I’m sure you’ve all heard it before. Moms, aunts, caring friends, and others feel the need to give young people whatever financial advice they can. The thing is, everyone is not a financial expert, and sometimes the advice of individuals you know can be total bull. Don’t hesitate to smile and no, but make sure you do your research in the meantime. Here is some financial advice you should ignore, and the reasons why.
Buy stocks when they’re down
The reason this advice might reach your innocent ears is because when stocks are low, you can buy them for a lower price (maybe even buy a lot of stocks) and the price should go back up when it’s time to resell.
It might be fine to buy stocks this way. However, most financial advisers would say not to dump all your money into one thing at one time. You should, on the other hand, put about the same or a similar amount of money in each market: an amount you are prepared to and can afford to invest, not a huge amount that is going to be a win or lose the gamble. This method, known as “dollar-cost averaging,” will get you more bang for your buck when you invest.
Pay your mortgage as fast as humanly possible
This tip makes sense: your caring friends and family want you to be out of debt as soon as you can. Surprisingly, this might not be the best route for you.
Yes, you will pay less interest in the long run the sooner you pay off any debt. However, think about whether this is infringing on you putting money into your retirement account, which may be more useful than throwing your extra cash into mortgage payments. It is usually the case that the interest you will gain from your retirement cost will balance, out or even overtake, the amount of interest extra you pay from not paying your mortgage. In other words, you can profit more by the benefit from your retirement account, but that won’t happen if you never invest in it.
Absolutely do not use credit cards if you can avoid it
This is usually pretty sound advice, considering how the median credit card debt has grown substantially over the years, mostly because people are spending beyond their means.
However, using a credit card isn’t all bad news! It’s important if you want to build up your credit score. As long as you spend wisely and always pay off your balance, you can use your credit card to create a positive credit history. Just don’t use it to pay when you do not have enough money in the bank.
Pay off your debt before savings
This is not always true.
It is also important to start an emergency fund since it is known that many people do not have enough money to cover their expenses if an emergency happens. Your emergency fund should cover up to six months in rent and utilities, plus food and any childcare expenses.
You must go to college to make good money
This is definitely not true. College is good for some people, but everyone should not think it is the best option by default. People with technical training have many great opportunities, so it is often far more worth your time and effort to go to trade school. One of the worst financial decisions you can make is to go to college, rack up debt, drop out without a job, and still have to struggle to pay off your loans. If you don’t have your heart set on the subject, don’t go to college.
Buying a house will always be a good investment
Many people believe that having real estate in your portfolio is good since the market always wins out in the long run. But if you can’t afford to put the down payment down (usually around twenty percent), then you are already operating at a loss for your investment. Keep in mind that you will have to pay mortgage insurance and other costs, such as fixing up the home, and making other repairs to the property, plus homeowner’s insurance.
Also, the housing market it kind of sketchy at times, and it is certainly prone to bubbles and bursts, unlike any other market. The entire process of selling and buying a home is extremely time-consuming. It is a time commitment, and that could potentially take your time away from more profitable activities.