Worst Financial Advice I Have Ever Heard

This is a list of the worst financial advice I have ever heard. Truly, some of these sentiments show the need for increased financial literacy across society!

Saving Will Make You Rich

Saving will never make you rich. Investing is the only way to become rich.

In fact, by just saving cash in a bank account, you will lose 2% of your purchasing power every year through inflation.

Politicians and the Federal Reserve know that constituents will never vote for a tax increase, so they secretly tax through inflation.

There is a big misnomer about inflation, and most economists don’t even know what they are talking about. Inflation is not a rise in prices!

Prices can only go up or down. Inflation means to expand, and the only thing that can expand is the money supply.

Economists measure inflation through the changing of prices with the CPI, but increasing prices is not inflation!

In the last 10 years in the US, the money supply has expanded by over $4 trillion. This is more than a 1,000% increase.

I guess if you were to save cash, and immediately convert it to gold, that would work. Gold preserves purchasing power, but simply saving cash will never make you rich!

There will be a continuous drain in your purchasing power every year! Talk about losing wealth by debasing the currency!

Renting is Throwing Away Money

Renting is definitely not throwing away money, and the comparison between rent and a mortgage payment is not intellectually honest in the slightest.

It takes almost 10 years (with a 30 year mortgage) before you start building a decent balance of equity within your home.

Most Americans are now buying homes with 3% down because they have no savings and homes are expensive.

Well, when you make a mortgage payment, a majority of that money is going straight to a bank or investor as interest.

Additionally, this dishonest comparison fails to take maintenance and emergencies into consideration. People fail to remember that homes actually depreciate unless they are maintained.

worst financial advice

When you rent and the roof leaks, toilet backs up, or the fridge stops working, your landlord is responsible.

Buying a home when you’re broke is a surefire way to become more broke!

The Balance suggests using the ‘1% Rule’. This means budgeting 1% of the purchase price of your home for maintenance each year.

US News and Freddie Mac, says home buyers should actually budget up to 4% of the property’s value in annual maintenance costs. That’s $3,000-12,000 for a $300,000 home.

Additionally, home owners will have to pay insurance, property taxes, and other miscellaneous expenses!

I have written an article about the benefits of owning a home if anyone is interested in the other side of the coin.

You Need a Financial Planner

Trust me, the majority of people under 55 do not need financial planners. You really only need a financial planner when life starts to get messy.

A simple afternoon of reading books and watching YouTube videos can teach you everything you need to know about investing.

J.L. Collins has an excellent book called “The Simple Path to Wealth”. It will teach you everything you need to know about asset allocation, indexing, and other strategies to maximize wealth.

The book is even directly geared towards people who know nothing about finance!

Here are a few situations where a financial planner may be worth the expense:

  • Tax Planning
  • Estate Planning
  • Complex Insurance Needs (does not include life insurance)
  • Wills and Trusts

If your financial planner can’t provide any niche service, other than selling financial products, run for the hills!

Most financial planners are simply sales people in disguise. You always want to go with fee-only financial advisors.

Remember to always ask your advisor if they follow a suitability or fiduciary standard! Selecting the wrong financial advisor will cost you a lot of money!

Investing is Gambling

Investing is anything but gambling.

Gambling is a one night activity, while buying stocks and companies lasts forever.

Also, there is always a negative expected return for gamblers. The house always has the odds otherwise casinos would not exist.

On the other hand, investing in the stock market carries a positive expected return. There has never been any 20 year period where the S&P 500 lost money!

Investopedia notes another big differentiation between the two activities.

“Gambling is defined as staking something on a contingency. Also known as betting or wagering. It means risking money on an event that has an uncertain outcome and heavily involves chance.

Stock and company information is readily available for public use. Company earnings, financial ratios, and management teams can be researched and studied.”

Young People Don’t Need Health Insurance

You want to know the fastest way in the US to go bankrupt? Medical debt is how! This is not a political article about the insurance industry in the US, but health insurance is very important!

worst financial advice with medical debt

The Balance wrote a great article talking about devastating medical bankruptcy statistics.

“Medical bills are reported to be the number one cause of U.S. bankruptcies. One study has claimed that 62% of bankruptcies were caused by medical issues.

