5 Pieces of Financial Advice You Can (and should!) Ignore

When it comes to finances everyone has an opinion, and most people are willing to share it with you (whether you ask them to, or not). Financial advice abounds, but some advice is just not solid. How can you tell the difference between good financial advice and bad financial advice? The American economy is an ever-changing reality with factors like interest rates, inflation, recession, unemployment, the stock market and the housing market affecting how far our dollars go and how hard we can make them work for us. There are some financial principles that just make good sense, no matter what’s going on with the economy, and some money advice that will get you in trouble every time. Here are some examples of financial advice you can feel free to ignore, and why.

1. Wait to save money, there’s time. Some folks are of the opinion that it’s wise to spend now and save later. Enjoy life, they say. Take those expensive vacations while you can, because you never know what tomorrow brings. For that very reason, you should have some money set aside! Because tomorrow does come and Murphy’s Law can affect it severely, savvy financial counselors will advise you to have an emergency fund of three to six months’ worth of basic living expenses like rent/mortgage, food, utility bills, insurance, and a gasoline fund set aside. Financial preparation like that means in case of a sudden job loss, accident, or medical emergency you’re not worrying about making the house payment, keeping the lights on, or having food to eat. We’re not saying you can’t take that vacation, just that you shouldn’t go into debt for it, which leads us to our next piece of financial advice you can, and should, ignore.

2. Some debt is good debt. Some financial experts characterize debt as either “good” or “bad,” using a number of factors to reach that conclusion. We are not here to argue their logic, we’re here to offer you some sound financial advice based on common sense. There is no such thing as good debt! Think about it; if you don’t owe anyone anything, the only financial obligation you have from month to month is your living expenses. If you’ve followed the advice of setting up an emergency fund we suggested above, you’ve got those expenses covered for at least a few months, and there’s nothing anyone can take from you. That means you can breathe and take time to figure out your next move without bill collectors knocking on your door. Avoiding debt means avoiding monthly payments that reduce your cash flow. It also means that you can avoid losing money to interest payments and other fees, even if it’s only a small amount.

3. New cars are a good investment. No, they’re not. A new car depreciates the second you drive it off the lot, and it keeps going down from there. Unfortunately, almost half of the adults in this country depend on an auto loan to have something to drive them to work (so they can get paid and make those car payments). Curious as to how much we’re spending on our vehicles? The average new car loan payment is over $500 per month. That adds up to over $6,000 every year! Imagine the vacation you could take if you had that money in cash, saved at the same rate of $500 per month because your car is paid for. Tropical islands, here we come! So much for waiting to save money. Payments for used cars aren’t that much better, averaging close to $400 per month. A much better plan is to drive a car you can afford to pay cash for, even if it means driving something slightly less than perfect while you save for a better, newer model. That will feel much better than being part of the American public that currently carries over one trillion dollars (yes, you read that right!) in auto loan debt.

4. Carry a balance on your credit card(s). Like the whole idea of “good” debt, this is also bad advice which, unfortunately, a lot of people fall for. The premise behind credit cards is that debt is good, because it helps you build your credit score by proving that you can borrow money responsibly. That means making payments on time. Most people, however, cannot (or choose not to) pay their credit card balance in full every month, which means they carry a balance, which means they have debt. Since no debt is good debt, this is bad advice. On top of the debt, you’ll have fees and other charges that mean the credit card company is getting money that would have stayed in your pocket had you paid cash for the shiny new object you decided to put on your credit card. For the majority of us, chronic credit card use establishes a bad habit pattern of buying now, thinking we will pay for it later. In reality, what ends up happening is that we do pay later, sometimes dearly, in the way of higher interest rates, transaction fees, late fees, and an ever-increasing load of debt.

5. Don’t worry about student loans, your degree will be worth it. Well, yes and no. Your degree may be worth it and it may not, but even if it is, there are lots of ways to get a college degree without using student loans. If you complete a degree that leads to a good job in a field you are truly passionate about, college can definitely be worth it. However, since almost half of college students drop out before earning their degree, and sixty percent of those who do graduate with a degree have trouble finding a job in their chosen field, those who take out student loans and don’t finish their schooling end up with the compounded problem of huge debt and no degree to improve the odds of earning a higher wage. Don’t take on the expense of college if you’re unsure of why you’re going. If you know you love helping people and it’s been your lifelong dream to work in the medical field, go for it. That still doesn’t preclude you from pursuing other avenues to pay for college, such as scholarships, paid internships, grants, savings, or working while in school. Most Americans with student loan debt are still paying them off well into middle age, which is a burden you don’t need when trying to raise a family and build a career.

If you don’t have crushing student loans or any other kind of debt, pay cash for purchases or pay off your credit card balance every month, drive a car that’s fully paid for, and are prepared for financial emergencies, you are not among the majority. In fact, you might even be considered strange. In this context that’s a good thing! Be weird, go against the grain, and laugh all the way to the airport as you take that tropical vacation that’s already paid for.