We asked our friends to tell us the worst piece of financial advice they’ve ever heard, and their responses were awesome.
1. Use student loans for everything.
“The worst piece of advice I’ve ever heard is when someone told me that student loans should be used for everything. This person paid for timeshares, multiple vacations and more all with their student loans, and they are constantly telling others to do the same!”
–Michelle Schroeder-Gardner, Making Sense of CentsTweet this.Click To Tweet
2. There’s no such thing as too much credit.
“Get as many store credit cards you can to build your credit.”
3. Buy life insurance before you become uninsurable.
“The worst advice I have ever received was to take out a whole life insurance policy because you never know if you’ll become uninsurable. More likely, the agent didn’t know when he was going to get his next commission check.”
-Lance Cothern, Money Manifesto
4. Buy variable annuities in your tax-deferred retirement plan.
“Buying variable annuities within a tax-deferred retirement plan. It rarely makes financial sense to anyone except the investment product salesperson pitching the idea. I’ve heard it and seen it so many times in so many portfolios that I can’t remember a specific source. It’s a very common mistake.”
-Todd Tressider, Financial Mentor
5. Work conferences are a waste of money.
“Why waste your money on conferences and events? Save your money and don’t bother attending.”
A friend of mine was against the idea of attending events. He didn’t see the value in meeting people and learning. I think that this short-sighted thinking will cost you a ton.
-Martin Dasko, StudenomicsTweet thisClick To Tweet
6. Don’t invest until you’ve paid off all your debt.
“Paying down debt should be your only priority. Until you’re debt-free, investing and saving can wait.”
I’ve seen this quite a few places, including from a high school teacher I highly respected. It makes intuitive sense, especially if you’re paying higher interest rates on your debt than you’re earning on investments or savings.
The problem is a behavioral one. Unless you are an extremely focused and strong-willed person, let’s face it most of us aren’t, then you will always have some debt. You may skimp and save to pay down the debt but then when your balances approach zero, the motivation to budget diminishes. You may keep a near-zero or even zero balance on total debt, but you will never really start investing.
I understand that it sounds silly to keep paying interest on debt while putting money away for your future, but we all need financial balance. Learn to put a little away each month on an emergency fund and in a retirement account. Try to pay off your debt, especially the high-interest credit cards but don’t neglect your financial future.
-Joseph Hogue, Peer Finance 101Tweet thisClick To Tweet
7. Wait until you’re old enough to save for retirement.
“I was on Huffington Post Live a few years ago when I said I was slashing expenses by living with family, so I could do stuff like start a business and sock away money for retirement in my 20s. One of the viewers commented, “Why would you save money for retirement and not rent your place? You’re too young to be saving for retirement. You should just leave and worry about retirement later.” Clearly they don’t understand the power of compound interest…or investing.”
-Amanda Abella, AmandaAbella.comTweet this.Click To Tweet
8. Who needs a 401(k)?
“Don’t save for retirement with a 401(k). Rely on your savings and property.”
9. Spend more money.
“My parents recently parted ways with a financial advisor who they weren’t in sync with financially. During one of their first meetings, he examined their 12 months of expense spreadsheets, laughed, and asked why they weren’t spending more money. What?! They’ve never been big spenders. So, why should they start inflating their lifestyle now? For a middle-class couple nearing retirement, unsure about what they could afford to do, this advice just seemed wrong.”
Kate Dore, Cashville SkylineTweet this.Click To Tweet
10. Use a credit card to buy things you can’t afford.
“The Advisor: You SHOULD open a credit card for your new business. Instead of paying in cash or buying just what you can afford, you should get a LINE of credit too, in case you need it later.
Me: Why on EARTH would I want to START a business in debt? I’m opening a business to MAKE money!”
-Alexis Lockhart, Texas Hart Consulting
11. Pay off a mortgage early to get the deduction on your taxes.
“Wow, I have heard a lot. Probably 20 years ago there were financial advisers encouraging people to take equity off of their homes to invest in the market.
