We’ve all heard advice from people that makes us roll our eyes. But when it comes from a trusted individual, it’s certainly hard to ignore. Fortunately, we have gathered experts all from diverse backgrounds who each discuss a piece of toxic money advice that you need to avoid. Your financial future is in your hands so take the time to learn more about any points that you are unsure of.
Why should you avoid toxic money advice?
Many people tend to spew financial advice that they believe in for themselves, but does not apply to every single person. The fact of the matter is that personal finance is just that, personal. This means that every piece of advice can’t apply to every person. Moreover, financial advice gets outdated as quickly as the tides change so it’s best to keep up-to-date with the latest and greatest in personal finance. Find out a few pieces of toxic money advice you need to stay away from straight from experts.
1. You need to spend a lot of money to get quality items
Sanjana at The Female Professional says, despite what brands, commercials, or society will tell you, you really don’t need to spend a lot of money in order to get quality items. Rather, you should be looking for value (however you define it) and ensure that you’re paying a fair price for that value. For instance, quality clothes are worth an investment because they last longer, but you don’t need to spend an arm and leg in order to get them. By looking for a fair price, be it through bargain hunting, sales, new brands, etc., you give yourself a chance to save. I think doing this helps with living frugally and prioritizing spending in those areas that bring you the most joy.
2. Never use credit cards
This is toxic advice because it is a one-size fits all approach that prevents many people from taking advantage of valuable benefits, according to Tawnya at Money Saved is Money Earned. Credit cards can be incredibly lucrative if you use them correctly. A couple rules of thumb with credit cards: 1) only use them for things you would be purchasing anyway, and 2) always pay the statement balance every month. If you follow those two rules, there are many ways that you can make credit cards actually work FOR you. Cash back, free or reduced travel, and no interest financing are just a few of the great ways to take advantage of credit cards.
Check out our credit card guide to find a card suited to your credit and to learn more about managing your credit.
3. Don’t invest, it’s too risky!
Rick Orford, The Financially Independent Millennial: Keep your money in a savings account. It’s advice I hear from friends and family all too often. Indeed, there are often more bad investments than good ones. But, in the end, simply crossing the street is no more risky than investing. Why? Because the best investors use their intuition. Just as one looks both ways when crossing the street, when learning how to invest in stocks, or real estate, or yourself, we first begin with our due diligence. So forget the naysayers, and start to read about finance, and set a goal to become financially independent.
4. Only buy single use items so you don’t waste money
If you use an item or service over and over it’s actually cheaper to buy in bulk or as part of a package. You can apply this same logic to entertainment and activities. Do you go to a museum or science center more than once a year? It’s actually cheaper to buy a membership, as tickets are priced at a premium. With a visit costing around $100 for a family of four and memberships priced under $200 it can be a smarter buy. One year, just for fun, Monica from Planner at Heart tracked how much she used a science center membership and the various perks that come with it. She discovered that her $189 membership provided $715 in value. That’s like getting everything for 75% off!
5. You should buy that house, it’s a good investment
Although houses usually appreciate over time, a person shouldn’t justify purchasing a primary residence solely by calling it an investment and expecting to receive a “return on their money.” There are additional expenses on top of the mortgage payment, such as mortgage insurance, property taxes, insurance, and maintenance expenses, that can quickly eat into someone’s paycheck. The money they spend to maintain their house may not even turn a profit when they decide to sell. Instead, people should see their primary residence as a home, a place that provides shelter. They should purchase a place that they can easily afford and fit within their budget, according to Jonathan Sanchez from Parent Portfolio.
Before you decide to purchase a home, you need to consider the many monthly costs of owning a home to ensure you can actually afford it.
6. You should trust financial advisors
Stephen from GenZ Money: Having worked for some of Canada’s biggest banks, I can conclude: Be extremely wary of financial advice from financial advisors. They do not have your best interests at heart.
