Today, people seek financial advice from multiple sources including books and the Internet. Quite often, some information could turn out to be misleading, leaving you confused and desperate. How can one discern quality financial advice from the gospel of self-endorsed financial geeks?
[Read: Overcoming Your Financial Fears]
Characteristics of Misleading Financial Advice
Fortunately, there are ways to isolate the genuine from the fakes. For instance, CreditCards.com says destructive financial advice exhibits the, at least, one of the attributes outlined below:
- One size fits all mentality
- Comes from an advisor with a vested interest.
- Highlighted as the only option.
- Promises instant positive results.
However, you can put your mind at ease; minimize risk accordingly by verifying the source of advice and seek relevant clarification. Below are six common financial advice tidbits you may ignore.
- Credit cards are bad.
Credit cards are a payment technology and thus have no inherent attributes; good or bad. Only human behavior could empirically lender them beneficial or problematic. If you cannot optimize your spending habits, then your issues are obviously immune to the use of a credit card.
Responsible use of credit cards is core to achieving their inbuilt utility and rewards; eliminating the bulkiness of cash. Furthermore, don’t they enhance customer protection? To truly appreciate the usefulness of credit cards, you only need to engage discipline.
Besides, you may convincingly keep one for online purchases and travel arrangements. Credit cards are much better than debit cards since they offer advanced customer protection.
To get additional benefits of credit cards, please, see “10 Hidden Benefits of Credit Cards.”
- Adapting a militant spending strategy will liberate you.
Often, people have cravings which they continuously suppress until they can’t hold their urges any longer. They, however, give up and resume their old spending habits. Some financial advice could demand you to incorporate a spending plan so as to fulfill your desires since deprivation is harmful and will backfire.
While trying to curb your purchases, at least, be realistic. Consider making baby steps and modestly reward yourself accordingly. If you are working on curbing purchases, always try to be realistic. Begin with the end goal in mind; you should incorporate visual reminders to help you work towards and stay focused on your financial goal. For assistance in getting started: Check out “How to Develop an Effortless Budget You’ll Stick To.”
- Subscribe for life insurance.
Once you are 25 with minimal assets and no dependents, do you need life insurance cover? Stacy Johnson, a renowned financial expert, has some finance advice for you:
- You may need life insurance if dependents (kids) whose financial status could cripple owing to your death.
- If you are the household breadwinner
- Pending debts
When is it the right time to buy? Do yourself a favor and go for a term policy.
- 10 percent is the sweet spot for retirement contributions.
It is common financial advice that saving 10 percent of your earnings be the standard for retirement contribution. However, what if you never saved a dime in your early working years? If you didn’t start saving early enough, you might need to exceed your percentile savings to adequately meet your retirement goals.
For instance, guys in their late 30s-40s and have not saved much for their retirement years will apparently find that 10 percent is inadequate. Try to figure out how much you may need for food, health care, shelter and other basic necessities.
Consider how much you will receive from the Social Security and external sources. If any deficits exist, then it’s your responsibility to fill the gap.
- Purchase a house since it’s a sound investment.
Have you heard of the last housing crisis? Well, as a homeowner, I can soberly attest to the painful fact that homes indeed do lose value; contrary to finance advice perception that they appreciate quite rapidly. I don’t mean to imply that home buying is the craziest idea on earth.
Owning a home is an excellent idea considering that it awards you a fixed rate mortgage to be paid at a set monthly cost. You end up paying the same monthly installment while the rent price over several years, sky-rockets. Eventually, you may end up owning the home fair and square; as a future security investment.
However, buying a home is not a get-rich-quick scheme. Honestly, your outstanding mortgage may quickly exceed your home’s value thus you should be cautious.
- Home equity loans save you from financial crisis.
Could you be in a credit card debt and seeking financial advice on your way out? Home equity loans often seem like the perfect solution due to the corresponding competitive interest rates.
Unfortunately, you may fall on hard times and consequently default the loan; everything turns on a downhill trend henceforth. Moreover, your inability to service the loan on time could mean losing your home, entirely.
[Read: Dangers of Debt Consolidation]
Bottom line: Make sound financial decisions
You should always try not to rely greatly on another person’s “advice” for you to make right financial decisions. Gaining control over your financial decisions can be achieved by educating yourself and understanding the reasons behind every advice.