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!).
Related articles:
- Bad Money Mistakes Couples Should Avoid – They May Be Making You Poor and Stressed Out
- Why I’ll Never Buy A Timeshare
- How To Live On One Income
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?
RunDebtFree Pete says
I have not found anyone who’s advised not saving your receipts, but it’s definitely scary to think there are people on TV spouting that kind of craziness.
The one I’d add to the list relates back to number 4 on your post last year about this. I had a friend who leased a new vehicle for her LLC that she would also use as her primary personal car because of her tax advisor. When she told me this, I let her know that if I was given that advice by my advisor, the next words out of my mouth to them would have been “You’re fired”. Unfortunately, but not extremely surprisingly, a few years later she found out that advisor was doing a number of “less than ethical” things as well and ended up having a lot of back taxes to take care of… and of course, she was stuck in that lease as well.
It just goes to show you that there is some horrible advice floating around out there, even from “professionals”.
Michelle Schroeder-Gardner says
Yes, I have never heard of anyone saying not to save receipts except for the TV person also. I still can’t believe it!
diane @smartmoneysimplelife says
I’m amazed that anyone can believe you don’t need to keep receipts… How do prove the purchase is a legitimate tax deduction if you can’t even prove the purchase happened?
One of the most important things for everyone to do is learn the difference between an opinion and a fact. Unfortunately, lots of people believe every word they hear from the talking heads on the TV. Scary stuff!
I actually laughed out loud at the one about the emergency fund. It’s like saying you don’t need car insurance if you’re a good driver. Crazy!!!
Michelle Schroeder-Gardner says
Haha that’s a good point. I’m going to say the driver thing next time someone tells me they don’t need an EF 🙂
Natalie @ Financegirl says
The monthly payment kills me! I cringe when I hear people determining whether they can afford something based on their cash flow for the month. It’s not how it works. In Secrets of the Millionaire Mind, T Harv Eker talks about how that’s “poor minded” and how rich people don’t think like that – they think about paying for the total purchase.
Michelle Schroeder-Gardner says
Yes, it kills me too!
Luke Fitzgerald @ FinanciallyFitz says
Geez – it’s hard to beleive that advice is still floating around. And people follow it! I think it boils down to the old adage: The right decision is usually the hardest. It’s “easier” to not have an emergency fund. It’s “easier” to make monthly payments instead of one big payment. It’s “easier” to justify buying a house. Good stuff!
Michelle Schroeder-Gardner says
Thanks!
Kate @ Cashville Skyline says
I have some friends who definitely shouldn’t have ever bought a home. It’s a ton of work and can be really expensive! Owning a home can be a great investment…or a money pit.
Michelle Schroeder-Gardner says
I agree! I can’t wait until our current home sells, that’s another thing most people don’t think about. What if we would have bought in our new area and hated it? We would have been stuck with selling both!
Christina @ Embracing Simple says
Don’t keep your receipts for tax purposes?! Excuse me while I’m face palming hardcore over here ;). Haha that’s terrible advice! I like this part 2 post, it’s pretty amusing (and horrifying) to read about the advice some people will give!
Michelle Schroeder-Gardner says
I know, right?!
Holly@ClubThrifty says
An older family friend once told me that the best way to buy a car is to finance as long as you can and trade in every 5 or 6 years. As long as the payment stays the same, you basically get a free “car upgrade” each time. Ummmmm…..no!
Michelle Schroeder-Gardner says
OH GOD
Cindy says
As someone who lost a lot of money on an affordable house that was a great deal (at the time), I couldn’t agree more! While I’m happy where I ended up, being stuck with a house I couldn’t sell limited so many opportunities for me. I’m not against buying a home again, but next time we’ll make sure it’s something we’ll stick with for the long haul!
Michelle Schroeder-Gardner says
Yes, this is how we feel. Our current home is still on the market so until that sells I’m going to make sure that our next home is something that we 100% want.
Rebecca says
Wow. I’ve been given some pretty dumb financial advise before but most of these are just crazy! I’ve always kept my receipts, and had some sort of emergency fund! Matter of fact the one time I have left my emergency fund at only $1,000 I ended up having to get a new used car because my car died for good and ended up taking a loan for it! If we had kept the emergency fund high like I had before we would’ve been able to buy it straight cash! You sure bet we have a nice cushy Emergency fund again now! Well worth a super strict year of finances to pay that car of and save our 6 month emergency fund! 🙂 some of the best financial I received was from my parents and then Dave Ramsey!
