Last summer, I published the post The Worst Money Advice I’ve Ever Heard. In that post I talked about some crazy bad advice I've heard. Since then, I have heard even more bits of bad financial advice that I knew I had to share.
As a personal finance blogger, I get asked many personal finance questions.
Before I respond, I usually ask the person what they believe they should do.
One of the first things I usually hear is advice that they were given by another person. Sometimes the advice is great, but other times I can’t help but cringe and then I have to try my best not to let my jaw hit the ground.
I really wish I made up the bad advice below, but sadly they are all true. Some I overheard, some I heard from others asking me if the advice was something they should follow, and some I actually heard from financial “experts” giving to a large audience on TV (AHHH!).
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Below are four bad pieces of financial advice I have heard recently.
You never need receipts for tax purposes.
I actually heard this “tip” on a national news program, which really scared me.
The expert was telling everyone that receipts are never needed for tax purposes and that you can just throw them all away.
I couldn't believe my ears!
Wes heard the “tip” as well and asked me why I always save my receipts if I don't have to. I had to tell him that this expert was confused and was going to cause a whole lot of trouble for everyone.
This bad financial advice was extremely shocking to me and I still cannot believe it.
According to the IRS, you must keep receipts for anything that you plan on deducting. If you get audited, you need to show the receipt or a copy of the receipt as proof of the expense.
Please, please, please keep any receipts that you need for your tax return. You never know when you may need it.
Emergency funds are only for those who are bad at their jobs.
Some believe that emergency funds are only for those who are bad at their jobs and are at risk of being fired. This bad financial advice couldn't be further from the truth though!
An emergency fund serves so many purposes. It can help you with costs relating to a layoff, a job loss, an unexpected expense, and more.
Plus, no matter how great you are at your job or how stable you believe it is, there is always somewhat of a chance that something may happen.
Related article: Everything You Need To Know About Emergency Funds
The monthly payment is all that matters when making a purchase.
Salespeople often like to push monthly payments on customers and sadly many people believe that the monthly payment is all that matters as well.
I was recently in a coffee shop and I overheard a conversation that someone was having about a home they were planning on buying. The main person wasn't sure if they should buy the home because of the price. The other person said they should buy the home because as long as the monthly payment was “good,” then that was all that mattered.
I wanted to chime in but I'm assuming that would have been awkward.
The monthly payment is not all that matters.
It can be easy to be blinded by the cost of something when it is spread out over a period of time. However, you should think about the whole purchase and whether it is worth it or not. Plus, with a house there are many other costs that go into the cost, such as property taxes, home insurance, maintenance costs, and so on.
Before you make your next purchase, add up the total cost and make sure you can afford the whole purchase, not just the monthly payment!
I recommend you check out Personal Capital (a free service) if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com, but much better as it allows you to gain control of your investment and retirement accounts, whereas Mint.com does not. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it’s FREE.
Always buy a home instead of renting one.
Many believe renting a home means that you must be bad with money and that you cannot afford to buy a home. I've had numerous people in person and through my blog tell me that I'm making a huge mistake by renting, which I believe is ridiculous.
Renting does not mean that you are making a bad decision.
There are many reasons for why a person may want to rent instead of buy. The reasons may include (there are many more reasons than just the below):
- You may not know the area well and you want to see what is best for you.
- You're not sure if you want to stay in the area for long.
- You're waiting to save up for a down payment.
Since we are living in a brand new state and since the house we own is still on the market, I am making sure that my next home purchase is 100% what I want. What could be wrong with that?
What do you think of the bad financial advice above? What bad advice have you heard?
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