Conventional financial advice can lead you in circles. At best, it will get you conventional (aka average) results.
Considering that most people in America who believe these widely accepted nuggets of wisdom don’t even have $1,000 in emergency savings and have little hope of ever being able to afford their own home—let alone have any real level of income in retirement—you might want to rethink some of them.
In my experience, the following are some of the worst and most damaging pieces of financial advice.
Warning: Be Skeptical of this Financial Advice
You Need to Go to College
I went to college. I don’t think I learned much of anything useful in life and making money. The biggest thing you’ll probably learn if you go down that path is how much of a massive burden student loan debt is.
There are certainly smart people who have continued their education to become doctors, lawyers, etc. Some have even started great companies.
- Most of the biggest success stories are of those who dropped out.
- If you do the math, the return on a degree is now so low, no investor would want to make that investment themselves.
- Millions of students are graduating, only to find they need to borrow more to go get retrained to be able to actually get a job
Do keep learning. If you want to go to college as a way to make connections or as a luxury, then get out there and invest in real estate first. After that, use your profits to pay for your formal education and a paper degree later.
You Must Pay Off Your Debt as Fast as Possible
It may feel great to be deb- free. Though billionaires sleep very well owing billions of dollars, too. You don’t want to waste money on high interest, bad debt. Yet, you may find a better use for your money than eliminating all your debt.
The deciding factor is really whether you can make more money by investing first. Say you’ve got student loans at 5 percent interest or a credit card with a 0% interest rate. If instead of using your cash to pay that off, you could go make 8 percent in a passive income property, 38 percent on a house flip, or more on a wholesale deal, why wouldn’t you invest first?
Take part of your gains and pay down part of your debt; reinvest the rest. Repeat.
Pay Whoever You Owe First
The average way to do things is to get your paycheck, go splurge, pay all the bills, and then if you have anything left, invest or save it.
Of course, most of the time, there is nothing left. So you never invest. You never get ahead. More often you are borrowing extra money, because you are living beyond your means.
Instead, pay yourself first. You’ll find a way to cover the rest. This might mean setting aside money to invest right off the top of your check, no matter what.
The best return you can make is investing in yourself. Use it to learn a skill that will make you more valuable.
Save, Save, Save
It is true that it is wise to have some emergency reserves. You don’t want to ruin everything else you’ve built for the sake of making the bills one month. Don’t put off investing or learning, but do try to build up some emergency reserves.
Three to six months of expenses is a good goal most have. That way if you ever get sick, can’t work, or your income gets tied up, you’ll be just fine. If you’ve got three to six months of expenses in the bank or under your mattress, and maybe access to a couple thousand dollars in credit, then anything more is probably a waste.
Leaving cash idle is worse than a risk. It is always going down in value. Plus, who knows what’s going to happen. A bank glitch or fire can vaporize it in an instant.
Invest, invest, invest. Especially in assets that go up in value, instead of down due to inflation.
All Debt Is Bad Debt
This is simply not true. There are two very different types of debt.
One is bad debt. That is used to buy depreciating items and more debt—like a brand new car. It’s crazy to take out a big car loan on a brand new car for it to immediately go down in value, plus demand gas, oil changes, insurance, and annual registration fees. Plus, you might have to pay to park it. That’s a bad debt.
Contrast that with using financial leverage to invest in real estate. For example, financing a house to flip. You might use a hard money loan and be charged interest at 10 percent a year, but you can flip that house and make 30 percent in a month. Now that’s smart.
Or you can borrow money at 5 percent to acquire a rental property that pays you every single month and gives you a 20 percent return every year. It will likely also go up in value over time. It’s basic math.
The Bottom Line
Be wary of mass media financial advice. Do not apply it blindly—not unless you want the average results others (who are probably broke) are getting with them.
You don’t even have to be good at math to figure out how much sense going against some of this conventional advice makes. Think about it for yourself. Use a calculator if you need to. Then make truly smart money decisions.
Have you followed any conventional financial advice that you later regretted?
Let me know in a comment below.