Michelle Schroeder-Gardner says
Yes, I love having an emergency fund. Well worth it!
Chonce says
I’ve heard the last two numerous times. Sales people help trick a lot of consumers into buying things that they know they can’t afford just because the monthly payment is somewhat reasonable. Just because you can afford the monthly payment, doesn’t mean you can afford the item and the interest that comes along with it.
Michelle Schroeder-Gardner says
I agree!
JC says
An emergency fund is only for people who are bad at their job? What if you house burns down with your car in it. Do you really think insurance is going to get itself together to get you a place to stay and a way to work on Monday? Seriously?! I can’t even.
The monthly payment is all that matters if you don’t mind paying through the nose for interest down the line.
I swear it’s no wonder some people have so much trouble with this kind of stuff.
Michelle Schroeder-Gardner says
I know! It’s sad that some actually follow the advice above.
Christopher says
I agree, the advice are a bit of a joke. Emergency funds are essential and individuals should consider applying money to the emergency fund beyond six months or a routine in case thier job(s) is eliminated. Renting a home is a great step of being independent especially starting out. When I work at the family rental properties, people would rent due to location convenience to work, and essentials (laundry at, public transportation, schools, market, etc.). Buying a home does not mean an individual is better than the rentor. We make decisions to accommodate our needs. Monthly payments is not the only concern a potential buyer should look for in a home. I recently had a decision to make on a startup rental home (two rental units) or a house that has an apartment in the back (three unit rental property). Initially I would look at the payback period from the investment or how long will it take to get my money back from either project. Net present value will include the investment of time value of money. In addition reviewing the loan options of different loan institutions and assessment & taxation database for property are helpful to compare the listing price to the property.
The silly advice I heard from a cousin coming from the Philippines was “mga kuripot (cheapskates) have a lot of money and are not the best candidate to be married to since they tend to not buy anything”. This cousin of mine is currently in debt from her credit cards maxed out. She had an expensive wedding which the food was not filling for $50.00 a guest. she took a pay cut moving to Seattle that was more than half her salary in Baltimore city. She would also agree with most or even all of the four advice on this post.
For what it is worth, I do care for my cousin coming from overseas. It is just not my intention to compete with the joneses about wealth. I would rather accommodate my expenses and increase my cash flows to generate & manage revenue for other things like other investments instead of liabilities that can depreciate in value like her second-hand BMW (total wreck and still had payments). I have a 2001 Saturn coup (paid off) that has been through damages from weather like blizzards. Of course people hitting me while I’m at a stop sign claiming they could not see me on broad daylight during my birthday was not an experience I had in mind. It is still working and I mainly have it to get me to work. It only needed a refurbished engine, airbags, and a replacement model kit for the front where I got the parts from a junkyard. Crazy Rays junkyard allowed people to take what they need from total wrecked vehicles but pay at the counter. You can pay them to remove the parts or DIY. ^_^
Michelle Schroeder-Gardner says
Trying to keep up with the Joneses is not worth it. It just leads to a lot of trouble and who is happy living a life like that anyways?
Jess says
Yikes! “Emergency Funds are only for people who are bad at their jobs” actually made me laugh out loud! What a scary thought to believe that you don’t need any emergency savings if you consider yourself to be good at your job…hopefully it’s not a job in finance 😉
Michelle Schroeder-Gardner says
I know!
Fervent Finance says
What’s sad is the people willing to share their “advice” are usually the ignorant ones on the subject. And the educated / well researched people like us tend to nod our heads in disbelief… maybe I need to speak up more and say “THAT’S TERRIBLE ADVICE!’
Michelle Schroeder-Gardner says
Haha I should probably do that as well.
Cindy Brick says
My favorite bad advice is something Husband took advantage of, decades ago:
Never invest, based on a radio show.
He heard about wireless licenses…supposedly when cellphones got big, you would get paid a lot for your share in these. Not only did he research the firm with the BBB in California (which said, since they had nothing on them, they were ‘okay’), but he called someone else who said they were a big investor…and approved it.
The saleswoman told Husband she and her parents were also investing. (BTW, I have no idea if any of these stories were true, or if that really was a big-time investor.)
