4 Common Pieces of Money Advice You Can't Afford to Follow

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Bad money advice
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Few of us feel like financial experts, so when it comes to money matters, we generally welcome advice. The trouble, though, is that not all the financial advice the professionals dish out is sound, despite often seeming so. Below you'll find several examples of bad financial advice. There are plenty of others, though, so carefully assess any guidance you run across.

1. Save 10 Percent for Retirement. It's a common piece of financial advice, and for many people, socking away 10 percent of their income will get them to a comfy retirement. But this guidance isn't one-size-fits-all.

If your needs in retirement will be greater, saving 10 percent may not be enough. Likewise, if you've gotten your retirement planning wake-up call a bit late and no longer have many decades before you stop working, you may need to be stashing away far more than just 10 percent.

Everyone's situation is different. Some of us can expect a little or a lot of pension income. Others can expect small or relatively large benefits from Social Security. Some of us need to try to build up a million dollar portfolio. Others will be fine with much less. And for many people, a million dollars won't be enough. You need to assess your particular circumstances (perhaps with help), make a plan, and then sock away the right percentage of your income –- for you.

2. Don't use credit cards. This bit of advice may sound difficult but reasonable. And for many people it is. If you have trouble with impulse control and tend to rack up debt due to the handiness of plastic in your pocket, perhaps credit cards are not for you.

But for many people, credit cards can be very convenient, with they offer other benefits, too. Many cards offer some kind of reward, for example, for using them. If you use a card responsibly, only charging what you can afford, you may be able to collect hundreds of dollars in cash back each year, or you might rack up other rewards, such as airline miles. By using plastic for much of your spending, you can also avoid carrying around lots of cash.

Some cards also offer end-of-year summaries of your spending, which can deliver some insights on where your money is going and how you might best budget your money.

3. Everybody needs life insurance. Most of us need all kinds of insurance, for our health, our homes, our cars, and even our pets. Life insurance is critical for many people, too -- but not for everyone.

Remember what life insurance is really for: to protect a vital income stream. It's a must-buy for most parents, for instance, if they provide income on which their family depends. But if you're a single person, or a child, or you just have no one depending on you for support, then someone urging you to buy life insurance is probably offering bad financial advice. Your unexpected demise would be a very sad event, but no one would end up on the street because of it.

Life insurance shouldn't be thought of as an eventual lottery-ticket-like payout if someone dies, and it shouldn't really be thought of as an investment, either. Some policies are sold as investment products (this is typically the case with whole life policies, for example), but there are better ways to invest. For those who need life insurance, a good piece of financial advice is to consider term life policies.

4. Tap your 401(k) to pay off credit card debt. Finally, think twice before raiding your 401(k) account to pay for any frivolous or non-frivolous thing, such as credit card debt. Go ahead and consider a 401(K) loan as a last resort if you must, but there are usually other ways to tackle debt -- ones that won't shortchange your retirement. Remember that when you remove money from your retirement account, it can lose years of growth there, years you can't get back.

What's the Worst Money Advice You've Gotten?

Questioning guidance you're given and spotting bad financial advice can do wonders for your fiscal future. If you have some examples of bad financial advice you've received, share them with others by commenting below.


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12 Comments

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Jacs Dollars

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June 07 2013 at 9:26 PM Report abuse rate up rate down Reply
retlovit2

The worst advice, was the advisor who refused to give me any, and wanted to talk to my husband instead, believing him to be the money manager. I immediately left and found some one else (a woman) who gave me solid advice and started us on our way to retirement security. My husband is horrid with money and I have been the financial manager in the household since we were married. Too bad for the first advisor, too much stereotyping and not enough open mindedness.

