When talking money, everyone has something to say. Personal finance is a topic that most people have experience in, but many lack expertise. Despite the good intentions the amateur advisor might have, following misguided money advice could leave you in the rough.
Not all advice is created equal, and that’s why it’s necessary to tune out the bad takes you’ll hear. So, what advice do you take to heart, and what advice should you leave behind?
Here are some popular misconceptions about personal finance that you should know. Whatever you do, don’t fall for these bad pieces of advice.
Credit Is Bad
Many may advise you avoid establishing credit, claiming that credit automatically leads to insufferable debt. Well, that’s not always the case. In fact, declining to establish a line of credit could keep doors closed for you later in life.
Do you want to buy a house someday? Or apply for a car loan, or any other type of loan for that matter? If so, you’ll need to establish credit.
Your credit is your financial power, so while you should be cautious with a credit card and loan repayment, you should not cut credit from your financial possibilities.
Paying Debt Is Always Top Priority
No one wants to live in debt. Day to day life with interest rates hanging of your head can be extremely stressful, but there is an overlooked truth we all must accept: not all debt is bad debt.
I know it sounds crazy, but it’s true. But what is the difference between good debt and bad debt?
Good debt is money owed for things that can build wealth in the future. This could include student loans, mortgages, or business loans.
Bad debt is money owed that doesn’t improve your financial future. This debt is often consumer debt with high interest rates, most commonly seen in credit card debt.
Should you be paying off your debt? Absolutely, especially any bad debt. However, you should not sacrifice building an emergency fund to pay off your good debts faster than necessary. If all of your money is going toward debt repayment, leaving you with nothing when your car breaks down or your home needs repair, you’ll increase the risk of going into more bad debt when emergency strikes.
We aren’t going to deny that saving is important, but significant wealth growth cannot happen in a savings account.
Mr. Krabs and Scrooge McDuck are wrong on this one. There is no need to stuff cash under the mattress or fill a room with gold coins. If you want to build wealth, you can’t just penny hoard and save, you have to invest.