Many financial advisors’ objective is to meet their sales targets by opening a new savings account for you, selling you a new credit card, or convincing you to invest in their mutual funds. Unfortunately, many of these financial products have almost no financial benefit for you and may even include hidden fees. For those reasons, new financial institutions like Robinhood and WealthSimple have created competition in this industry.
It is essential to do your due diligence, and reading personal finance blogs can be a start! There are great investments out there you may have never heard of or considered, including ETFs, bonds, or even cryptocurrency.
7. Start budgeting by tracking every penny you spend
There are two problems with this advice, according to Robyn from A Dime Saved. First of all, budgeting is not tracking. You don’t need to know how much money you usually spend to make a budget. All you need to know is how much money you have to spend. First, create a budget, then you can track your spending to see if you are following your budget and if there is room for improvement.
The second problem with this advice is that it is incredibly overwhelming. Unless you love math and tracking things, you will spend a lot of unnecessary physical and emotional energy trying to track your spending. You don’t really need to know everything that you spent. You need to see if you spend more than your budget allows, not necessarily the details of the transactions themselves.
8. Make money by timing the stock market
Often, individuals use various mathematical and emotional factors to decide if the stock market is too high or too low to invest. John from Financial Freedom Countdown says timing the stock market is always a bad idea because no one has been able to do it consistently over a long time. You are trading against professionals who do this for a living.
Instead, it would be better to decide on your asset allocation based on risk tolerance and just dollar cost average when investing in the stock market. Automate your investments so you do not second guess yourself, trying to time the market or chase the next hot sector. Once you have automated your investments, you can set it and forget it. Go about enjoying life.
9. You don’t need a financial plan for your money
A financial plan is arguably one of the best and most important financial tools you can and will ever have, according to Kristian from Savology. The reason is simple—having a financial plan provides clarity around for your financial life.
Managing your finances can be extremely challenging and difficult, there’s no secret there. And when you’re just getting started on your financial journey, that’s especially the case. But more so, it can be extremely difficult to stay motivated and envision the long-term value that you’re getting out of the current activities and steps you’re taking.
A financial plan is there to help you navigate all areas of your financial life, especially when times get tough, as a way of keeping you focused, motivated and on track while you work on your goals.
Think of it like this: Would you drive in an unknown location without using a map or a GPS? Probably not. Would you build a new building or a home without using a blueprint? I really hope not. Then why would you consider navigating your most important financial decisions without a plan in place?
10. You should pay off your debt using the debt snowball method
Ben from Saved By The Cents: Many people say that you should use the snowball debt method (paying lowest amount first) because of the psychological benefit of eliminating debt.
While there is a psychological benefit, that benefit can come with a very real cost (i.e. interest charges). You can lose thousands on interest if your highest interest credit cards also yield the highest balance.
What should you do instead? Understand whether you need the psychological benefit of paying off the smallest debts first, find a debt payoff planner app that uses savvy or avalanche payoff methods, and get out of debt cheaper.
To learn more about the 2 most common debt payoff methods, check out this article Paying Off Debt: Snowball vs Avalanche Methods.
11. Don’t work on a side hustle, it’s a distraction
Bella from Bella Wanana: As the pandemic has taught us, job security is becoming much scarcer in our society. Any one of us is at risk of losing our primary job, sometimes without advanced notice. No longer should we rely on just one stream of income to get by; we need to build our own safety net.
How do we look for other streams of income? Side hustling (you can even make as much as $1000 a week if you do it well) is certainly a viable option. It can even teach you skills that can add to your main 9-5.
12. You should be saving and investing every extra penny
“You shouldn’t ever see the inside of a restaurant if you’re in debt.”
“Why did you waste money on a new PS5? You should have invested it instead.”
Many so-called experts in the personal finance space will tell you that you shouldn’t buy anything that brings you joy if you are in debt. This piece of toxic money advice is just not realistic, according to Melanie from Partners In Fire. People shouldn’t have to forgo every single one of life’s pleasures to get ahead in life. It’s unfair and unrealistic.
