Between running this personal finance blog, and the fact that I've always been fairly open about money, people love talking about money with me. So, over the years, I have heard countless pieces of bad financial advice.
Plus, people just love giving others advice. Yes, I've heard great financial advice, but some of it has really been awful financial advice, that I knew was bad even as a kid.
Some of the financial advice I've heard has had me shaking my head in disbelief, and others have left me wondering how that person has made it so far in life.
Money is a funny subject like that, though. And, until we start talking about it more openly and spend as much time learning about finances as some of us do reading the latest gossip, watching sports, or something else, then we still have a long way to go.
It's been almost four years since I first published The Worst Money Advice I’ve Ever Heard. Today, I want to continue on that – talk about some that I mentioned four years ago (some of those still make my jaw drop on the ground and make want me to bang my head on the wall) as well as bring up some more that I haven't discussed.
- 15 Reasons You’re Broke And Can’t Save Money
- 30+ Ways To Save Money Each Month
- 8 Things To Sell To Make Money
- How To Ditch The Revolving Debt Cycle
Below is the most awful financial advice I've ever heard:
Take out more in student loans for vacations.
This is always the first one I tell because of how bad the financial advice is. Seriously, it's the worst I have probably ever heard in my whole life. Sadly, I've heard it more than once, and I actually know of a few different people who have done this.
The person that gave this advice was borrowing around $40,000 in student loans each year at interest rates of around 6% to 8%. They did it for around six years, which means they have a significantly large amount of loans.
The thing is, they've never gone to an extremely expensive school. They would take around $10,000 out for actual school purposes each year, and then they spent all of the leftover money on vacations and multiple timeshares (they don't use any of it for living expenses, as they work full-time and used that income to live off of). Their other top piece of advice was to buy lots of timeshares.
So, they would spend around $30,000 a year from their student loans on having “fun.”
Nope, I'm not even kidding!
My mouth dropped. I didn't even know what to say.
The really sad thing is that this person was trying to convince others to follow this really awful piece of financial advice.
Buying a home is always better than renting.
Many believe renting a home means that you must be bad with money and that you cannot afford to buy a home.
However, renting does not always 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 (and there are many more reasons than just what’s listed below):
- You may not know the area you are moving to, and you want to see what is the best fit for you before purchasing a home.
- You're not sure if you want to stay in the area for long.
- You're waiting to save up for a down payment.
Just like how renting isn't for everyone, buying isn't either.
Co-signing a loan doesn't have any consequences.
I once heard about a person who has co-signed on several different loans. They didn't think it mattered because they're not the “main” person on the loan. They also thought it was okay to co-sign because all you're doing is helping someone with their credit, and that nothing bad could come from it.
This financial advice honestly scared me because a lot of damage can come from this. And, because it’s often family that does this for one another, it can cause unnecessary tension with your loved ones.
If you co-sign a loan for someone, you are liable for it if they fail to make payments on it or if they, sadly, pass away.
You should always lend money to family.
To go along with the above, I recently heard someone say, “They're not a true family member if they won't lend you money.”
I could not believe it. To me, mixing money and family/friends is a tough situation to tackle, and you must proceed very carefully.
I have personally seen relationships go completely bad because of money, and it's not a fun situation to be in.
Pay interest on your credit card to improve your credit score.
I've heard this one quite a few times. Many people believe that the only way to improve your credit score is to carry a credit card balance and pay interest fees.
That can be horrible financial advice because interest fees on a credit card can be expensive, sometimes more than 20%!
If you want to use a credit card to improve your credit score, I recommend paying off your balance in full each month, before any interest charges are made, and using less than a 30% utilization rate.
There are other ways to improve your credit score too. Here are my general tips for increasing your credit score:
- Make sure to pay your bills and accounts on time. Late payments can hurt you.
- Regularly check your credit report.
- Keep your balances and utilization rate low.
- Ask for your credit limits to be raised.
- Pay before your credit card balance is reported.
- Keep your credit card accounts open if it makes sense, such as to lengthen your credit history. However, if you think you'll go into debt with them open or if the annual fees aren't worth it, you may want to think about closing them instead.
I deduct that off my taxes, so it's legal and you can do it too.
I hear this one all the time, and it's so bad. Some people assume that since the IRS hasn't caught them deducting an incorrect expense on their tax return yet, that it's completely legal. Wrong, it’s actually a federal crime.
Just because you do it, doesn't mean that you should be telling others that they can knowingly claim false or incorrect expenses.
Eventually, that person may be caught, or you may be caught before them! Whatever the case may be, being legal is always the best way to go.
Emergency funds are only for those who are bad at their jobs.
Some believe that emergency funds are only for those who are at risk of being laid off or fired. This bad financial advice couldn't be further from the truth though!
Having an emergency fund is actually great financial advice, and it can serve so many purposes. It can help with more than just a layoff or losing your job for any other reason. Emergency funds can help cover any type of unexpected expenses, such as emergency home repairs, health issues, and more.
Plus, no matter how great you are at your job or how stable you believe it is, there is always a chance that something may happen.
Related article: Everything You Need To Know About Emergency Funds
You don't need to save money when you're young.
I'm all about living life and enjoying yourself. I also think money is meant to be enjoyed.
However, I think there is room to do that and save money.
Saving when you’re young is actually one of the smartest things you can do, and because of compound interest, it’s especially good to start investing when you’re young.
I've heard people say you don't need to save money when you're young because retirement is far away, meaning you should spend all your money now and enjoy yourself. I've also heard that you shouldn't save when you're young because you can rely on others.
Both of those reasons just make me cringe. You can't predict the future and who wants to rely on someone else for money just because they are young?
It won't kill you to save at least a little bit out of each paycheck. Plus, the more you save now, the less it will hurt later.
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.
Once, I was in a coffee shop and 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 factors that can add to 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.
Only people with money problems have credit cards.
I've had a credit card pretty much since the day I turned 18. I've always used them, have never carried a balance, and I have never paid money towards interest.
Several years ago, I took my credit card out to pay for a purchase. One of the people I was with told me to put it away and that they would pay for it since I couldn't afford it.
I looked at them confused…
I asked, “What do you mean I can't pay for it?”
This person started to tell me that only idiots carry credit cards and that I must be tens of thousands of dollars in credit card debt, and that they couldn't believe my debt had gotten that bad.
They told me to get rid of my credit cards immediately because they would ruin my life. They also said there was no way to responsibly use credit cards.
I remember standing there laughing because I had no idea where all of this was coming from. I tried to convince them I was okay, but I'm positive they still don't believe me to this day.
Don't get me wrong. I DO understand there are people out there who should only stick to cash, but I also think there is a way to use credit cards responsibly and to your advantage.
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 that this bad piece of financial advice was going to cause a whole lot of trouble for everyone.
I still can’t believe I heard this from someone with such a large audience.
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.
What bad financial advice have you heard? What bad financial advice have you followed?
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