But the one I really like is when a financial planner tells you not to pay off your mortgage because you need the deduction. What? Ok, so let me get this straight you want me to pay the bank $10k dollars so I can keep from giving the Government $2,500? That math does not work. Stupid advice! BTW you could give $10k to a 501C3 charity and get the same deduction and you would be helping a good cause.”
-Tom Swan, AskTomSwan.com
12. New job? Time for a loan!
My mother in law (to my husband): “You have a job now, get a loan for a new car.”
13. Factor tax write-offs into your house buying.
“When looking to buy my first home, and pre-approved for a fairly substantial amount, my father told me I should buy a more expensive one for the tax write-off! I bought much below my approval limit, and that allowed me not to carry any credit card debt.”
14. Carry at least a 20% balance on your credit card.
“My mom (who later declared bankruptcy) always told me that I should carry a credit card balance of at least 20-30% at all times. AT LEAST!”
-Michelle, Fit N PoorTweet thisClick To Tweet
15. Get a 5-1 ARM, and then refinance.
“You should buy your home with a 5-year adjustable rate mortgage, because the rate is lower, and you can just refinance when the 5 years is up.” (That was a couple of years before the real estate bubble burst!) Good thing we didn’t follow it.
16. Your home is an investment.
This is the worst and most harmful piece of advice I have heard. Your home (whether you rent or own it) is a personal expense, not an investment. Many people don’t even consider renting because of the social stigma attached. Unless your home is rented out or used for business purposes, it is a personal expense. Taxes, insurance, maintenance, repairs, and HOA fees are all expenses that come with owing a home. While there are some benefits of owning vs. renting, make sure you make this decision based on your wants, not because it is a “good investment.”
-Kirk Chisholm, Innovative Wealth
17. Don’t ever buy a home.
“Buying a House is the worst financial move you will ever make! Don’t Buy a House unless you can live in it for five or more years. Only buy a house if you can put 20% down. Only buy a house if there is no PMI, as PMI is a waste of money.”
-Elizabeth Colegrove, Reluctant Landlord
18. Always get the in-store insurance.
“Are you interested in getting the protection plan today?” This was for a $30 optical mouse. I told the associate that my boss would fire me for making a stupid decision like that and that I would take my chances that the mouse wouldn’t break – maybe $30 was a big gamble to them??? The crazy thing was that the associate followed up once more about getting the protection plan!
-Jessica Garbarino, Every Single Dollar
19. Take as many student loans as you want.
“To go to college for four years on student loans then work for 40 years to retire at or below the poverty level. There’s a better way!”
20. Establish credit by borrowing.
“You should take out loans and apply for credit cards and use them to help establish your credit score when you’re fresh out of high school.”
21. Have a plan before you save and invest.
“That you must have a plan and specific financial goals before you can start saving and investing.
When I was in my 20s and 30s (and even beyond), I was not great at visualizing my future and devising a life plan. But I still saved and invested, and made decisions that protected my financial future — just because I thought it was important. I think it helped that I was a business-finance major and my parents were kids during the depression (ditto for my husband). Though I can look back and see areas that we could have improved, we still have managed to amass a seven-figure net worth.”
-Julie Rains, Investing to Thrive
22. Sell your car before it gets too old.
“Someone told me that it is a good idea to sell your car before it gets old so you can get the best trade in value. Sure, you’ll get good trade in value, but you already lost a ton of value when you bought a new car and drove it off the lot!”
-Eric Rosenberg, Personal ProfitabilityTweet this.Click To Tweet
23. Let the bank determine how much you can spend on a house.
“Slate had an article recently about how budgets were essentially useless. YNAB had a great reply to it on their blog. 🙂 But another one has to do with buying houses, and using your pre-approved amount to base the purchase price off of.”
What about you? What’s the worst piece of advice you’ve ever heard?