These days, there’s no shortage of people spouting financial advice. The problem is, not all of it is good. Following unsound financial advice, without doing your due diligence, can lead to poor decisions and serious financial mistakes.
When it comes to money guidance, it’s important to realize most people aren’t experts and learn to decipher the difference between solid and terrible advice. By doing so, you can prevent a future financial fiasco.
Read on to learn:
• Why the worst financial advice gets passed along
• How to recognize terrible financial advice
• Examples of bad financial advice and how to avoid it
Money Advice That May Be Bad (for Your Situation)
Financial advice isn’t one-size-fits-all. Some people may think they know what’s best for you, but chances are, their pointers don’t pertain to your personal circumstances.
When they offer advice, what they suggest may have worked great for them but won’t for you. Staying savvy whenever you get unsolicited counsel is key to protecting your financial health.
Here’s 11 examples of money tips you should take with a grain of salt at and quite possibly avoid at all costs.
1. Renting is A Waste of Time
While it may be the American dream to own a home for many people, not everyone can or even wants to take on the expense and burden that comes with it. When you own a home, you’re in charge of paying for property taxes, homeowners insurance, maintenance costs, and more. All of these expenses can add up to cost more than monthly rent.
Owning also means if anything breaks or gets damaged, paying for home repairs will come out of your pocket. When something goes wrong with a rental, it’s your landlord’s responsibility. Renters also typically have lower utility bill payments because things like heat, water, and electricity are often included in your rent. Depending on where you live, you may also have access to amenities such as a gym, pool, or parking garage.
2. Follow Your Passions
Although it sounds nice, following your passions professionally rarely pays the bills. And it can also put you into a very competitive and crowded field, if your passion is one of the common ones; say, acting, singing, cooking, or creating art.
Passion might fuel you for a while, but unless you’re lucky enough to turn it into a profitable full-time career, you’re probably juggling a day job, various side hustles, or living with roommates. There’s nothing wrong with having a passion, but if it’s not your main source of income, it might be more sensible to switch to a plan B. Then you can focus on your strengths, build on your skills, and maximize your potential. Doing so raises the likelihood, you’ll be better able to financially support yourself.
3. Your Credit Score Does Not Matter
This bit of advice should sound the alarm bells. A subpar credit score can hold you back from achieving important goals and even gaining employment. Having positive credit helps lenders to recognize your creditworthiness and overall trustworthiness.
Your three-digit score impacts whether you’ll get approved for credit cards, mortgages, and other types of loans. A high credit score also can help you snag the best terms and interest rate for a loan once you are approved. Landlords, insurance companies, and employers may also do a credit check when you’re applying for an apartment, car insurance, and even a job.
4. You Cannot Be Financially Successful with a 9-5 Job
There’s a lot of advice out there to say avoid being “chained to a desk” and pursue more entrepreneurial ways to be successful. People can certainly achieve financial success without a 9-to-5, but the majority of individuals need a steady paycheck, medical coverage and paid sick days.
Working 9-to-5 also offers you the chance to build a nest egg if your job offers a 401(k)plan. If there’s a company match offered by your employer, that’s akin to free money and well worth nabbing, too.
5. Never Use a Credit Card
Be wary of someone who tells you to avoid getting or using a credit card. Their bad advice may stem from their own experience as an irresponsible card holder. Despite the warnings and horror stories you hear, credit cards don’t always lead to trouble or financial ruin.
Rather, credit cards can offer you one of the best ways to establish credit and show you’re fiscally responsible, especially if you pay your balance in full every month. Having credit cards help in times of an emergency and when your cash reserves are low. Other benefits include valuable perks that card companies offer such as points, cash-back rewards, and airline miles.
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6. You Don’t Have to Worry About Retirement Until Later
When you’re in your 20s or 30s, retirement may seem too far off to make it a priority. Friends, family, and acquaintances may tell you to enjoy your youth and not to worry about your old age until later.
However, the sooner you start to save, the more money you’ll have later on thanks to compounding interest, which builds earnings on your investment and on that investment’s interest. Putting off saving until midlife can put you behind the eightball, causing you stress and anxiety as you try to make up for lost time. Start early by taking advantage of your employer-sponsored 401(k) or contributing to a Roth IRA. Imagine how much better off you’ll be if you’re 65 with 40 years of savings versus only 15 or 20 years.
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7. The Best Way to Save Is Through a Savings Account
Back in the day, putting money in a savings account was often considered the gold standard for safely socking away your money. Talk to an older relative and you’ll hear about how 40 years ago or so, they managed to live off their savings account interest, when rates around 10% weren’t uncommon.
Today, on the other hand, you might get around 1% to 2% back on your savings, if you get the top interest rate (typically found at online banks vs. traditional banks). While a savings account is a solid place to put your money for near-term goals (like an emergency fund), it can be wise to look further afield as well. You might want to take on more risk by investing in stocks, which historically gives you the chance to garner greater returns.
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If you’re not sure where to start, talk to a certified financial planner or financial advisor who can help set you up with an investment portfolio. Financial advisors and planners do charge for their services, so shop around. If you’re concerned about the cost of a financial advisor, you might want to try getting investment recommendations from a less costly automated robo advisor.
8. YOLO (You Only Live Once)
YOLO, or “you only live once,” can be the rallying cry to spend freely; say, to lease a pricey convertible or take that trip to Cancun. While it’s true you only have one life to live, engaging in irresponsible, unmoderated spending can lead to consequences down the road.