Another claims that over 2 million people are adversely affected by their medical expenses.”

Skimping on health insurance because you are young and healthy should never be an excuse.

It takes one injury, illness, or accident for you to wind up thousands of dollars in debt or bankrupt!

New Car is Cheaper Than Maintenance

The desire for luxury products, to impress people you probably don’t care about, are two key drivers behind the astronomical rise in vehicle prices over the past two decades.

The average car payment in the United States has risen to $523 a month!

Does no one else recognize how absurd this statistic is? This is a PER CAR payment, and most households have at least two cars. It’s easy to start saving money on driving!

I know that constant repair and maintenance costs on old cars is frustrating. However, it should never be used to justify buying a brand new car!

The cost of the repairs (unless it’s a transmission or engine rebuild) will always be less than the decrease in value of a new car.

New vehicles lose 65% of their value in the first 6 years of ownership. Dave Ramsey recommends never buying a new car until you have a net worth above $1 million!

Opt for a reliable, used, fuel-efficient vehicle instead!

Credit Cards Are Stupid

The best way to initially improve your credit score is by opening a credit card. I opened my first credit card at the bright, young age of 18.

Then, one year later, I opened my second credit card through Discover. I have established three full years of credit history, and I have amassed a 793 credit score!

First, we must lay ground rules for credit cards because credit cards are like fire. Too much fire, and you will burn yourself. Just enough fire, and you can grill meat and keep warm!

Americans are over $1 trillion in credit card debt! Follow these ground rules, and don’t be a sucker in credit card debt!

Rule 1: Don’t Spend Any Extra Money

First, NEVER EVER EVER spend any money you wouldn’t ordinarily spend on necessities. Necessities include gas, groceries, utilities (not vacations, online shopping, and reckless, irresponsible spending).

“The correct thinking is: I’m going to put my normal, every day spending on this credit card. Then, I’m going to get any rewards, for money I was going to be spending anyway”.

Rule 2: Never Pay Any Credit Card Interest

For almost every credit card out there worth getting, you are only charged interest if you don’t pay off your balance off (in full) by the time it’s due.

So, all you need to do is not spend money you don’t already have. Then, pay off your credit card (in full) every month. You will pay ZERO interest.

Here are a few reasons why having a good credit score matters.

  • Lower car insurance premiums
  • Easier approval for mortgage loan or rental property
  • Cheaper interest rates

You Should Buy _______ Stock

You should never buy any individual stock! This is because diversification is the greatest tool an investor possesses.

Market risk (systematic) is risk for the general market (or an equity with a beta of 1). Investors cannot diversify away from this risk because it prevails for every company.

Unsystematic risk is the component that is specific to a particular company or industry.

General investment theory would lead investors to believe that the more risk they take, the more their expected return should be.

This statement is true, but only for systematic risk. Investors are not compensated for unsystematic risk!

The reason this type of risk is not compensated is because it can be diversified away. Unsystematic risk is drastically decreased by investing in uncorrelated assets.

This video by Ray Dalio explains the “Holy Grail” for investing!

A rational investor seeks minimum risk for a given level of return. Investing in a well diversified portfolio, like an index fund, keeps expected return constant, while minimizing risk.

If you fail to diversify, you are an irrational investor by definition.

The Government Will Take Care Of Me

I’m sorry, but if you are under the age of 50, the government will not be able to financially take care of you during retirement.

Politicians have made promises to older generations, which they will keep. However, no one under 40 is going to receive nearly the purchasing power with social security benefits that our grandparents received.

The Balance describes the uncertainty of future benefits for millennials.

“80 percent of Millennials are concerned that Social Security funds will not be available to them when they retire, according to the 18th Annual Transamerica Retirement Survey, published in 2017.”

If you’re a Millennial, it would be difficult at this point to determine exactly what Social Security benefits would be available to you.

Considering this, it’s safe to assume that you should not rely on Social Security for your post-retirement income.”

You need to start planning for your own retirement, and take action steps today!

Conclusion

This is a list of the worst financial advice I have ever heard. Truly, some of these sentiments show the need for increased financial literacy across society!

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