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As the old saying goes, you should believe none of what you hear—and only half what you see. That’s especially true for money management advice, which is often dished out from some untrustworthy sources.
There’s a lot of advice floating around on TV, over the radio, and on the Internet that can be harmful to your financial health, and even advice that sounds reasonable may not be useful for your unique situation.
It’s important to question all financial advice you come across to help ensure you’re making the best choices for you. Here are four pieces of common financial advice that you may want to ignore:
1. Don’t save until all of your debt is paid off. Bad things can happen, such as your hot water heater going out, the transmission in your car breaking down, or an unexpected medical expense occurring. It can be tempting to reach for your credit card in times like these, but doing so can get you even deeper into debt.
You need to get out of the habit of putting emergency expenses on your credit card, but you won’t have a choice if you haven’t built up your savings. Even if you’re currently paying down debt, try to put at least a little money in your savings account each month.
2. It’s better to buy than rent. Most of us have had homeownership ingrained in our heads since we were children. It’s the American dream, right? The fact is, it’s not for everyone. There are pros and cons to both buying and renting, and both have their unique risks and rewards.
Before you jump head first into homeownership, consider your cash flow, the amount of money you have in savings, your credit score, and how long you plan to live in a home. In some cases, you may find you’re better off renting than buying, and that’s OK.
3. Use funds from a qualified retirement account to pay off credit card debt. It makes a lot of financial sense to pay off all of your debt, but not if you have to drain your retirement in order to do so.
Not only will you be hit with penalties and taxes if you go this route, but you also may not fix the problem long term. If overspending caused your debt, for example, chances are you will be back in debt within a few years. But this time you won’t have any money in your retirement account to bail you out.
4. Don’t waste your money. I think it is OK to waste a little money. You shouldn’t waste most or all of your income, but you work very hard for your money and you should be able to spend it on fun items or activities every once in a while. Enjoy your hard-earned cash every now and then, and don’t feel bad if you don’t always save every penny you make. Ideally, you should keep this type of spending to less than 5 percent of what you make.
Even if an expert gives you financial tips, keep in mind that advice is rarely one size fits all. Thoroughly review your financial situation so you can make an educated decision about what advice you should—and should not—take.
Steve Repak, CFP®, is the author of Dollars & Uncommon Sense: Basic Training for Your Money.
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