We got a flashy prospectus in the mail. Fortunately, we had limited funds at the time to invest: about $3700. (I cannot tell you how much that money represented to us at the time — a lot more than it sounds today.) I was skeptical all along about this, but allowed myself to be talked into it. Even when we mailed the check, I almost cancelled it at the credit union.
We never heard from the company again. Our letters were returned, and the phone numbers didn’t work. Big surprise, huh.
The best thing to come out of this: Husband, who is a lovely man, but has always had a “get-rich-quick” bent (inherited from his dad, I think), has been far more careful about where he invests his (and our) money, and checks them out thoroughly.
I try not to think about what that lost $3700 could have purchased.
Michelle Schroeder-Gardner says
OH no!
Kayla @ Shoeaholicnomore says
I was car shopping a few months ago when the salesman asked me how much I wanted my monthly payment to be, not how much I wanted to spend on the car in total. I wanted so badly to tell him that the monthly payment is NOT all that matters and is not my first consideration in car shopping.
Michelle Schroeder-Gardner says
Sadly, many fall for it!
Shannon @ The Heavy Purse says
It scares me how some so-called money experts can give such terrible advice and still be considered an “expert”. I hate to even imagine how many people took her advice and could find themselves in a pickle if they get audited. And sadly, she won’t be the one to have deal with the problem! While I believe home ownership can be a wonderful investment, it – like all investments – doesn’t mean it’s right for everyone. There are absolutely times when renting makes more financial sense and I know plenty of homeowners who wished they hadn’t rushed into home ownership too.
Michelle Schroeder-Gardner says
Yes, some experts should not be experts!
Shannon @ Financially Blonde says
I have heard that receipt advice and I think it’s because you don’t necessarily need a receipt for expenses under $75; however, there are exceptions to that IRS rule and I think it’s better to be safe than sorry.
Michelle Schroeder-Gardner says
Yes, definitely better to be safe. Throwing away ALL receipts just sounds ridiculous.
Stockbeard says
I’m not totally sold on the emergency fund. My “emergency fund” represents 75% of my monthly expenses, which is way lower than what most people typically have. This is because I’m willing to take the financial risk of having to sell some of my other investments if I need to. Given how often one might need the emergency fund in their life, I still think this is the right move from a risk/return perspective.
Michelle Schroeder-Gardner says
My EF gives me lots of comfort, so I love it 🙂
Lori says
Worse one ever was my BIL cautioning me about paying off our mortgage because we would lose the deduction. :-0. Yeah we went ahead and paid it off. 😉
Michelle Schroeder-Gardner says
Good job!
Mark@BareBudgetGuy says
My wife trying to convince me to go get a professional haircut…never.
Michelle Schroeder-Gardner says
Haha!
Jason Butler says
I’ve heard that its “always better to buy a home” crap before. I just shake my head when people tell me that. They forget that people are in different situations.
Michelle Schroeder-Gardner says
I agree!
Brittney @ Life On A Discount says
I have unfortunately heard similar things about Emergency funds or people say, “don’t leave it in a low interest savings account, put it in the market.” I just want to say, “No, no, no, that’s not how it works!” If you cannot afford to lose the money, don’t put it in the market. Emergency funds are not meant to be used as a gain/loss risk. Low interest accounts aren’t sexing or lucrative, but they are safe and stable!
Michelle Schroeder-Gardner says
Ugh! So much bad advice.
Kirsten says
I’m with you on renting. We get relocation assistance with our upcoming move, including a specialist who can help you decide what area is best, etc. but they don’t underserved our church situation. Unless they are a runner, they don’t know where all the locals meet to run. Getting in the area is best before buying… Especially if you have no idea when your house will sale, like ours 🙁
Michelle Schroeder-Gardner says
Ours is scheduled to sell this month but there have been some hiccups. Ugh!
Jesse Gernigin says
O man don’t keep receipts, that’s nuts. I was audited one year because of a crooked CPA I worked with. My documents were the only thing that kept the IRS from ruining my business. As for buying a house it can be cheaper in the long run but the amount of time and energy you have to invest just to keep your house ‘up’ can far outweigh any value you get out of your house. My last statement assumes that your house doesn’t end up needing major renovations or replacements to.
