this article, just let us know in the comment section below! We’d be happy to help you out!