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When it comes to financial advice, it’s important to be aware of the good advice and the bad. Unfortunately, bad financial advice is everywhere and it can lead to some costly mistakes. It’s important to be able to recognize bad advice and to make sure you don’t follow it. In this article, we’ll be discussing five pieces of bad financial advice that you’re better off ignoring. From taking on too much debt to not having good emergency savings, there are many pitfalls that you’ll want to avoid. With this in mind, let’s take a look at the five pieces of bad financial advice that you should ignore.
1. Student Loans
Many students are told that college is always worth it, even if it requires student loans. The reality of the situation is that not everyone is better off incurring debt for a degree they potentially will not use.
It isn’t that college is a bad idea — for many, it is absolutely the right thing to do. But it’s not for everyone. Some people are better off pursuing apprenticeships to work in the trades, which are in very high demand. Or rather, if you are pursuing a degree in a lower-paid field, consider going to a less expensive college that still offers an excellent education, but at a reasonable investment.
2. Low Amount to Strive for in an Emergency Fund.
Many people have been told to set aside $1,000 in an emergency fund. Do we need emergency funds? Absolutely. And $1,000 is an acceptable place to start. But the reality of the situation is that in today’s economy, most emergencies will cost well over $1,000, so we suggest an amount that would sustain you for 3-6 months. The best practice to build this up is to consistently add $50 or $100 (or more) each month to your emergency fund.
3. Having Too Much Cash at the Bank.
Emergency fund? Check! Savings for a big purchase in the future? Check! Saving for retirement in a savings account? Not so much. Banks often pay low-interest rates, and your hard-earned dollars could be working for you so much better in your 529, 401k, IRA, or other investment vehicles.
4. You Only Live Once
While it is true that every day is a gift, it is not uncommon for individuals to take this approach to finances as well. The issue is that some individuals will take a YOLO (you only live once) approach to all things and risk their future retirement because of that. Certainly, we think life should be enjoyed to the fullest. We just think that you need to make sure long-term savings are taken care of first!
5. Your Risk Tolerance Should Be Based on Your Age
Sure, it makes sense that individuals in their 20s and 30s have more time to overcome a market downturn than their peers who are in their 40s and 50s. But that doesn’t mean all younger folks should invest aggressively, or that all individuals over 50 should invest conservatively. Many things need to be taken into consideration, such as: how long you plan to work, how much you will need in retirement, other sources of income, longevity, where you plan to live in retirement, etc. This piece of bad advice is right up there with every “one size fits all” piece of advice. It could be good advice for someone, but not for everyone!