Have you ever made a financial decision you wish you could take back? My guess is the answer is “YES”! In my experience, even the very financially astute wish they got a few do-overs. Along with the good advice, often comes some not-so-good advice from friends and family members. Trying to figure out what is right for you is often challenging. Everyone’s situation is unique and exceptions can certainly be found, but hopefully you can make some good decisions when it comes to some of the money misconceptions out there. Here are a few.
Having lots of cash on hand is smart – Savings accounts are a great place to build that emergency fund. Three to six months of living expenses is usually a good start. Anything over that, and your money may be acting in a “lazy” fashion for you. Low interest rates make it hard to outpace inflation, which means your purchasing power may actually be declining in the low rate accounts. At some point you may want to consider an investment plan that makes sense for you.
You need have a credit card balance to help your credit – I’m going to simply say….not true. The most important thing you can do is simply pay your bills on time. Credit cards can easily accumulate balances and those balances create extra costs for you. However, if you are good about paying it off every month, I have no problem with taking advantage of the convenience and perks some cards offer. Credit cards are not evil, but they are also not the key to a great credit score.
You should pay the minimum payment the credit card company sets – Great advice if you are looking to pay more in high interest charges throughout the year. Keeping a low balance also usually results in a better credit score. Bottom line: Only pay the minimum payment when absolutely necessary.
Cosigning on a loan is No Big Deal – You are being asked to co-sign because the lender doesn’t have enough faith in the person getting the loan by themselves. AKA…they are too high of a default risk on their own. Whether it is questionable employment history, poor credit, high amounts of other debt, low income, etc., you should think twice. Just remember, you are entering into a contract and agreeing to make the full payments if your friend or family member doesn’t. Late payments can affect your credit score and you could be sued if the loan defaults.
Cut down on the small purchases is a great way to save – We probably have all been told if we would just make our own coffee, stop eating out once a week, etc. it would all add up and really help. My advice: Yes, it does all add up, but start by looking at the large expenses. That is where you can make the biggest difference. I love the people that tell me how great they do because they are clipping coupons or they saved money by filing their taxes themselves online, or found the 2 for 1 special. Meanwhile, they pulled up in a $32,000 vehicle that they just financed for the next 5 years. Before you spend a bunch of time shopping around to save $2, focus on the big monthly items first.
You should save 10% of your salary – If I had a dollar for every time I heard this one. This might be true if everyone was going to have exactly the same retirement income goals and lifestyle, but I know that is not the case. My advice: Start as early as you can and simply do as much as you comfortably can. If you start late, 10% may not come even close to meeting the goals and lifestyle you want in retirement. A financial professional can help you with this.
Your parents know best when it comes to money – No offense mom, or any other mother or father out there. Your financial situation can be completely different than your parents. What worked well 30 years ago may work again, or it may not be a good idea because of changing financial, legal, technical and economic landscapes. If you are in doubt, seek a professional who is objective and not emotionally biased to your situation. Don’t worry, I still seek plenty of advice from my elder family members!
You need a lot of money to meet with a financial advisor – Not true. I can’t tell you how many times I have heard people say I thought I needed $50,000 or $100,000 to work with an advisor. While some advisors will impose minimums, I know many other good advisors that don’t. Usually they are more interested in how seriously you want to work towards your goals and if they think your personality is a good fit with theirs.
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. 03/19