At some point in our lives, we have received advice on money management. Some money misinformation can come from anywhere, including friends, families, loved ones, social media drivel, and even professionals. But what’s the worst financial advice I’ve ever heard?
These misguided suggestions about investing, budgeting, saving, and building credit are usually disguised as financial advice and can lead us down terrible paths.
I am sharing some of the worst financial advice I have heard with you so that you can avoid them at all costs.
“Quit your 9-5 job”
One piece of advice I have always heard is that you should quit your 9-5 job to become an entrepreneur. That is terrible advice because entrepreneurship is not for everybody. Not everyone wants to be an entrepreneur, and not everyone has the right skills to become one.
If you already have a 9-5 job, quitting it just to run off to be an entrepreneur without adequate planning is bad advice.
Before your quit your job to be an entrepreneur, you need to start as an entrepreneur while doing your 9-5; run it concurrently to see whether that business idea will bring you some money.
Then once you have been running it for a while and see that it is bringing in some income for you, you can put a plan in place to resign.
I know people who quit their 9-5 without a plan and ran back into it when they got stuck financially.
“Get a credit card for emergencies”
This particular advice is quite common; they will tell you to get a credit card just for when you encounter an emergency. No! A credit card spend needs to be a planned one. You should not spend a credit card for emergencies; you should spend your emergency fund instead.
Spending a credit card for emergencies will only make you run into debt. Save up your emergency fund for emergencies.
“Spend a lot of credit to get a credit score”
Tempting as it might be to know that your credit card can help you enjoy an exciting life of making purchases as you like without having to save up for it, spending a lot of credit to get a credit score is a terrible advice. You do not need to spend a lot of credit to build your credit history.
It is quite unfortunate that spending credit or being in debt with a credit card may be beneficial to building your credit score if you manage it well.
However, you do not need to get a lot of credit to get a credit score because whatever credit you spend will still have to be paid back.
Getting a credit card and running off to the designer store to start spending it quickly because you are trying to build your credit score is the wrong move.
Instead, focus on getting a contract phone or any utility on the contract and pay it regularly; this can improve your credit score.
Also, if you have a credit card, you can spend a little bit of it every month and pay it back within thirty days to boost your credit score.
“Get an interest-only mortgage”
Your mortgage is a debt, a secured debt; this is what separates it from your credit cards and bank loans. Your mortgage is secured against the house you bought, and it is good debt because if you do not pay it back, what you will lose is the house.
When you do an interest-only mortgage, you are simply insinuating that you do not want to pay back the debt but will keep paying the interest; this means the house is never really yours because you are not increasing the ownership of that house.
You have borrowed money to secure the house, and the only way it can become yours is if you pay back the debt against which it was secured.
An interest-only mortgage means you are not paying back the debt but only paying back the interest. You are renting! And you are renting at a higher cost!
If you are renting, your landlord is responsible for maintenance, and you can move out without hassle, but when you do an interest-only mortgage, you are renting without the benefits that come with it.
Getting a mortgage is not a do-or-die affair, but if you must get one, do not get an interest-only mortgage; instead get a principle and interest mortgage that allows you to reduce your mortgage debt.
“Get store credit”
One of the worst pieces of financial advice I’ve ever heard is that you should always get store credit because it is synonymous with asking you to live beyond your means.
Getting store credit means buying consumables, clothing, shoes, makeup, and other things you cannot afford on credit. You will have to pay more for these things because of the interest in the store credit.
The blouse you bought for £25 may have you paying £45 back because of the interest. If you need to buy things in the store, buy them with your cash.
A lot of store credits do not have good interest, some have about 20 to 25% interest, but they will lure you to buy items from them by telling you that you will get 15% off the next purchase.
Eventually, when you start paying interest, you will lose that discount. Store credit makes shopping easy because you can pay later, and you may have to spend more than you should. When you get store credit, you settle for expensive things that may be difficult to pay for later.
Let’s sum that up…
Some of the worst financial advice we have here is just plain bad. Some may come from people we trust or just random people. So anytime you get a financial advice, think about it critically, read about it, get a second or third opinion before adhering to it.
Till next time,
Love,
Ronke.