12 Terrible Money Advice To Avoid
Financial advice isn’t one-size-fits-all. Some people may think they know what’s best for you, but most often their advice may not be relevant to your personal circumstances at all. Discerning between good and bad advice is a crucial skill to growing and protecting your financial wealth. So in this post, we are going to review 12 terrible money and investing advice you should take with a grain of salt and most likely just avoid completely.
01 - Follow Your Passion
Cal Newport, the author of So Good They Can’t Ignore You makes a provocative claim about passion. He argues in his book that the popular advice that you should “follow your passion” is actually counterproductive. That it will actually reduce the probability that you end up loving your work.
Instead of following passion, he argues that we should do the following when it comes to finding work that we can learn to love.
Put in the hard work to master something rare and valuable. Develop “career capital,” then deploy this leverage to steer your working life in directions that resonate.
This is because the normal properties we know that lead people to enjoy their work, such as autonomy, mastery, and relationships, have little to do with whether or not the work feels passionate initially. Rather these are byproducts of being so good at something, people can’t ignore you. Which in turn will likely be financially profitable for you as well.
02 - Money = More Money
A recent Lending Club study showed that more than one out of three people who earn at least $250,000 a year actually live paycheck to paycheck. $250,00 a year translates to approximately $20,000 a month.
This shows that high income doesn’t automatically translate to financial well-being. People with low incomes who are living paycheck to paycheck automatically think that more money will solve all their problems.
Yes, if we are struggling to put food on the table, more money will alleviate some of the pain. However, if we are doing a poor job of managing a little bit of money, we will likely do an equally poor job of managing a lot more.
The bottom line is that our money habits, and in turn our savings rate will have a greater impact on our financial wealth than higher income. When we have a higher savings rate, we are able to save and invest more, and this in turn will allow us to have more money in the long run.
03 - You Can’t Be Rich With A 9-5 Job
With the advent of the internet and social media, it’s easy to fall into the belief that the only path to wealth is to start a successful business. Become a college dropout and start a sensational internet company. But the reality is that those types of millionaires are exceptions rather than the norm.
If you look at the data, a 9 to 5 job is still the most common way that many people build wealth. In fact, the best chance that many Americans have of becoming a millionaire is through a professional degree. Think accounting, medicine, law, or engineering.
According to The Millionaire Next Door by Dr. Thomas Stanley, 80% of millionaires have college degrees. And of them, a lot of them hold advanced degrees:
18% Master’s Degrees
8% Law Degrees
6% Medical Degrees
6% Phds
In general, many millionaires in America are fairly well educated and in addition, have followed traditional education and career paths. Don’t be quick to dismiss the 9-5 career as a solid path to wealth.
04 - College Is Outdated
We are living at an interesting time in history. We have people like Bill Gates, Mark Zuckerberg, and Michael Dell. People without a college degree, are also one of the richest people in the world today. And we often dramatize their college dropout story as the spark that fueled their success.
However, the fact that they dropped out of college doesn’t mean that they aren’t highly educated. In the knowledge work world today, knowledge and education are even more vital for success. And college is still one of the best formal mechanisms to develop that knowledge and education. Which in turn increases our earning potential.
A Georgetown University study found that bachelor’s degree holders earn a median of $2.8 million during their career, 75% more than if they had only a high school diploma. So don’t be quick to dismiss college as being outdated. Until we can come up with a better mechanism for formal higher education, college is still highly relevant in today’s fast-moving world.
05 - Student Loans Can Be Paid Back Easily With A Degree
As stated earlier, a college education I believe is still important. However, we should be smarter about how we fund it.
In the spirit of highlighting the importance of a college degree, or any degree for that matter, we downplay the burden of student loans in wishful thinking that we can easily pay it back once we start making tons of money from our degree. In college, we treat student loans like monopoly money and take them without thinking twice.
Let me tell you from personal experience, making money is hard, even with a good college degree. And paying back student loans because we were careless about taking them on, is even more painful.
Be smart about how you fund education. Or your child’s education. If we spend the time to do the research, there are so many creative ways to fund college besides student loans. I personally had my college paid for by the US Army and my wife had her nursing degree paid for by her future employer.
06 - YOLO (You Only Live Once)
While this is a true statement and if applied sparingly it could be good advice, the reason why it becomes bad is because of the way people use it.
Most often, YOLO is used as a rallying cry to spend freely. Do you want that brand-new car? You only live once - get it. Never been to Greece? You only live once, let’s buy that ticket regardless of how much it costs.
Life is all about trade-offs. If we want to accumulate wealth in the long run, we must be willing to make the trade-off today. Save today so we can buy that new car or visit Greece when we can truly afford it in the future.
There is nothing inherently wrong with YOLO, just don’t let it short-sight you into justifying poor money decisions.