Michelle Schroeder-Gardner says
Yes, buying a house may be cheaper in the long run in some cases but if you don’t know where you want to live, then buying may not be a good idea. I am already stressed with trying to sell our current house so I want the next one to be perfect!
Dane Hinson says
Some truly terrible advice! I hope that you worked to educate those that passed this information 🙂
Emergency funds are so critical for the many unexpected issues that can pop up in life outside of a job loss. It protects your retirement savings, keeps you out of debt and gives you peace of mind.
Michelle Schroeder-Gardner says
I agree Dane!
Amy @ DebtGal says
Yeeks! Anyone who’s been alive for the past ten years or so should know that the one about emergency funds isn’t true!
Michelle Schroeder-Gardner says
I agree!
Michelle Schroeder-Gardner says
Yeah, I’m loving it! Can’t wait until our house is sold.
Michelle Schroeder-Gardner says
Agreed!
Millennial Money Man says
Ugh the emergency fund one made me cringe. The worst advice I think I’ve heard lately was: “Don’t ever pay cash for a car because it’s a depreciating asset, you should always finance instead”. I think he didn’t know how financing worked…but I didn’t even know how to respond.
Michelle Schroeder-Gardner says
Oh no!
Sarah says
All of these are very scary. If I had taken any of this advice, I would’ve been screwed over in a way I’d never have recovered from. When I moved from MI to AZ, I moved for a job and I had to keep all of my receipts (and still have them since it hasn’t been 7 years) in order to get the deductions for a cross country move. (I got $2,000 in addition to my regular refund).
The emergency fund one is especially scary. My husband’s company is doing layoffs right now and they are laying off about 50% of all employees. They culled through his department (he still has his job… phew) but there were a lot of people who were great at their jobs that lost their jobs. Being good at your job doesn’t mean you’ll still have a job. What if the company is bought out? Closed? Goes bankrupt?
You just never know…
Michelle Schroeder-Gardner says
I’m glad your husband still has a job. This is exactly why EFs are needed!
Abigail @ipickuppennies says
Wow, these are terrifying pieces of advice.
I think maybe the “receipts” tidbit has more to do with the unlikelihood of actually getting audited. But still… eesh.
I’d never heard of the emergency fund rationale. That’s just so very very inane.
I’m impressed that you haven’t shaken anyone yet. Because I totally would have.
Michelle Schroeder-Gardner says
Haha I usually stay quiet but maybe I should butt in!
Lynn says
My favorite that I keep hearing: “Buy gold! It never depreciates!”. Um….
And from my DH – he prioritized new windows over getting dampers installed on fireplaces (3). I gave in. Energy savings from new windows was negligible. The next year we got the dampers installed and heating/cooling costs went down 30%.
Michelle Schroeder-Gardner says
Oh no! Glad your heating and cooling costs are down by 30% though.
Michelle Schroeder-Gardner says
I have heard this one so many times. People should save sooner rather than later!
Gary @ SuperSavingTips says
Wow, that’s unbelievably bad. Especially the emergency fund advice. If you get hit by a car, need serious medical attention, and can’t work, it doesn’t matter if you’re the top expert in your field. I don’t think I’ve ever heard advice that bad.
Michelle Schroeder-Gardner says
Right?!
Barry @ Moneywehave says
One thing I hear at work all the time that drives me nuts is “I don’t care about the stock plan because I’m investing in other things.” Really? So you don’t like free money?
Lisa says
These are all pretty shocking, but I found the emergency fund one to be really sad! Emergency funds aren’t just for lost income, they can be for unexpected expenses. An emergency can happen to ANYONE! No one is immune!
Tom Johnson says
I am truly an advocate of having a emergency fund to fall back on. I think everyone should have about 6 months of income saved in an interest bearing account. One never knows what could happen to them tomorrow, you could get injured at work, have a car accident, lose your job, etc. I lost my job and thankfully I had money set aside to cover me while I was waiting for employment to kick in.
Hammo says
That’s some really sound advice, right there. I wonder if the TV presenter ever has to retract their comments about throwing away receipts?
And those minimum monthly payments should be illegal. I once had a credit card bill and if I just paid the minimum monthly payment, I’d be finished paying it off in 17 years, and that’s only if I didn’t add any more debt to the card.
Of course I just paid off the balance as I do every month.