9 Pieces of Financial Advice You Should Ignore

June 28, 2019

It seems like you can’t go anywhere without someone having an opinion or a piece of advice regarding your finances. We are inundated with financial articles, news headlines, and information from our families – solicited or not. While there are times when the advice shared may sound good, it very well may not be right for your particular situation so you have to be careful about the information you act upon.

Financial advice, no matter how well-intentioned it may be, can function like that old game of Telephone. It starts with one message, but by the time it reaches you it can end up communicating something vastly and, in the case of your money, dangerously different. 

Be sure to tune in to this week’s episode of The Money Guy Show as we uncover the nine pieces of financial advice you should probably ignore. 

Here’s What You’ll Find Out in this Episode:

The 9 Pieces of Financial Advice You Should Ignore:

  1. Pay off your mortgage as soon as possible. As a 20 or 30-year-old, your money is incredibly valuable for paying off low interest debt. Rather than rushing to pay off a mortgage, that money could be more effective by being invested and earning compounding interest. Time is on your side when it comes to compound interest. 
  2. Don’t waste money on rent. Part of the American Dream is owning a home. However, homeownership is a huge financial decision that shouldn’t be made hastily. Major life changes impact where and how you want to live, so before you buy, be sure to consider your dreams, goals, and vision for your future. 
  3. Buy the cheapest house on the street. Buying the cheapest home on the street because you think you have the greatest potential for increased appreciation is not necessarily sound financial wisdom. You can easily fall into the trap of ‘keeping up with the Joneses,’ and buy a home you can’t really afford to put too much money into home modifications. Remember, a good rule of thumb is to keep your total housing costs below 25% of your gross income. 
  4. Credit cards should never be used. Credit cards can be like knives. When they are used correctly they can be very useful, but when they are used incorrectly, they can hurt you. Using a credit card is not the same as carrying credit card debt, so if you are not carrying a balance every month, credit cards have plenty of benefits that make them worth using. 
  5. Go to college, because student loan debt is good debt. We agree that It is important to invest in yourself, but is college the only right answer? No. Debt is debt, so keep that in mind before you assume any, including student loans. It’s smart to keep your total student loan debt at or under your projected first year’s salary (in most cases). 
  6. Term insurance is throwing your money away. Term life insurance serves a need that should dissipate over time, which is why we like term insurance. Over twenty years your financial circumstances are likely to change, children are no longer dependent on you financially, and you are or are closer than ever to financial independence. Term insurance is much less expensive and the difference you save can help you accelerate other financial goals over that twenty year time span.
  7. The stock market is no better than gambling. The S&P 500 has gone up 74 percent since 1929. In the years that it is positive it is up 21 percent and only down 14 percent in the negative years. When you look at age, goals, and risk profile to build a portfolio, you can create a deliberate plan that takes you from the speculative side of investing, aka gambling, to a plan that can help you reach your financial goals.
  8. When the sky is falling, you should go buy gold. According to Warren Buffett’s 2019 Letter to Shareholders, the magical metal was no match for the American metal (S&P 500). In 1942, if you invested $10,000 in the S&P 500 it would be worth $51,000,000 today. If you invested $10,000 in gold in that same year, it would only be worth $400,000. Bottom line: Gold is no match for American business.  
  9. It’s deductible. Rental property is awesome, because you can deduct the losses….. Right? Well, hold on. Once your income reaches $100,000 to $150,00 you are not able to deduct the losses. We have had people tell us that there are many outlandish things that are deductible, but my mind always goes to a quote my first boss said, “It is all deductible until you get caught.” Don’t let the tax tail wave the whole financial dog. Many people get caught up in tax schemes and try to avoid having to pay our favorite Uncle. It is always better to do it right the first time instead of having to correct it later. Always make sure to stay on stable ground.  

Resources Mentioned in this Episode & Related Episodes

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