It seems like more advice is given on the topic of money than any other aspect of life. Some of that advice comes from trusted sources and is helpful, but other advice isn’t always accurate. Part of the problem with financial advice is that we tend to repeat the things we’ve heard over and over again. Sometimes we trust advice simply because we’ve heard it so many times, rather than really trying to evaluate it for ourselves.
Another part of the problem is that everyone’s situation is different, and the context is important. What may be good advice for one person’s situation could be terrible advice for someone else’s situation. In this article, we’ll look at several common pieces of advice that you can ignore. Context is a big part of why you can ignore these rules. Many of them are often touted as absolutes that apply to everyone, but that’s not the case.
1. Renting is like throwing money away
This is one I heard a lot when I was growing up. I heard it so much that once I got out on my own and had a stable job, I wanted to buy a house as quickly as possible. Unfortunately, I wound up losing about $10,000 on my first home, but I learned a valuable lesson.
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While buying a home is preferable to renting in some situations, it’s not an absolute rule that should be followed blindly. There are several factors that you need to consider in the renting vs. buying decision, and the context of your own situation will determine which is the right move for you.
The biggest factor you need to think about is how long you plan on living in the home. Most experts say you should plan to live in a home for at least five years in order to offset the costs of buying and selling, but some experts go as high as seven years.
You should also think about your own preferences. Do you want to dedicate time and money to maintaining a home and property? Do you prefer the stability that comes with owning a home or the flexibility that comes with renting?
2. Your home is your biggest investment
Owning a home is definitely a big investment and it’s not something that should be taken lightly, but viewing it as your biggest investment can be damaging.
If you spend the majority of your life believing that your home is or should be your biggest investment, you’re likely to overspend on a house.
In the long-term, other investments can outperform the appreciation of your residence, so if you have too much of your net worth tied up in a home, you could be doing yourself a disservice. Remember, we’re not talking about rental properties that are generating cash flow on a monthly basis.
For an entertaining list of reasons why your home is not a good investment, see this article.
3. Budgeting is critical
One of the most common pieces of financial advice is to create a budget. As someone who generally advocates budgeting, I’m not suggesting that living off of a budget is bad. However, there are countless people who manage their money very effectively without a budget.
We’re all different. Some of us need a budget to stay organized and disciplined with our finances, but others thrive without the need for a budget.
Knowing where your money is going is more important than having a strict budget. You can track your expenses and have a good grasp on your finances without budgeting.
4. You need to save more
Anyone who is trying to improve their financial situation is typically advised to spend less and save more. While spending less can be a good thing, you may be better off by focusing your efforts on increasing your income.
You can only cut back so far. If you already live a relatively frugal life, you may have to work really hard to find more ways to save. And the options that you do find for saving money are likely to have progressively less impact.
On the other hand, there is no limit to how much money you can make. Increasing your income can have a drastic impact on your overall finances. If you continue to manage your money wisely after increasing your income, you’ll have more to save and invest.
Rather than focusing so much on saving, some people would benefit more by dedicating their efforts to making more money.
Increasing your income could involve asking for a raise, working overtime, getting a promotion, finding a higher-paying job, or starting your own side hustle to make extra money.
5. Use cash and avoid credit cards
Some financial experts, like Dave Ramsey, strongly advise that you use cash for everything and never use credit cards. Of course, the reason for this advice is that mismanaging credit cards can lead to debt, and if you don’t even have a credit card you can avoid the possibility of credit card debt.
Credit cards aren’t the problem. There are actually a lot of benefits to paying with credit cards. The most obvious benefit would be cash back or rewards that you can use for free travel. If you use a credit card for the majority of your purchases, these rewards can quickly add up to something significant. With a little bit of effort, you can maximize your credit card rewards and get a lot of money or free travel for the things you need to buy anyway.
Aside from the rewards and cash back, there are other credit card perks like not needing to carry cash, protection from theft, car rental insurance, and extended warranties.
Saying that no one should use credit cards because some people don’t manage them effectively is bad advice. If having a credit card causes you to spend more money and rack up debt, then you’re better off not having a credit card. But if you only use credit cards for things you would buy otherwise, there is a lot of benefit to having them.
6. You need to go to college to have a successful career
Getting a college education can be a great thing for your career. However, a college degree does not guarantee that you’ll be able to get a job or have a successful career. And with the costs of a college education constantly increasing, it’s not a good idea to go to college simply because it’s the thing to do.
Millions of college graduates have huge amounts of debt and jobs that don’t pay enough to justify the student loans that will burden them for years.
There are plenty of good jobs that don’t require a college degree. Learning a trade or a skill can be equally productive, will allow you to start working and making money quickly, and will reduce the likelihood of student loans.
7. Your expenses will decrease after you retire
When planning and preparing for retirement, a lot of people will tell you that your expenses will decrease after you retire. You won’t be spending money commuting to a job, you may have paid off your mortgage, and you won’t have kids to provide for.
While there certainly are some expenses that are likely to decrease in retirement, there are other costs that are likely to increase. According to a study, 33% of households see their expenses increase during the first six years of retirement (source).
Although there are several costs that can increase in retirement, health care, and long-term care are often responsible for the most significant increases. If you’re planning on a bare-bones budget in retirement, you could be in for a nasty surprise.
These examples demonstrate why you should not blindly follow all of the financial advice that you receive. Remember that the context of your own personal situation can impact what is good advice and what is bad advice.
Marc has been a full-time blogger and internet marketer since 2008. His current project is the personal finance blog VitalDollar.com, and he’s also had blogs in other industries like web design, photography, and travel.
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