We get tons of financial advice from different sources. Unfortunately, there is a lot of terrible advice online and from some so-called experts. Understanding what is good advice and what is bad will prevent you from making costly mistakes in the future.
Read on as we share 13 pieces of dumb financial advice you need to stop believing in 2024.
The Only Way to Build Credit Is to Keep a Credit Card Balance
Your credit score depends on the amount of your total credit limit you have and the repayment history. Experienced financial experts recommend using at least 30% of the allocated credit utilization ratio. Paying your credit bill in full on time also affects your score. You can build credit by being mindful of your credit utilization and paying your credit bill. None of these need you to maintain a credit card balance.
Don’t Invest Until You Pay off All Your Debt
Although this seems like good advice initially, it can make you lose out on potential investment opportunities. Waiting until you pay your debt might take time, especially if you repay a mortgage or student loan. It’s best to find a balance. Find a way to budget to pay off the debt and have some money for investing.
All Debt Is Bad for You
Don’t go into debt is the first thing you’ll often learn from some financial planners. Interestingly, not all debt is bad. You can use debt to create wealth and reach your financial goals. For example, you can leverage real estate debt to diversify your portfolio by financing a rental property that generates a monthly income.
You Can’t Build Wealth With a 9-5 Job
“Being your boss and starting your business is the only way to create wealth.”, is a common phrase you’ll often hear from experts. Unfortunately, not everyone is born to be an entrepreneur.
You can still build wealth working a 9-5 job by strategically planning your finances, increasing your market value by honing in-demand skills, and finding companies that provide growth opportunities.
Your Credit Score Doesn’t Matter
You’ve probably heard some “experts” say that your credit card isn’t worth obsessing over, and it doesn’t always matter. While you shouldn’t use your credit score to measure financial success, your score determines the rates you’ll get on your mortgage, car loans, business loans, security deposits, or insurance rates.
Some landlords will also check your credit to determine whether to lease out their home to you.
You Don’t Need an Emergency Fund, Just Rely on Credit Cards.
Using credits over a long time is not sustainable. You may accumulate a lot of debt in terms of high-interest fees. Additionally, you may lose access to your credit card account due to user inactivity, and some institutions might not accept credit, making it an inconvenience.
Your best bet is to create an emergency fund that caters to at least six months’ worth of expenses. A good stash can prevent you from recurrent debt cycles when you need cash for unexpected repairs or emergencies.
Buy Now Pay Later Is a Great Way to Afford Things
There’s a common misconception that buying now and paying later can help you afford things that were previously out of reach. You’ll find companies like Zip and Klarna that offer zero-interest payment plans for jewelry, electronics, sporting goods, furniture, and more.
Unfortunately, most people do not understand the risks associated with this kind of arrangement. For example, repayment terms can differ as this type of financing is not closely regulated.
Late or missed payments can damage your credit score and lead to penalties. Some companies will still charge you even if the item is returned. It’s critical to understand your spending habits, know your finances, and read the terms before signing up for buy now, pay later loans.
You Can Retire With Just a Savings Account
Leaving your money in a savings account until retirement isn’t a wise financial move. That’s because these accounts only earn a little interest over the years, insufficient to cover your retirement needs. Additionally, the amount you put in a savings account is prone to inflation, and you may have less money than you saved.
If you plan retirement, consider investing in stocks, bonds, mutual funds, CDs, and other investments to grow your money and retire comfortably.
Stay Away From Credit Cards
Some financial experts advise people against using credit cards due to high interest rates and the potential to accumulate massive debt. However, you can still use credit cards wisely to build your credit score and manage your expenses. Some credit companies also offer perks and rewards that you can redeem to save some bucks.
Filing for Bankruptcy Is the Way to Get Out of Financial Difficulty
While filing for bankruptcy is one way to get out of debt, there are certain factors to understand. Most people don’t understand that filing for bankruptcy won’t get rid of tax debts or alleviate debts not listed in your filing. However, bankruptcy will stop collection calls, halt repossession or foreclosure, and get rid of unsecured debt like personal loans and credit cards.
Unfortunately, filing for bankruptcy isn’t free, as you must account for court filing or legal fees if you choose to work with an attorney. Additionally, bankruptcy remains on your credit reports for up to ten years, especially if you file for Chapter 7.
You should consider other options like debt consolidation, earning extra income to pay debt, and lowering your expenses to save money.
A Savings Account Is the Best Way to Invest
Unfortunately, putting your money in a savings account isn’t the best investment method. While you can earn interest by setting money aside in savings accounts, these accounts earn a lower return than typical investments.
Savings accounts only work for short-term financial goals but are not the best place to invest your money. However, if you have a long-term goal like retirement, you’re better off investing in stocks, mutual funds, CDs, and more. Investing will depend on your financial standing, risk tolerance, and the time frame you’re willing to invest.
Renting Is a Waste of Money
You’ve probably heard the famous phrase ” renting simply throwing your money away.” Contrary to popular advice, renting is not a waste of money. Although paying monthly rent doesn’t build equity like mortgage payments, it helps you avoid financial commitments that come with homeownership—additionally, renting offers you flexibility, allowing you to choose where to live without any restrictions.
Renting may also be a more financially responsible choice if you have other long-term financial plans, debt obligations, or if your income doesn’t allow you to buy a house. Another less-known aspect is that renting is a cost-saving measure as you don’t have to account for property maintenance and repairs.
Stocks Are Way Too Risky. You’d Rather Invest in Bonds
While stocks have a potential risk as they provide no guaranteed returns to the investors, that doesn’t necessarily mean that bonds are a more stable option. Stocks tend to have higher returns. Bonds have less risk but deliver lower returns than stocks.
It’s tempting to venture into less risky bonds, but a sudden shift to bonds could affect your ability to build long-term wealth and protect against inflation. Experts now believe investing in stocks over a long-term period is less risky.
Additionally, shares tend to have long-term inflation hedge protection, but bonds are affected by unexpected inflation. Ultimately, it’s wise to diversify your investments to build wealth and protect against inflation.
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