If you are like most people, then financial advice inundates you everywhere you turn, even when you are not looking for it. A lot of this advice is recurrent, seeming to bolster its truthfulness and worth.
Unfortunately, the fact is not all financial advice is good advice. This goes double for the advice that gets repeated by so many would-be advisors online. Learning to distinguish good from poor financial advice is one of the keys to successfully managing your money.
Bad financial advice is prevalent in every area of personal finances, including banking, credit cards, mortgages, personal loans, insurance and more. Whenever you read financial advice online do two things to determine its worth. First, consider the source. Who is providing the advice and what are his or her credentials for doing so? What is the website providing the advice and how reliable a source is it? Second, seek corroboration. Financial advice from one source can be suspect, but when that same advice becomes corroborated by multiple reliable sources, you can have greater confidence the advice is sound. Above all, find a financial advisor you trust and consult him or her with any new financial advice you hear for an expert assessment. Take a look at the following terrible advice that continues to live large on the internet.
You often get this advice, telling you to keep an active balance on your credit cards in order to improve your credit score. The truth is, the balance on your cards only plays a small role in the calculating of your credit score and can work against you. For example, one of the factors affecting your credit score with some credit scoring agencies is your debt to credit ratio or the amount of debt you owe in relation to the amount of credit you have available.
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If you have $5,000 in credit available from your credit cards’ combined credit limits and you carry a balance of $2,500 across them, then that amounts to a 50 percent debt to credit ratio. In some credit scoring agencies’ systems, a higher debt to credit ratio or a ratio above a certain level can negatively impact your credit score. The other inevitable detriment of carrying a balance on your credit cards is you must pay interest on the balance. Moreover, when you leave a balance on your credit cards, you increase the likelihood of forgetting to make a payment on time and incur late fees, which leaves a mark against you on your credit reports.
A prevailing “wisdom” is that renting your home is like throwing your money away. Calculate how much rent you have paid over the years and you may find you could have bought a home with that amount by now. The flaws in this line of thinking are many. For one, payments toward the purchase price of a home are not the only factor in purchasing a home. Payments for taxes and insurance are two others, not to mention periodic, often unexpected, maintenance and repairs. Beyond the amount of your payments, your credit and income are also factors.
You may have paid over $100,000 in rent over the years, but, unless you could conceivably come up with that same $100,000 at once in cash upfront to buy a home, chances are you are taking out a mortgage to buy the house. In that case, your cash on hand factors along with your credit and income to determine your eligibility to buy the home. Furthermore, your mortgage has interest charged, vastly increasing the amount you pay for the home in the long run above and beyond the mere purchase price.
The advice to attend college after high school and before entering the workforce is actually good advice for some people but certainly not for everyone. College is an investment, and to assess an investment’s value, you need to compare what you put into it with what you get out of it. What you put into a college education are time and money and often the money occurs as interest-bearing debt. However, what you may get out of college is more marketability in the workforce that could earn you a higher starting salary in a more lucrative career.
Depending on the type of work you are interested in and qualified for, you may be able to earn a decent income in a field with upward mobility straight out of high school and without accruing all the debt you would from a student loan. Keeping yourself out of the workforce for four years or longer could also run the risk of setting you back compared with your peers from making inroads in your desired industry. Note, nearly half of students who enroll in college end up dropping out before graduating. All the debt they accrued remains owed and the time they lost in their studies lost, despite the intended benefits.
Moreover, 60 percent of people who graduate college are still unable to get a job in their desired field. Whether attending college is good or bad advice is a personal decision for each individual to make, not a fact that applies universally to everyone. Attending college just for the sake of it without a particular goal or direction in mind is almost certainly terrible advice.
Investing can be a wise decision for many people. However, investing in financial commodities can be a good or bad decision depending on an abundance of factors. The common wisdom suggests investing in gold, silver or Bitcoin is wise because they serve as hedges against inflation. The truth is the values of such commodities can be as volatile as stocks and other investment assets. Additionally, there is no particular correlation between these commodities and inflation, so they do not even work as failsafe hedges. If you wish to invest in financial commodities like these, then make sure they are a balanced part of a diversified portfolio that includes a range of investments with fixed investments such as CDs and bonds.
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