Throughout modern history, there has been a ton of money advice given. Some is backed up by facts and experience while other advice is given without any proof.
Some of this advice is still sound, such as to invest earlier so you can take advantage of compound interest. Other advice, not so much.
Consider the music industry. There are some songs, albums, or bands that are considered “classic.” They never seem to go out of style or get old (Queen, anyone?).
Then, there are songs that were once classics that are now simply…bad. These songs are now ignored and listened to by few because they just don’t work for modern audiences.
The same thing happens with financial advice. Times change. The same advice that may have worked long ago might not work today.
Even some modern money advice is bad on arrival.
Here are six pieces of money advice that you can ignore.
Number 1: “This” Method of Budgeting is better than “That” Method of Budgeting
Financial Gurus, parents, and bloggers alike all have “their way” of doing things, which is fine.
When you start getting into people saying “this way is better than that way of budgeting” or “budget this way and this way only,” then you can safely ignore them.
For example, when I first started working way back when I was 16, I was told I had to balance my checkbook and it was the only way to make sure I had enough money in my bank account.
I resisted. Balancing your checkbook isn’t difficult, but it is boring and it felt unnecessary.
This was also right at the cusp of when online banking was coming into its own so you had everything right in front of you.
Instead, I tracked my money by recording every transaction, made sure I didn’t spend more than I made, and never had to balance my checkbook in almost 20 years.
Budgeting is the same way. Balancing a checkbook didn’t work for me so I didn’t do it. If a zero-based budgeting system doesn’t work for you, then don’t do it.
Choose your own budgeting principles.
In fact, I prefer such a personalized budget that I created my own with what I now call The Root Budgeting System (Amazon Link).
It’s a way of creating your own budget so you’re no longer trying to fit into someone else’s money mold.
I figured out what worked for me and I did it.
Find what works for you and don’t believe when someone says that you have to budget a certain way.
Number 2: Don’t Discuss Money with Others
I never understood this advice. Growing up, asking someone how much they made or how much they paid for their house was a big no-no.
How do people learn if they’re not talking to each other and sharing knowledge? The best way to learn something is by talking with someone who has already done it.
Please, ignore this advice.
If you need to learn what kind of car payment to expect when you’re older, ask someone who already has one.
If you’re wondering what kind of closing costs to expect before you jump into the whole mortgage process, ask someone you know who has bought a house already.
Preface your question by explaining the situation and saying “If you don’t mind me asking…” if you’re not sure how they’ll take it.
Thankfully, just by looking at the sheer amount of finance blogs on the internet, this advice seems to be going the way of the dinosaur. But it once filled the financial world.
Discussing finances with others will allow for the proliferation of a new kind of financial world—one where knowledge is easily available and everyone has the opportunity to manage their money well.
I like that world.
Number 3: Keep a Credit Card Balance to Build Credit
I’m not sure where this advice started, but it’s not true.
According to research done by NerdWallet, the two biggest factors that influence your score are your payment history and the amount of your total credit limit you use.
Paying off your card in full every month affects both of these main factors.
The amount of your credit limit you use—also known as your credit utilization ratio—is also affected by paying your credit card bill every month.
Credit utilization works like this. If you have two credit cards and they have a $4,000 limit, your total credit limit is $8,000—$4,000 times two.
Now, if you’re using $3,000 of the $4,000 limit on each credit card, your total credit balance is $6,000.
So in essence, you’re utilizing 75% of your total available credit, or $6,000 of your $8,000 limit.
Experts recommend going no higher than utilizing 30% of your total credit. In the same scenario above, 30% of the $8,000 would be $2,400.
Together, these two factors influence more than half of your credit score. Simply meeting these two requirements will be enough to continue to build credit.
Neither of them requires you to maintain a balance on your credit cards.
Not leaving a balance on your credit card also has the added effect of not paying interest to your creditor.
Paying your card off in full each month is a win-win for you so I highly recommend it.
Number 4: Get a College Degree
Many years ago, there was one surefire way to land a nice job with a good salary—getting a college degree.
A college degree is no longer a win for everyone.
There is a couple of issues with the outdated thinking that college is the only way. One is that college these days is so expensive.
Depending on the degree, it’s way too easy to come out with a high amount of debt. According to the federal reserve, Americans owe more than $1.7 trillion in student loan debt.
