The web contains hundreds of financial-related sites, and every one of them promises to give you the advice necessary to achieve monetary success. Add on top the same ‘ol nuggets of wisdom you get from your parents or your friends, and it’s easy to feel like there’s seemingly no end to the list of “do’s and don’ts.”
But which advice should you actually follow? If you want our opinion, you can probably ignore most of it.
It’s true. We say this not because we don’t want to see you succeed — because we do. However, some of the advice out there just isn’t true anymore. What your parents or grandparents did to succeed might not apply to your situation at all.
The world has changed, and the economy is different now. Housing costs are through the roof and wages have barely kept up with inflation. Your dad’s speech about how he bought his first house when he was 21 with only a grade twelve education is really no longer relevant anymore. Next time he’s “only trying to help”, politely tell him to zip it.
Here are some financial myths you should know about for modern times. And some fresh advice you should follow instead. Are you ready to set your finances straight?
Myths About Debt
With money comes well, a lack of it.
Debt is Bad
According to this advice, to be in debt is to somehow failed yourself financially. But we know better. In fact, you’d be hard-pressed to find someone who isn’t in debt. Debt can often be used for good. Buying a house is often the largest debt you’ll have in your lifetime. It’s also an investment that can help build generational wealth.
Large Debt = Bankruptcy
“If you have a large amount of debt, your only option is bankruptcy.”
That’s not always true. Bankruptcy is an absolute last resort. Declaring bankruptcy has a dramatic negative effect on your credit score. It will remain on your credit report for seven to ten years. Alternatives like debt management counseling or debt settlement might be able to resolve the issue instead. Paying off your debt doesn’t repair your credit score instantly, but it’s a step in the right direction.
Myths About Credit and Credit Scores
Your credit score is one number you should pay close attention to.
Checking Your Credit Score Lowers It
This one is just plain wrong. Since banks allow you to check your score any time you check your bank account balance, you won’t lose points for checking it multiple times per week — or even per day. Check it regularly.
You Only Have One Credit Score
The score your bank shows you isn’t your only credit score. In fact, there are three major credit bureaus and they all have their own scoring system. The credit score taken into consideration when you borrow depends on which score the lender uses to gauge your credit quality. That’s why you need to check them all at least once a year to make sure there are no discrepencies.
Credit Repair Agencies Work
Beware of these places.
“NO ONE can legally remove accurate and timely information from a credit report. It’s also illegal to create a new identity to have a new credit report. Repeat: Beware!”
The actions you take can affect your credit score both positively and negatively. The only real way to repair your credit is with responsible financial behavior over a long period of time. Many so-called Credit Repair Agencies will just cost you more money for a nominal boost in your credit score.
Closing Credit Will Boost My Score
Contrary to common advice, you should not cancel your credit card or line of credit after you’ve finally paid it off. You are right to think that you’re shutting yourself off from a potentially addicting source of debt. However, the truth is you’re cutting off a lot credit history you’ve built up. A lengthy record now becomes a much briefer summary of your credit history when you close older accounts. Do your finances a favor and keep that credit available. Just don’t overuse it and dig yourself a new debt hole!
Myths About Credit Cards
Life in plastic isn’t always fantastic. Sorry, Barbie.
Credit Card Balances Improve Your Credit Score
This one’s a bit tricky. It’s actually a good idea to use your credit card regularly to maintain credit history. However, you should only be charging what you can afford to pay off every month. Carrying over a balance from month to month won’t improve your credit score in any way. It just costs you more in interest.
Credit Cards Should Be a Last Resort
It’s perfectly okay to use your credit card instead of your debit card. In fact, it’s okay to use a credit card over cash too. Credit cards offer you “all kinds of protections,” many of which you’re not eligible for when using debit cards or cash payments. Plus, you may be getting some kind of rewards (cashback or miles, etc). That makes shopping with your credit card a bit cheaper than using cash. Just be sure to avoid those monthly interest charges, or else it’s not worth it.
Your Credit Card is An Emergency Fund
Just because you’ve got a high limit on your credit card doesn’t mean you should charge it up to that amount. You also shouldn’t count on a high-interest credit card to bail you out in an emergency. Instead, build a real emergency fund over the span of a few years. There’s strategy that goes into using credit cards. They should never be used in place of careful saving.
Myths About Education
Many people equate college degrees with extra figures in future income. However, that’s not always the case.
Student Loans are Good Debt
It’s often said that investing in education is investing in yourself and your future. But accruing student loans may not be the best financial choice for some. Debt is still debt, even after you graduate. Many students find themselves completely unable to fulfil their student debt obligations. Even worse, they aren’t erased by declaring bankruptcy either. Ask yourself these questions before taking on a massive amount of student debt.
