These days, there are countless rules, guidelines, and tips for managing our wealth and avoiding financial setbacks. Some of them even contradict each other. It can be confusing to try and find up-to-date advice to follow.
Whether you’re a millennial, Gen Zer, baby boomer, or another generation, money rules keep evolving rapidly, particularly with advancements in technology that continually offer new ways not just to earn money but to manage it. Below, you will find some outdated financial tips to avoid that will make your search for help less frustrating.
1. “Invest in Mutual Funds”
More mega corporations are investing in Bitcoin ETFs, making the market attractive to new investors. ETFs are often better investments than mutual funds, offering tax efficiency, greater liquidity, and lower fees. However, it’s important to note that they are not risk-free. Before investing, consult the SEC’s Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) to understand the prospectus, investment strategy, and risks.
2. “Jumping From One Job to Another Looks Bad”
Have you ever been cautioned that changing jobs frequently is not beneficial for your resume? Human resources and recruiters have drilled this advice into our minds. However, from a financial point of view, switching jobs may be your best option if your salary is not keeping up with rising prices.
3. “Don’t Rent, Buy Instead”
Buying a house in the U.S. isn’t easy. Mortgage rates keep increasing, which makes it harder for many people to afford their dream home. The average 30-year rate rose from 3.22% in January to 7.08% by the end of October 2023. When rates inevitably go up again, buying a house will be even harder. Renting could be a better option for now. Plus, if you work remotely, renting gives you the freedom to move to other cities or even countries outside the U.S.
4. “Keep Money in Your Savings Account”
It’s not a bad idea to save money, but the national average savings rate is only 0.35% APY. Large banks offer even worse rates, as low as 0.01% APY, on standard savings accounts. A better option for your savings might be a high-yield savings account (HYSA). Some HYSAs can offer up to 4.6% APY on your savings. For instance, if you invest $11,099 in American Express, you can earn $1,249 in interest in the future.
5. “Always Have a Balance on Your Credit Cards”
If you want to improve your credit score, following the rules of the credit card game is key. With the high cost of living, many people depend on credit cards to get by. The most important rule of this game is to keep your spending ratio under 30% and always pay on time. If you find it difficult to follow this rule, it’s best not to get a second credit card until you can pay off that debt.
6. “Don’t Talk About Money”
Over the past year, there has been a significant increase in social media discussions about financial issues in our country. Although many find it uncomfortable to talk about money with colleagues, co-workers, or even family members, raising awareness about wage gaps and pay transparency can help address the persistent income inequality historically underpaid workers face.
7. “Pay off Your Debt From Highest Interest Rate to Lowest”
Some people suggest paying off debt with the highest interest first, but they might not have heard of the snowball method. This method involves starting with the smallest debt first, which can help you maintain momentum and pay off your debts quickly. Financial expert Dave Ramsey believes that “debt is a behavior problem.” Starting with the smallest can help you quickly clear your debts and improve your credit score.
8. “You’re Young, Don’t Think about Retirement Yet”
The worst thing you could hear from someone is that you’re too far ahead of your time. However, it’s never too early to start planning for your retirement. Considering a strategy to achieve your retirement goals or exploring ways to begin your retirement planning is critical. Finding the best experts who can work with you to create a solid plan is important.
9. “To Invest, You Need a Lot of Money”
Investing in the stock market can seem daunting, especially if you don’t have much money to start with. However, with the help of zero-fee brokerages and fractional shares, it’s now possible to start investing with as little as $1. Fractional shares allow you to buy a portion of a share, so you don’t have to worry about the high cost of a full share. This makes investing in the stock market accessible to everyone, regardless of their financial situation.
10. “Pay off Your Student Loans in Full by Making Extra Payments”
Although it may seem like a good idea to pay off your student loans as quickly as possible, the high cost of living in the United States is making it increasingly difficult for young people to achieve this goal. It’s important not to put too much pressure on yourself. Instead, make your payments on time and focus on stabilizing your finances. Once you are in a more secure financial position, you can consider making extra payments toward your student loans.
11. “The Best Investment Is Owning a Primary Residence”
It is often assumed that homeowners have greater financial stability than renters. However, this can vary depending on the circumstances. The expenses associated with owning a home, such as maintenance costs, don’t always justify the investment.
If you have determined that renting is the best choice for you, then consider alternative ways to accumulate wealth. For instance, investing in a stock portfolio can be a useful method for achieving long-term financial objectives.
12. “Always Put 20% Down When Buying a House”
There is a common misconception that a 20% down payment is mandatory when buying a home. However, this is not true. While a 20% down payment can help you avoid mortgage insurance on a conventional loan, it’s not a requirement. According to the National Association of Realtors, the median down payment for first-time home buyers was 13% in 2023.
13. “Pay off Your Debts Before Spending on Fun”
Having fun and celebrating life is an essential part of our well-being. Postponing happiness in the hope of a better financial future doesn’t always make sense. Celebrating milestones while paying off 25%, 50%, or 75% of your debt can keep you motivated to achieve your next milestone.
14. “Always Pay With Cash”
It’s crucial to avoid accumulating debt, but spending all your cash may not be the best option. Consider getting a credit card with rewards or opening an account with financial apps like Klarna or AfterPay. These options allow you to pay for your purchases on a monthly or weekly basis while also earning points toward rewards.
15. “Only Check Your Credit Score Once a Year”
Gone are the days when checking your credit score once a year was enough. Now, it’s important to keep track of your credit score more frequently. Luckily, with the help of new phone apps, you can easily review your credit score or history and stay alert to any changes that could potentially impact your credit score.