That is an insane amount of money to get an education!
Not only is college much more expensive than it used to be, but there is also much less of a guarantee that you’ll get a job in your field.
Back a few years ago, the Federal Reserve Bank of New York found that only 27% of college graduates have a job that relates to their major.
Statistically, you are more likely to get paid more over the course of your 40+ years in the workforce, but even that’s a gamble because someone else is going to decide if you’re valuable or not.
So what’s the point?
The point is…do your research.
There are some fields (like accounting) where college degrees are invaluable. But at tech companies, you have to show some knowledge and experience.
Sure, a four-year degree is preferred or even “required” for certain positions, but experience trumps it.
There are also high-paying jobs that you don’t need a college education for. A college education isn’t needed to be a tradesman or an entrepreneur.
Now, there are other benefits to going to college, like the experience you get while you’re there. But a college degree doesn’t work for everyone and the advice to “always get a college degree” is outdated.
There are other options. Do your research regardless and see if the cost of going to school will be beneficial.
Better yet, if you want to go to college, do really well in high school, and get a bunch of scholarships. Hey, look! Another win-win!
Number 5: Renting is Throwing Money Away
I used to believe this advice.
In fact, when my wife and I got married when we were barely in our 20’s (seriously, she wasn’t even 21 yet), we borrowed $10,000 from her Grandma so we could buy a house and not rent.
Want to know what the result of that was?
We never found a house that would have provided a cheap enough monthly payment so we rented anyway.
Were we building equity? Nope. Did we have a yard or a large space we could fill up? Nope.
Did we have a place to call our own to start building our life together?
You bet your life we did!
Traditionally, buying a house is called an investment. But statistically, home values tend to keep pace with inflation.
So while you’re building equity and can potentially sell for a higher price than what you bought it for, you’re really not making much more of an investment on your money than you would if you were to keep it in your higher than average bank account.
Ain’t nobody gonna get rich on that!
That isn’t even factoring in the cost of maintenance or updating that is now your responsibility as well as other hidden costs of owning a home.
We had to pay more than $1,600 in labor at our old house to install a new hot water heater and water softener in our home.
That was in addition to the cost of purchasing the water heater and softener for just under $900.
That was $2,500 out of my own pocket that a landlord would have covered had I been renting.
The bottom line is anything that you find valuable is worth spending money on.
Being married and having a cheap one-bedroom apartment to share with my wife was valuable to me.
Number 6: Some Debt is Good and Some Debt is Bad
No. Just, no. There are two reasons why I don’t like these labels.
First, there is a certain level of shame introduced if you go around telling people they have “bad” debt and it may impact them getting help.
And telling people to get “good” debt will cause them to seek out debt before they understand what it is and how to use it.
I only believe in necessary debt and unnecessary debt.
The unnecessary debt is obvious. Continuous credit card debt, car loans, student loans (see number four above) can all be forms of unnecessary debt.
In most cases, they are not necessary to reach your goals.
But what about buying a house? Unless you are filthy rich already, chances are you are going to need to borrow some money to buy your home.
This is necessary debt. There is almost no way to get around needing debt to buy a house.
Secondly, all money is a tool—including debt. Labeling debt as good or bad gives it character.
If you are a good person people look at you favorably. If you are a bad person, the exact opposite is true.
Debt can be used as a tool to grow wealth, however, you really have to know what you’re doing with it to do that.
You can use debt to finance a rental property and making a small monthly income from it.
You can also borrow money to start a business and gain quite the ROI from that.
Again, I still wouldn’t call either of those situations necessary, but it can be done.
Debt is a tool, and it is either necessary or unnecessary for what you’re trying to accomplish and build.
It is not good or bad.
Some Advice Needs to be Ignored
When you hear money advice, it can be hard to determine if you should follow it or not.
It’s especially hard to ignore money advice that has permeated our society and seems like it is time-tested.
Ask yourself if the advice you’ve heard a thousand times that worked for your parents is still relevant for your situation.
Everyone is different, and because of that very reason, it’s ok to ignore some money advice.
I know I say this a lot, but do what works best for you.
That is the best way to be financially successful.
Manage your money—budget—in a way that makes sense for who you are and where you want to be.