Instead, we should be discussing moderation. It’s okay to spend a little bit of money on something that will bring value to your life. It’s also okay to spend money on giving yourself a break, like a date night, self-care, or anything else that will improve the quality of your life. Like everything, there’s a balance to be found.
13. Stop buying coffee, you’re wasting money
The common expense that financial “experts” love to pick on is buying coffee from a coffee shop or cafe. Instead, you should simply save that $3 a day, which is over $1,000 a year. Or better yet, invest it and watch your coffee money grow over time!
Now, don’t get me wrong, saving and investing more money is generally a good thing. But picking on random expenses without knowing how much someone values that purchase makes no sense. One of the best ways to stop overspending and save more money is to cut out purchases and expenses that you do not value.
Maybe you realize it is coffee that you value, but there is a better chance that it is something else, like your apartment, car, frequent dinners out, or random Amazon purchases. The key is to find purchases that you don’t actually value, and start saving money there first.
Read, These 8 Frugal Living Habits Allow Us To Spend More On What Matters, to learn more about frugal living.
14. Buy items when people say “You Earned It”
Derek at The Money Family cautions against buying items that will lead to lifestyle inflation just because it may be expected of you once you reach certain milestones in life.
It is all too common for someone, after getting their first job out of college or a big promotion, to hear people tell them they should buy a new car or upgrade their house because they earned it.
Focusing on saving, paying down debt, and making informed financial decisions should always be the first step when you increase your income. Don’t throw away these chances to put your best financial foot forward by wasting the money on a fancy car that will put you in a bigger hole than where you started.
15. You need to spend money to have fun
Marjolein at RadicalFIRE doesn’t believe that you need to spend money to have fun, and neither should you. If you are looking for a date night idea, you can have a super fun date night at home. If you are looking to have fun with your kids, you do not have to spend money since there are plenty of free, fun things to do. When you are visiting your friends or family, you do not have to spend money to go sight-seeing or enjoy a new city. You can go for a hike, listen to podcasts, read a book, play board games, have a movie marathon, ride your bike, have a picnic, do some yoga, declutter, or have a dance party, just to name a few.
Over the last year, we’ve all experienced less travel and more staying inside the house. We’ve discovered what fun things you can do with no money, and we’ve adjusted to the new normal. Let’s stick to that mindset and come up with something super fun and free. Go out there and find free activities to do that you enjoy!
16. You HAVE to go to college
There is no doubt that a college or university education can be very valuable. But depending on what your interests, skillset, and career goals are, a formal post-secondary education might not be what’s best for you, advises Amanda Kay of My Life, I Guess.
Too many people go to college because we are told we have to in order to get a good job. We choose a school and attend as an undeclared major or choose whatever program sounds interesting, without necessarily considering if this is the best use of our time and money.
These days, there are some great college alternatives that come at a fraction of the cost of a degree. For example, many healthcare and manual labor or trades jobs provide on-the-job training and apprenticeships. Or, you can take classes online to learn the specific skills you’re looking for. And of course, there’s always the option of starting your own business instead!
17. You should depend on money experts to plan your financial future
With all the decisions we make in life, it’s no surprise that we often feel more stressed and bogged down when it comes to making important decisions about money. “Choice overload” and “decision fatigue” are real. So when we’re faced with a financial decision, it’s often easier to do nothing or rely heavily on a financial or tax advisor.
But you should never get to the point where you’re letting money experts plan your financial future, says Chihee Kim, Co-founder of Finny. Learning about personal finance for 5-minutes a day is all it takes to not only improve your financial literacy but also build a smarter relationship with your money.
What piece of toxic money advice were you most surprised by? Let us know in the comments!
Find out about 6 financial mistakes that can haunt your financial future.
Want to try a few fun and easy money challenges to help you save more money? We’ve come up with 9 money challenges to improve your finances in small ways.
Financial freedom begins with good habits.Rebecca & Tiago, theloadedpig.com