Too many personal finance experts tend to populate their cable appearances, books, columns and blogs with the same simple tidbits. But some of that common advice is also ... useless. For each of these three cliched tips, let's look at some better alternatives.
1. In Debt? Cut Up Your Credit Cards
Certain financial gurus advise people in debt to cut up all their plastic and consider using credit cards the eighth deadly sin. Here's some advice: don't.
People land in debt for various reasons, and some -- like student loans -- don't have anything to do with credit cards.
If being a unable to pass up a sale or discount clothing bin is your trigger for getting into massive amounts of debt, then put your cards in a lock box and back away. If you fell into some bad luck and used your credit card for an emergency, consider a balance transfer.
But just because someone is in debt and wants to get out of it doesn't mean they're going to stop spending money entirely. People still need to eat, gas up the car, and deal with the occasional unexpected expense.
Some may counter that it's best to use a debit card, but consider the ramifications of debit card fraud. A compromised debit card gives thieves direct access to your bank account. While most banks will cover the majority of money taken from your bank account, it's an extreme hassle to deal with. When a credit card is compromised, the issuer typically reacts quickly -- possibly even before the customer notices -- and offers 100 percent fraud protection. A credit card should be used for all online purchases, and you need one to rent a car -- otherwise you'll get a hard inquiry on your credit report for using a debit card.
It also helps to have a low-interest credit card for emergencies. Think of it as a fire extinguisher housed in a glass case. You don't want to break that glass unless you really, really need it. But you do want the fire extinguisher to be there.
2. Have a 20 Percent Buffer (or Any Buffer) in Checking
Undoubtedly, it's preferably to have a buffer in your checking account to avoid overdraft fees, but two types of situations cause overdraft fees.
- Person A is forgetful, forgets a recurring charge or neglects to check his or her balance before making a purchase.
- Person B uses overdrafts as a form of short-term borrowing because he or she does not have enough money to get by without going overdraft.
About 38 million American households spend all of their paycheck, with more than two-thirds being part of the middle class, according to a study by Brookings Institution.
It's simple for personal finance experts, writers and advisers to recommend tightening up the purse strings, doubling down on paying off debt, and moving out of the paycheck-to-paycheck lifestyle.
Those looking to avoid overdraft fees should evaluate their banking products.
Instead, let's offer practical advice: Those looking to avoid overdraft fees should evaluate their banking products.
Investigate and find out if your bank reorders your transactions. Some banks will change the order in which they process your transactions at the end of the day, so they can maximize the number of overdraft fees they charge.
Internet-only banks are revolutionizing how people can interact with their banks and their own money. Internet-only banks often offer higher interest rates, don't charge monthly maintenance fees and reimburse customers for out-of-network ATM fees. For example, Simple, an Internet-only bank based out of Portland, Oregon, doesn't charge overdraft fees.
Ally Bank (ALLY) offers real overdraft protection by linking a savings account to checking. If you overdraft, it will take $100 out of your savings to cover your overdraft -- free of charge.
Americans who use overdraft fees as a form of short-term lending may want to set up a line of credit with a credit union or have a low-interest credit card for emergencies.
3. Skip That Latte!
Many years ago, David Bach created a unifying mantra for frugalistas and personal finance enthusiasts. The "latte factor" was that you could save big by cutting back on small things.
Bach's deeper concept -- that each individual needs to identify his or her latte factor -- got lost in the battle cries, with many people crusade specifically against your daily cup of coffee.
Yes, people should be aware of leaks in their budget. But everyone's budget looks different. If "Summer" buys a coffee each day, but rarely buys new clothing, and trims her budget by cutting cable and brown-bagging it to work, then leave her alone about her caffeine habit.
People are allowed to live a little when it comes to their personal finances, whether your little splurge is organic food, name-brand snacks or triple-ply toilet paper. Most people, except for maybe those on TLC's "Extreme Cheapskates," could find more ways to trim the budget.
But why keep trimming? It's important to save for the future, but it's also imperative to enjoy life in the present. Personal finance shouldn't be a culture of constant denial.
Create a budget, figure out if you can work in an indulgence or two, and don't live in complete deprivation
For those working to dig out of seemingly insurmountable debt, then yes, it may be time to identify and limit your latte factor.
Decide What's Right for You
Personal finance experts, bloggers, reporters, advisers are well intentioned in their advice. Certain personal finance idols truly believe everyone should use cash, while others hawk prepaid debit cards claiming they're a great tool. Okay, maybe sometimes personal finance experts are a bit self-serving and not looking out for your best interests. Just keep in mind, personal finance is indeed personal. A generic piece of advice, like keep a 20 percent buffer in your checking account to avoid overdrafts, may not be helpful in your personal situation.
Erin Lowry writes for DailyFinance on issues relating to millennials, money and personal finance. She is the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. She is also the brand and content manager for MagnifyMoney.