Although they mean well, some people give astonishingly bad financial advice. Were you to follow it, you might end up in financial distress.
These pieces of advice sometimes even sound pretty reasonable when they start talking, especially if it’s coming from someone who really means the best. Still, if you were to follow their advice, you would be in pretty big trouble financially, which no one wants to be!
Some of this bad advice is pretty easy to spot, but other “tips” might sound reasonable. Following are some to watch out for.
RVs and Boats Are Good Investments
Both of these can be a lot of fun, but they’re expensive, and after the first year or so, most people don’t use them that much. Plus, you have to deal with storage, marina fees, etc.
Just Use Rent-A-Center
Rent-A-Center offers temporary usage of furniture and electronics and has a rent-to-own program. If you need something particular for a short period, it can make sense. However, the longer you keep something, the closer you get to where buying it would have made better sense.
Always Buy New Cars
Warranties, better reliability, and no previous owners are reasons people like to buy new cars. Used cars 1 or 2 years old are just as reliable, often come with warranties, and have already taken the huge depreciation that hits a new car when you drive it off the lot.
Borrow the Most You Qualify For
This is another bit of bad car-related advice. Why stick yourself with a higher loan to pay back just because you qualify for it?
The Payments Matter, Not the Price
Also among the worst pieces of car-buying advice, this one is surprisingly common. The thinking goes that as long as you can make the payments, you should buy the car. Well, how long will the loan last, and how much extra will you pay in interest?
Instead of Getting a Loan, Use Your Credit Card
Here’s one last example of poor car-buying advice before we move on, and it might be the worst. First, the interest rate on a car loan will probably be lower. Second, don’t max out your credit card on a car. Finally, you’ll still lose the car and/or face penalties if you don’t pay the bill; a credit card is not a runaround.
Spend It While You’ve Got It
There are people who think unspent money is wasted money. Often, these are the same people who reach retirement age and have nothing.
Always Help Family Members in Financial Need
Always is the problem here. If you lend money to a relative who’s bad with money, you not only will probably not get it back but will also be enabling their bad habits.
Amway Works
The pitch for Amway sounds great. In reality, though, it works out for very few people. Most who get into it end up just wasting time and resources.
If You Have a Good Job, You Don’t Need to Save Money
Earning a good salary means you can pay your bills and afford nice things, but it isn’t a retirement plan. When you stop working, that salary will stop, too.
Emergency Funds Aren’t Necessary When You Can Get a Payday Loan
This is some of the worst financial advice someone can give you. It’s fair to call the terms and interest rates of payday loans predatory, and they often only make things worse. Besides, unspent money in your emergency fund can go toward something called retirement.
You Don’t Have to Pay Your Phone Bill; Just Jump From Carrier to Carrier
There actually are people who do this. It doesn’t keep bill collectors from coming after you. Plus, you could be at risk of prosecution for creating fraudulent accounts.
The ER Is Free
This fallacy is behind so many people without health insurance going to the ER for non-emergency care. Then they get hit with a bill that can sink them into debt.
Take a Loan From Your Retirement Account to Build a Pool
The reasoning behind this bad advice is that it will add value to your home, and you can get that money back when you sell. There are three big problems, though. First, pools usually don’t add enough value to cover their cost. Second, you have to pay that money back with interest. Third, the time that money is gone from the account is time that it won’t be growing.
After You Cancel a Credit Card, You’re off the Hook
Amazingly, a lot of people think this is true or that if they cut up their cards, they don’t have to pay the bills. This is 100% not the case; you still owe that money.
By Just Paying the Minimum, You Can Lead Any Lifestyle You Want
This horrible advice is a recipe for living in debt and paying thousands of additional dollars in interest. Plus, what happens when you max out your cards?
If Your Account Has Money in It the Day Before Payday, Spend It
Actually, you should save it. Add it to your retirement account or your emergency fund. Leftover money isn’t free money for you to go have fun with.
Lottery Tickets Are Cheap, so There’s No Downside to Them
When the jackpot is huge, lots of people buy lottery tickets, and that’s not such a big deal. However, people who buy lottery tickets regularly are unlikely to ever come close to recouping their costs.
It’s Better to Earn at the Top of Your Tax Bracket Than at the Bottom of the Next Higher One
It seems reasonable to worry that a small rise putting you just into the next tax bracket will mean you’re actually earning less due to higher rates. In reality, the higher rate just applies to earning above that threshold, so a raise is still a raise.
You Can Deduct More From Your Taxes by Getting a Bigger Mortgage
Technically, this is true, but it’s not great advice. That’s because a higher mortgage means more going out of your budget to the principal and interest. It’s highly unlikely that a deduction is going to compensate for that.
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