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Home / Finances / Poor Financial Advice We Have All Read

 

If you are anything like millions of people around the globe, you enjoy reading about the latest trends in personal finance. A large part of that reading is the advice given by the experts in the field. Unfortunately, some of these ”experts” are only qualified in their minds and in the products they are trying to sell. That is sort of a long way around to say that there is plenty of bad personal finance advice out there. We thought it would help some of our readers if we examined a bit of the common bad advice that is floating around.

Aspects of Bad Financial Advice

Bad advice on any topic can be easy to spot if you question it. Bad personal finance advice often has one or more of these six traits in common:

  • It is confusing.
  • The adviser has a vested interest.
  • It comes to you unsolicited.
  • It is presented as a one size fits all curative.
  • It is presented as the only option that is available to you.
  • Will guarantee quick and easy results.

If you frame each of these traits as a question about advice you have received, you can often spot bad advice easily. For example, is this confusing? What does the adviser have to gain from this?, etc.

Personal Finance Tips To Ignore

Credit cards will be your downfall

Credit cards are inanimate objects that have potential benefits for anyone who uses them responsibly. Unfortunately, credit cards are used by humans, who are quite fallible. If you can not resist the temptation to swipe the plastic when you do not have enough cash, then you probably have a deeper problem. Credit cards are only the downfall of people who have not learned to control their impulse buying.

Living by a rigid spending plan will rescue you

It sure seems like it…on paper. Living a rigid spending plan is miserable and is the biggest reason that people quit budgeting and planning their spending. The most successful stories started with a budget that acknowledged the need for some entertainment and even a nod toward a little bit of financial frivolity. The key is to build entertainment and frivolity into your budget. Use these two aspects of your budget as a reward system for meeting a goal within your financial plan and you should never feel as if your are living a life of deprivation.

You must save ten percent of your income

There was a time when advisers said that everyone must save ten percent of their income in some sort of a retirement account. Setting a rigid amount is one of those one-size-fits-all things. The actual amount you should set aside depends on how old you are when you get started, how much disposable income you have, and a host of other personal criteria.

Never borrow from your 401(k)

Borrowing from your 401(k) can actually be beneficial in some limited circumstances. Want to pay off a high interest credit card? The interest and fees that you pay on a 401(k) loan are most likely going to be lower than the interest on the card. The key is that you do not use the credit card until the loan is paid. There are other circumstances where a 401(k) loan makes sense. The main point is that you have a plan to repay the loan and have made sure that you can afford the repayment plan.

Home equity loans are a great way to pay off overwhelming debt

A home equity loans can offer a lower interest rate than most revolving debt. That can make them an attractive means of paying off credit cards and other high interest debt. What happens if you lose a job or get sick? What if you can not control the urge to build up more credit card debt? You may well lose your home and have even more debt. A home equity loan can be a dangerous double-edged sword that will cut you deeply if not handled carefully.

Have you read some bad personal finance advice that isn’t mentioned here? We would love to hear about in the comment section, on Twitter, or on Facebook.

 

About the author: Jerry Coffey

 

Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.

 

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