There’s a lot of financial wisdom and money advice floating around, and it can be hard to discern if it’s solid or not. Following the wrong guidance can cost you serious time and money.
We asked the experts for some of the worst pieces of financial advice they’ve received. So the next time you’re faced with not-so-helpful input, you’ll know what to do instead.
This was a pervasive myth among financial “experts” in the years preceding the Great Recession. The truth? You don’t need to carry a balance to build credit. In fact, paying off all your purchases every month can avoid interest and help your credit score.
Credit scoring models mostly care about whether you’re paying your bills on time and if your debt levels are low. Learn how to build credit here.
A credit card is one of the most convenient ways to develop a credit history. Without a credit history, it will be harder to get things like a mortgage or car loan.
Most credit cards also come with rewards, like cash back or airline miles for certain purchases. Some offer bonuses for signing up.
But make sure you’re charging only what you can afford and check your statement regularly. Credit card mismanagement can lead to debt, which can quickly accumulate thanks to high interest rates.
Or pumpkin spice lattes. Or (insert food fad here). While advice from talking heads makes it seem like cutting small purchases out of your budget is the only path to financial wellness, it’s more important to focus on the bigger picture. Larger financial decisions, like buying a car or home, have a greater impact on your financial health.
Learn more about balancing your love of pumpkin spice lattes.
Whole life insurance policies include a savings vehicle in addition to a death benefit. It works well for those with complicated financial situations, but most don’t need it.
“Typically my clients need term insurance, which is an income replacement if something should happen to them,” said Jennifer Weber, certified financial planner at Weber Asset Management.
Whole life insurance is typically six to 10 times the cost of term life insurance. Many people who purchase it don’t get enough coverage or drop the policy because they can’t afford it.
“They instead could be saving for individual goals such as retirement, home improvements or college funding,” said Weber.
Student loan debt is the highest it’s ever been. Graduate school students make up almost 40% of federal student loan debt, according to research from AccessLex Institute.
There’s a ton of variance on how much graduate students make, depending on the program. While getting an additional degree can propel your career forward, it may not be worth the additional debt. Find out if it’s right for you.
It’s true that renting a home won’t build equity. Because you don’t own it, you can’t turn a profit when you move out.
But that doesn’t mean buying a home is always the smarter financial decision. There are often additional expenses outside of the mortgage and down payment, like emergency repair costs. If you can’t afford these costs, renting may make more sense.
Learn more about renting versus buying.
… or make you rich immediately. Or solve all of your money problems. (You get the idea.)
There are plenty of helpful financial tools out there, from investing apps to budgeting tools, but not all of them are free. And not all of them are good. Before you hit purchase on a pricey program or money tool, make sure it’s legit.
Read the reviews and consider a trial period to see how much you’ll use it. Or try a free tool first. We have a downloadable budgeting spreadsheet to help get you started.
Do your research. How sound is this advice? Does it sound too good to be true?
“Too many times I have prospective clients come to me with advice they have already received and believe it to be the truth,” said Ryan Marshall, certified financial planner at Ela Financial Group.
Marshall recommends weighing the pros and cons of any financial decision before making the final call. While some choices are better than others, there are almost always drawbacks to take into account.
“None are foolproof,” he said. “If you’re not hearing the downside, you should be asking what the potential downsides are.”
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