May 23 2013 at 1:03 PM Report abuse +2 rate up rate down Reply
mj4600

Of the “4 pieces”, the only valid point you’ve made is to NOT borrow from your 401K to pay off CC’s. The math doesn’t work to validate it. Your other “3 pieces” are far too broad and misleading. Saving 10% for retirement should be a “bare bones minimum”, and encouraged for Everyone. It’s better than nothing, and sadly the majority of pre-retirees are NOT doing this minimum. CC abuse is out of control, and should be monitored more closely and less available to those that can’t handle it. To accumulate reward points should be a surprise bonus, as many of them can expire. Life insurance is for “everyone” that cares about something - whether it’s family, business, favorite charity or educational institution. “To protect a vital income stream” is only one of many reasons for coverage. Insuring children to obtain a ridiculously low rate and solidify their future insurability is smart. Everyone dies.

May 23 2013 at 11:24 AM Report abuse rate up rate down Reply
Cool Hand

Best advice from my father: "Avoid debt!". Debt just makes the banks rich, and you poor. They take your CD "investment", pay you .5%, and turn around and lend it out, via credit card, which pays them 18%+.
Other than a home mortgage, if you can't buy it with cash, don't buy it.
By doing this, I was able to even buy my most recent home with cash.

May 23 2013 at 11:10 AM Report abuse +1 rate up rate down Reply
Heymickr

Live well within your means, invest conservatively with zero speculation and, when you retire, you'll have adequate savings to meet your reasonable expectations. Of course, it always helps if you're very smart and make a lot of money during your working years.

May 23 2013 at 5:21 AM Report abuse +1 rate up rate down Reply
vlady1000

Concentrating too much on my IRA when young, thus not discovering there are better investment opportunities (outside IRA\'s) too.

May 22 2013 at 10:32 PM Report abuse -1 rate up rate down Reply
1 reply to vlady1000's comment
vlady1000

And counting on my IRA\'s to perform as others said they should \"over time\".

May 22 2013 at 10:33 PM Report abuse rate up rate down Reply
Don Schnickelfelter

Buying whole life insurance on young children, even age zero, may be a good idea. The premium will be very low compared to older ages, allowing you to buy more face value. The death benefit may be helpful paying final expenses if the insured should die young. However, the most important option may be the opportunity to take a loan against the cash value anytime in life if the owner/insured needs cash and cannot qualify for a loan from a lender. In such circumstances it can be a life saver and a wonderful gift from a parent who bought the policy years ago.

May 22 2013 at 10:17 PM Report abuse -3 rate up rate down Reply
1 reply to Don Schnickelfelter's comment
Sherrie

The percent of the prenium that goes to the cash value is horrible. Just put the money into CDs or an index fund with a good track record ( or divide between both) and you will come out ahead.

May 23 2013 at 10:00 AM Report abuse +2 rate up rate down Reply
cslinz62

How do I plan for such a thing when I've been unemployed more than employed most of my life. I need every cent to live on when I do have a job. I can't plan or worry about when I turn 62. If I'm still alive by then...I guess I'll build myself a lean-to under a bridge. Plan....Lol....not these days on an $8.50hr. job.

May 22 2013 at 7:18 PM Report abuse rate up rate down Reply
1 reply to cslinz62's comment
Heymickr

You've got to find a way to upgrade your skills so that you can earn well above the minimum wage. If you're in the restaurant industry work hard at moving up to assistant manager and then manager. Then save your money and open your own restaurant. Franchises often work out very well.

May 23 2013 at 5:27 AM Report abuse rate up rate down Reply
legacykwst

It's not the worst piece of financial advice I've gotten, but it's something I've encountered several times in financial advisors and why I don't go back. It's that they seem to have a complete lack of comprehension that income can drastically change.... Therefore, any plan that they develop and try to sell a person is basically nonsense, because, the reality is, as my father always said, "You cannot plan." Too often when people lock themselves into a plan, and circumstances change, that plan that once seemed a good idea at the time, actually makes matters worse. It's better to try to be prepared for various scenarios, but not to plan on any one scenario happening

May 22 2013 at 1:48 PM Report abuse +3 rate up rate down Reply
1 reply to legacykwst's comment
Heymickr

Right. You've got to be prepared to turn with the road of life. When circumstances change you've got to change.

May 23 2013 at 5:29 AM Report abuse rate up rate down Reply