College is Required for a High-Paying Career
Spending four or more years at a college doesn’t always add up to a higher salary later on. Sure, you can definitely specialize in a field you enjoy. But unless there are tangible benefits, more education isn’t always better. There are plenty of financially rewarding careers you can choose from that don’t require a four-year degree.
Find the Job You Want and Stick With It
Previous generations often started with a company at a young age and eventually retired from that same company. It was common to hear about an employee spending 30 or 40 years with the same business. This model doesn’t always fit the bill for working folks today.
Younger generations are finding that switching companies every few years can maximize their income. They are, in a way, much more aware of their true value, and they will leverage that to whomever is willing to pay the most. The days of loyal employees are gone. Then again, most employers don’t offer any loyalty back to their employees either. The work force and corporations are (finally) playing by the same rules.
Myths About Housing
There’s a difference between a house and a home.
Buying a House is Better Than Renting
This is one you’ve probably heard of quite a bit. Why pay someone else’s mortgage when you could be investing in a house of your own? Well, the truth of the matter is that both buying and renting can be better for folks in different situations. There is no ultimate right answer.
Owning a house comes with a lot of hidden costs. Perhaps you just want the less stressful life of renting a place. You can still invest in other areas without buying a house. Sinking every spare penny into a huge mortgage might leave you cash poor, unhappy, and burnt out. Your mental health and quality of life matters too!
Your Home is an Investment
A lot of people will struggle to believe this is just a myth. But like a vehicle, a house accrues maintenance costs, repair bills, and plenty of wear-and-tear expenses. Plus, here’s the simplest truth about using your home as an investment.
Let’s say your $250,000 house is worth $500,000 after you’ve owned it for five years. Sounds great, right? You just made a quarter million dollars!
Except you don’t get that money until you sell the home. And once you’ve sold the home, you need a new place to live. And guess what? All the other houses in your area got more expensive too. So, you probably won’t come out very far ahead. Maybe you can get a bigger, newer house, but it will probably come with a bigger, longer mortgage. There are certain types of valuable real estate investments, but your primary residence might not be one.
Myths About Saving
There is a ton of advice out there on how to save money. Let’s be honest, this whole website is filled with articles that we hope will help you save money. But it’s not a simple matter of hiding cash under your mattress. It takes more effort than that.
Budgets Save Money
Putting pen to paper and crunching the numbers doesn’t automatically put money back into your bank account. It’s one thing to budget, but another thing entirely to stick to it and make saving happen. Proper budgeting takes a huge degree of self-honesty and a large amount of self-discipline. Your carefully planned budget is worthless if you routinely ignore it.
I Don’t Have Any Extra Money For Saving
Many of us are living paycheck-to-paycheck or stretching those bills to make ends meet any way we can. But there’s still the smallest amount of wiggle room to save even within that tight of a budget. A penny saved is a penny you can invest in something bigger. It just takes time. Don’t rob your future by not carving out even the smallest saving contributions in your monthly budget.
Myths About Investing
You Need a Financial Adviser to Invest
We trust experts to get the job done. However, investing isn’t hard once you get to know the lay of the land. There are plenty of resources out there to help you get started. There are a handful of great online investment apps that will guide you to financial success, without the costly fees of a personal financial adviser.
Investing Requires a Lot of Money
There are plenty of places wherein you can invest small amounts of money. You don’t always have to invest big or go home — there’s a middle ground. Many people invest gradually, over time. They might, for example, tuck $50 or $100 away into an investment fund every time they get paid. It’s not much, at first. Over the years, though, that fund can grow into tens or hundreds of thousands of dollars.
Pay Off All Your Debt Before Investing
On the surface, it makes sense to take care of debts before investing. But what if you’re not debt-free until you’re retired? Instead, invest over the long-term to increase your benefits. While there is some truth to this advice, it’s situational. For example, if you’re paying 21% interest on a massive credit card balance, you shouldn’t be putting extra money into your 401(k). Even if your investments offer a great annual return, you’re probably losing money due to interest charges.
However, don’t rush to pay off your 1.9% car loan or your 2.9% mortgage before you can invest. Those are relatively affordable debts (depending on their overall amount). Keep paying them, but start putting money away for your future, too.
One Piece of Financial Advice you Shouldn’t Ignore
Among all these myths lies one of the most prevalent: money can’t buy happiness. While money can’t make us all happy, it’s true that it does make life easier for most, at least for a short time. So, take a moment and consider your financial happiness. Figure out what money moves can make your dollar dreams come true. Even if it will take years. Whenever you might need guidance along the way, we’re here to provide it.
Ultimately, you’re in control of your financial future—even if you take it a cent at a time.