Going overboard with the YOLO mantra now can catch up with you when you’re older, leaving you without any financial cash cushion or safety net or perhaps saddled with high-interest debt. It’s not a pretty picture.
Bottom line: Your YOLO-inspired shortsightedness and poor money management habits could leave you wishing you’d reined in spending and had focused on managing your money better.
Recommended: Tips for Creating a Financial Plan
9. College Is a Waste of Time
Gaining knowledge and education is currency, literally. Research has found having a college degree significantly increases a person’s job prospects and earning potential. For instance, a landmark Georgetown University study found that bachelor’s degree holders earn a median of $2.8 million during their career, 75% more than if they had only a high school diploma. Workers with more education may also benefit from greater economic stability throughout their careers.
College not only gives you the knowledge you need for a chosen profession, but it can also help develop important soft skills (character traits and interpersonal attributes) as well. For example, communication, teamwork, problem-solving, and decision-making are all soft skills that college students develop and employers pay close attention to when hiring.
10. You Only Have to Pay the Minimum Every Month
Some of the worst financial advice you can get is to only make minimum credit card payments. It’s better to pay your balance off in full when the statement comes. Why? Otherwise, you’ll end up paying interest that will keep your bill increasing and making it all the harder to whittle down your debt.
Credit card interest rates are notoriously high (currently, typically between 15% and 19%), and paying only the minimum can keep you in debt for years. There are helpful credit card payoff calculators online that can help you find the best schedule to get rid of your debt.
11. File for Bankruptcy
It may be tempting to follow the “Why not just file for bankruptcy?” suggestion if your financial problems seem insurmountable. Some people will tell you bankruptcy is the best way to get out of financial difficulty and make a fresh start.
Although the starting over idea may have some appeal, declaring bankruptcy involves many drawbacks. For example, filing for bankruptcy results in long-term damage to your credit, which will stay on your report for seven to 10 years, becomes part of the public domain, and makes it much harder to qualify for a mortgage, among other loans. Bankruptcy also doesn’t cover certain debts, such as student loans, child support, or government-owed taxes. So declaring bankruptcy may relieve some but not all financial hardship.
Before seriously contemplating bankruptcy, try seeking other alternatives including consulting a credit counseling agency, consolidating your debt, and negotiating with creditors. These steps can help address the issues you’re having without taking that more drastic step that should be considered a last resort.
How Bad Advice Leads to Bad Decision-Making
Taking someone’s money advice as gospel without careful thought and research is one reason why people may make poor financial decisions. Emotions are another. Debt can bring on feelings of helplessness, low self-esteem, and loss of hope. It’s also linked to depression and anxiety. When these emotions overwhelm you, you might feel desperate enough to follow bad financial advice, just to know you are doing something.
Tips for Avoiding Bad Advice
There are ways you can protect yourself from the traps of bad financial advice. Consider these suggestions:
• Carefully assess whether the advice someone gives you makes sense for your lifestyle and money goals. If you have any doubts about what they’re touting, trust your gut and don’t follow it.
• Educate yourself on the basics of personal finance by listening to podcasts or reading books written by credible money experts. You can also find accurate information and finance articles online on sites such as consumerfinance.gov .
• Avoid taking money advice from random people on social media. Many of the social influencers who tell you how to get rich aren’t always legitimate and often make claims that are too good to be true.
• When in doubt, seek out a qualified professional. Make sure you’re seeing a certified financial advisor or certified financial planner. Although they’re not licensed to give you the same type of financial advice that a planner or advisor does, a financial coach can help you understand the fundamentals of finance, attain goals, and develop better money management skills.
There’s no shortage of bad financial advice out there, and some of it might even sound good. It can encourage reckless financial behavior, whether that means overspending on YOLO moments or not worrying about saving for retirement until it’s too late. It’s wise to remember that solid money advice will come from trusted sources and be tailored to your specific situation, needs, and goals. Do due diligence before letting someone else’s advice sway your money management plans. You could dodge some serious financial risks.
One bit of financial advice that most experts will agree on is that earning high interest on your money and paying low fees is a win-win combination. You’ll find that when you open an online bank account with SoFi. Sign up with direct deposit, and you’ll earn a super competitive 2.50% APY, pay no account fees, and have access to a network of 55,000+ fee-free Allpoint ATMs. These perks can help your money grow faster. Plus, our Checking and Savings provides a quick and convenient way to manage your finances 24/7 while spending and saving in one place.
How do I know if my financial advisor is bad?
A good financial advisor takes into account your individual circumstances and doesn’t offer non-personalized, cookie-cutter advice. First and foremost, a good advisor should spend time getting to know you, your needs, and your goals. Signs of a bad financial advisor include pressuring you to make decisions; not letting you know how they’re paid; not being able to explain things in a way you can understand; encourages you to put all your money into one investment, and doesn’t return your calls or emails.
Who should I listen to for financial advice?
As mentioned above, a certified financial professional can be a good bet, but there are other places to go for financial information. Bank or credit union officers, your employer’s human resources department, and credit counseling agencies may be able to answer questions or make referrals. There are also government websites.
Can I sue my financial advisor if they give bad advice?
Yes. If you’ve lost money because your advisor misled you, gave you bad counsel, mismanaged your investments, or took other unlawful or unethical actions, you can sue for damages. Keep in mind though that it’s not a slam dunk. The merits of your case need to be strong and your claims provable. An experienced investment fraud attorney can help to recoup your losses.
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