07 - Budget Rule - Keep Living Expenses To X% Of Your Pay
The truth is that a good budget is dependent on so many variables; where you live, how much you earn, and your life stage.
My wife and I had stages in our lives when our housing expenses were extremely low because it was just the two of us. And we had stages in our lives when our housing expense was a large portion of our budget because we had a larger family.
Be careful when someone tells you that your housing should only be a certain percentage of your income. Or your car payments should only be a certain percentage of your expense.
You and your circumstance will dictate how much is ideal for you, not someone else.
08 - Trust Financial Advisors
Yes, more information is good. And sometimes it's not a bad idea to consult with a professional before making big financial decisions. However, understand that most financial advisors are often operating with a conflict of interest.
We often go to a financial advisor so he or she can advise us on the best investment to grow our net worth; based on our life stage, risk tolerance, and goals. We are trusting that the advisor has our best interest at heart.
But most financial advisors, especially ones being paid via commission will push funds that have the highest commission rate. Not products that best fit our needs based on our unique investment goals.
If you really want to meet with a financial advisor I would recommend you use one that uses a ‘fee only’ structure. The financial advisor only makes money for the time that he or she is advising you on your investments. There is no commission or asset fee model to tempt the advisor. And the advisor is strictly paid on his or her advice of where what and how to invest your money based on your life stage, risk tolerance, and financial goals.
09 - This Investment Has No Risk
When you look at any investments, even low-cost broad market index funds, they often have the following disclaimer or some variation of it posted on all of their marketing materials:
“An investor may get back less than the amount invested. Information on past performance, where given, is not necessarily a guide to future performance.”
This is because, with every investment, there is always some level of risk. Most often multiple levels of risk. If you are investing in the market, know that there are always risks involved.
Investing in the total market or the S&P 500 index funds is one of the smartest ways to invest in the market, yet there have been tons of times in history when the market fell by more than double digits.
In 2008, during the height of the housing crisis close to 37% (36.6%)
In 2001 during the dot-com crash, close to 12% (11.9%).
And the worst, in 1931 during the height of the great depression, close to 44% (43.8%).
If anyone tells you that this investment is completely risk-free and is guaranteed to produce results, I would be very careful around this individual.
10 - Seek Funds That Beat The Market
This single advice pretty much funds and fuels the whole mutual fund industry. Beginner investors are often advised to buy into actively managed mutual funds because we are told - these funds are being managed by professionals who know what they are doing.
We are lured into the belief that these super-smart fund managers will do all the research, find the winning stocks, and outperform the market for us. And therefore we should well compensate them for their hard effort.
But the sobering truth is that we all could do as well or better with a low-cost index fund that tracks the S&P 500 or the total market. And the best part is we can pay rock bottom costs to do so. If you aren’t sure which one to invest in, here are a few of my favorites.
All these funds are variations of the total market or the S&P 500 index and all excellent equity funds to beat any of the actively managed mutual funds out there.
11 - Buy The Dip
If you watch investing or personal finance YouTubers and TikTok, you hear this advice everywhere. Buying the dip involves investing more into an asset as the price drops in hopes of owning more of the investment at a cheaper average price.
The problem with this strategy is that it is the age-old market timing advice disguised in a new robe. And I’m sorry to be the bearer of bad news, but market timing does not work. The Motley Fools defines market timing as this:
“A strategy based on predicting short-term price changes in securities, which is virtually impossible to do.” - Motley Fool
When we follow advice like buying the dip, we may think we are beating the market by buying low and selling high. But the sad truth is that most often we are buying high and selling low.
We think most trading activities follow sound logic, but most often they are based on high emotions driven by the financial media.
The logical alternative to market timing and performance chasing is to invest in a low-cost index fund, set up a long-term asset allocation plan, and stay the course.
When we see the market going up and down. And we see friends and family supposedly making millions from their hot stocks, staying the course is hard. But have confidence in your plan. Don’t buy the dip. Buy all the time.
12 - Buy (Insert Meme Stock Here)
We see this everywhere. It's all over Reddit, Youtube, and tik tok. And we all know of someone, who knows someone who made tons of money from getting in at the right time with the right stock. But be very careful whenever you hear someone recommending a specific stock.
Because the truth is that for every “1 million made in investing in Gamestop” story, there are thousands of other people who lost thousands or tens of thousands of dollars. And these stories we don’t hear about.
And I would say the same thing about mutual funds as well. Even index funds.
On this website and my youtube channel, I don’t talk about individual stocks, but I do talk a lot about broad market index funds. About my favorites and the rationale for why you might want to include them in your portfolio.
Though I feel this is a good strategy, don’t just take my word for it. Don’t just blindly trust some random guy on youtube. Do your own homework to validate all the information out there. I have my own bias based on my own experience and education, and it is very important we learn to recognize that.
If you want a starting place to increase your personal finance and investing knowledge, I have a list of my favorite books here.
