You’re likely to receive your fair share of personal finance advice. You might get some tips from an older sibling or parent. Or, you might get financial advice from the internet.
A lot of the tips you’ll hear may be useful. But these three particular tips are actually anything but helpful. So all told, they’re pieces of advice it pays to ignore.
1. You can never have too much savings
You may have heard that there’s no such thing as having too much money in your savings account. But actually, that’s false.
You should absolutely keep enough money in savings to cover yourself for emergencies. At a minimum, that means socking away enough cash to pay for three months of essential bills. And you may decide that you’d like to save beyond that point — say, up to a year’s worth of bills if that brings you peace of mind.
But once you’re set for emergencies, don’t just keep funneling cash into your savings account. Instead, look to start investing money. Going this route could make you a lot wealthier in the long run.
Right now, many high-yield savings accounts are paying between 4% and 5% interest. But the stock market’s average return over the past half-century has been 10%. Also, today’s savings account rates are far from the norm.
Even so, let’s say you snag a 5% yearly return on a $10,000 savings account deposit over a 10-year period. At the end of that window, you’ll have about $16,300. With an average return of 10%, during that time, an investment portfolio might grow your $10,000 into almost $26,000.
2. All debt is bad debt
Some people will tell you that any type of debt you take on is bad news. But while it’s generally best to steer clear of high-interest credit card debt, you don’t necessarily need to stay away from all debt. In fact, if you resolve to never owe money in any shape or form, then certain goals, like buying a home, might remain out of reach for the majority of your adult life.
Rather than write off the idea of debt, recognize that certain debts, like a mortgage, can actually lead to more wealth. If you buy a home for $250,000, in 30 years from now, it may be worth $750,000. So paying interest on a loan that lets you not only own a valuable asset but have a roof over your head for three decades, may be more than worth it.
3. A credit card balance can help you build credit
It’s true that paying your credit card bills on time every month can help you build credit. But that doesn’t mean you need to owe money on your credit cards for your credit score to benefit.
In fact, owing money on your credit cards is not a good thing. It means losing money to interest (unless you happen to have a 0% introductory rate), and it could actually cause damage to your credit score rather than help it.
One important factor that goes into calculating credit scores is utilization, or the amount of available credit you’re using at once. Carrying too large a balance relative to your total credit limit could hurt your credit score rather than help it. And paying interest on a balance could prevent you from meeting other big goals. So while it’s perfectly OK to use a credit card, aim to pay your balance in full every month.
Unfortunately, there’s a world of bad financial advice out there. But these are three tips you really don’t want to follow.
