The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!Â
People love to give advice. It’s natural. On the other hand, not everyone should offer up advice about every subject, especially if they aren’t confident their advice is completely sound.
Before I started educating myself about personal finance in order to improve how I manage my money, I received some pretty crappy advice from other people who seemed pretty misinformed about personal finance.
There are several myths out there about personal finance that need to be debunked so I’ll start by sharing some of the worst financial advice I’ve ever received and what
Don’t Worry About Taking Out Student Loans Because They Will All Be Forgiven in 10 Years
One day one of my coworkers who is really into education told me this. She had just received her MBA and was a huge role model and inspiration to me. Luckily, I didn’t listen to her advice though. I took out some student loans to help me get through college and I didn’t really think about the debt until it was time to pay it back.
However, I refrained from taking out more student loans just for the sake of having more money and I attended community college for two years and applied for scholarships and financial aid to keep the cost of college low so I didn’t have to take out tons of loans. I attended a state school and avoided expensive degree programs but still graduated with just under $21,000 in student loans which is a fraction of what some of my peers graduated with.
Once I started learning more about student loan debt and took on some more personal finance writing gigs, my research led me to find out that not everyone qualifies for student loan forgiveness. Actually, only a select few do and they must meet strict standards like working a government-funded job for 10 years.
There are quite a few federal student loan forgiveness programs available for government workers, teachers, and doctors but since I don’t work in those fields and don’t plan on having student loans for 10 more years, I don’t really qualify for forgiveness.
Keep Your Car for Two Years, Then Trade It In For Another One
This unhelpful piece of financial advice came from another coworker and my own mother shockingly enough. When I graduated college, I couldn’t afford to pay for a new car in cash but I desperately needed one since my current car had broken down for good.
I remember asking around and researching car loans as often as I could to learn more about what I could potentially be getting myself into. I remember asking one of my coworkers how someone is supposed to pay their car loan off before the car breaks down for good and she smiled and me and said ‘never’. Her advice was to do what she had been doing for the past 10+ years and finance a fairly new car, then wait a year or two and trade it in to get an even newer car.
Her car had all the bells and whistles like heated seats and windows, built-in navigation and so on. The idea of having a car note for the rest of my life didn’t appeal to me so I chose to finance a cheaper car with the hopes of paying off the loan quickly.
When I went into the dealership with the intention to refinance my car loan for a cheaper rate, the sales reps suckered me into considering the idea of trading in my car for a newer car with a higher loan. Their argument was that my car’s value was depreciating every day and the newer car they proposed would last longer.
The huge problem was that trading in my car for a newer one would have added around $4,000 to my loan at the time. While at the dealership, I called my mom for advice and she actually seemed like she was on the car salesman’s side and wasn’t opposed to me financing a newer car that would potentially last longer.
Again, thankfully, I chose against this, ignored the sales pressure and just kept paying off the current car loan I had. My car is a 2010 so it’s not super old. I really didn’t see any value in buying a newer car when I was already in enough debt as it is. The truth is, all cars depreciate in value over time and there’s no way around that fact. You can’t beat the system by leasing cars and trading in your current vehicle. You will end up spending a boat load of money in interest. If you always have a car loan, you’ll never be able to truly enjoy the perks of outright owning your own car and getting to ride the wheels off it.
I ended up making extra payments to pay off my car loan last year and I’ve never looked back since then. It was the best decision I could have ever made.
Wait Until You’re Old Enough to Save For Retirement
Retirement is probably my weak spot when it comes to financial literacy. I still have many working years left before I can consider retirement so I used to refrain from learning anything about retirement.
Whenever I was interested or mentioned investing money into a Roth IRA I had a certain friend who would make comments about me worrying too much about the future.
“Why are you worrying so much about retirement when you have so much time? You sound like an old lady,” she once told me.
Now, I resent the ‘old lady’ comparison, but one thing she said was right. I do have plenty of time…plenty of time to get started with investing early that is. With retirement, the earlier you start contributing to your 401(k), Roth IRA, or any other retirement account, the better because you give your money more time to compound and grow over the years.
Yes, the market fluctuates, but it always consistently improves year after year which almost guarantees if you invest a lump sum amount today, your contribution will grow significantly over the next 10-20+ years.
By investing in retirement early in my 20s, I’m practically ensuring my chances of becoming a millionaire by the time I reach traditional retirement age. If I invest aggressively, I may even be able to retire early.
Once people reach the ‘old lady’ stage and start thinking about retirement, it’s often too late to grow their wealth. This is why I look forward to investing as much as I can while in my 20s.
Be Careful Who You Receive Advice From
This is my big takeaway after receiving some pretty bad financial advice over the years. Most family members and friends mean well and want to help, but it’s important to educate yourself about personal finance by utilizing credible resources that are available on trusted websites, at institutions like your bank, and from financial experts with a proven track record.
Yet and still, you shouldn’t always believe everything you hear and take the financial advice you do receive with a grain of salt. Most financial topics and issues don’t have a one size fits all solution because everyone’s situation is different.
How about you all? What is the worst financial advice you’ve ever received?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/87913776@N00/6928145100/
