• Jeran Van Alfen, CFP®

Essentials: Are You Following Bad Money Advice?

Updated: Aug 8

Have you ever stopped to think about where your money habits have come from? For most of us, we have been given lots of advice over the years and some of that advice sticks with us forming the foundation for how we make our decisions. When it comes to money, as with most things, it is wise to stop and evaluate how good that advice that we have been given is and if it still holds value today.


Things change


I remember training for sports when I was younger and reading somewhere that the U.S. Ski team only ate hard-boiled eggs and grapefruit for breakfast when they were training (I have no idea if this is accurate). So, naturally I started consuming lots of grapefruit and eggs to help with my training. As you can see in the image below, I wasn’t the only one who was told that grapefruit has important fat-burning nutrients. But apparently, that advice doesn’t hold up today as science has given us a greater understanding of what our body needs. (I have included the link to the image source below. It is pretty entertaining…my favorite is the Ice Cream diet).


















Image Source: https://www.goodhousekeeping.com/health/diet-nutrition/g3912/worst-weight-loss-advice/

Bad diet advice is a perfect example of how times change and how important it is to evaluate the latest data and information. It is the same with finances. There are important fundamentals that are solid, but we live in a different world now than the one that our parents grew up in, and some of the money principles that they relied on may not hold true today.


The difference in interest rates is a good example. Consider that in 1979 30-year mortgage rates were 11.20%. In the 80’s rates peaked at 16.63% and they averaged around 10% for the decade. [1]


Advice that deserves a second look


1: Pay off your debt before you start saving


It is easy to see why this advice is given liberally. Debt can be debilitating if not managed well. Also, if one is not disciplined, it can be difficult to focus on more than one financial goal at once. However, waiting to save money can really make it difficult to catch up. The time value of money and the power of compound interest make it so important to start saving early if you would like to accumulate enough money to reach long-term financial goals. For more on this check out our previous post here.


[2]


2: Avoid Credit Cards and all debt is bad


I’ll never forget the first time I bought a car when I was sitting in the finance office and the loan officer told me, “You don’t have enough credit history for our best interest rates.” That was a good learning experience for me. Credit cards can be a good tool to build your credit history and your credit score. It takes discipline and you definitely should manage your spending and pay off your balance each month. Most cards can also help you gain some valuable rewards to use for lifestyle spending.


Financing a home or an education can be a smart way to leverage an asset. These are great ways to invest in your future. Just make sure to keep the future in mind. Stories of poor real estate values or bad job markets can make you question your investment, but for the most part home equity and degrees pay off in the long run.


3: The stock market is rigged, put your money somewhere that is FDIC insured.


Cash savings used to have a lot of appeal. Remember when I mentioned loan rates averaged 10% in the 80’s. Savings rates were up there as well. It is easy to feel good about your money sitting in a savings account when it is actually earning interest. However the average savings account interest rate today is 0.06% [3]. After taxes and considering inflation, any money sitting in cash is actually losing money over time. It is wise to keep some money that you can access quickly if you need it, but if you don’t plan on using the money within the next 12 months, you may need to put it to work.


[4]


While the stock market can be volatile, over time, stocks have produced long-term returns that have outpaced inflation. If you invest consistently, maintain a diversified portfolio, and focus on long-term results, stocks can help your money grow to reach your important financial goals.


Pause and reflect


These are just a few of the outdated money myths that are passed around freely. The worst thing about bad money advice is that is can cause anxiety. It may be anxiety over financial mistakes, it may be anxiety about feeling uneducated, or it could be a fear of missing out or making the wrong money moves. It any of this sounds familiar, pause and take some time to reflect on what is causing the anxiety. Are there actual problems or is the anxiety being self-inflicted? Most financial problems can be worked out. Once you put your emotions and the advice in perspective, you can get back on track and feel confident that you are making smart money decisions.

Need to get your money organized? Use our balance money toolkit. You can download your toolkit here.


Centered Financial, LLC is a registered investment adviser offering advisory services in the State of California, Utah, Texas and in other jurisdictions where exempted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques, strategies, or investments discussed are suitable for all investors or will yield positive outcomes. To determine which strategies or investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any discussion of strategies related to tax or legal planning is general and is not intended as tax or legal advice. Please consult appropriate tax and legal professionals for recommendations pertaining to your specific situation.


[1] https://www.rocketmortgage.com/learn/historical-mortgage-rates-30-year-fixed

[2] Six Money Myths Debunked. Fidelity ViewPoints. 7/26/21

[3] https://www.bankrate.com/banking/savings/average-savings-interest-rates/

[4] https://www.fidelity.com/spire/6-tips-volatile-markets


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