There is a mind-boggling amount of financial advice out there — so much that it can be difficult to separate the noise from the facts, or know who and what to believe.
We turned to the experts and asked them about the advice we hear all the time that we’re better off ignoring.
Rethink these seven common money tips, even if you hear them on a daily basis:
1. Save 10% for retirement and you’ll be set.
Better advice: Save twice that much, if you can.
This may have been true at one time, but experts seem to think we need to set aside much more than 10% of your net income to retire early and with options, especially now that our life spans are significantly longer.
Michael Egan, a certified financial planner and partner at Egan, Berger & Weiner, LLC, says that a minimum of 15% of your paycheck needs to be dedicated to retirement funds, and 20% is ideal.
“A lot of millennials are going to be in a unique position that we haven’t seen in probably 40 or 50 years,” he tells Business Insider.
“I would bet that Social Security itself would be reduced, or at least delayed, dramatically, and they’re probably not going to have a pension, which means practically every dollar they live on during retirement is going to be something they saved themselves.”
It is particularly important to start saving as early as possible, he emphasises, especially since the bigger purchases that come along later in life — a house, car, and raising kids — may take away from your retirement savings. “It’s never going to get any cheaper to live than it will be before you get married and have a family,” he says. “So start young.”
2. Start saving for your kid’s education right away.
Better advice: Take care of your own retirement first.
Obviously, your child’s education is important, but “your number one priority in your 30s — even if you have a family — still has to be retirement,” says Egan. Think long term, he advises: “If you don’t get retirement fully funded, you’re going to be on your kids’ payroll for 15 or 20 years,” which could end up being more expensive in the long run than student loans would be.
“Make sure you’re on pace for a decent retirement before you start setting aside money for college,” he says. “Once you’re on pace for that, and you have extra funds that you can set aside for a goal like college, definitely do that.” He recommends starting with a 529 savings plan.
3. Avoid credit cards at all costs.
Better advice: Use credit cards responsibly.
Even financial guru Dave Ramsey says to stay far, far away: “There is no positive side to credit card use,” he writes on his website. “You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! But most families don’t pay on time.”
The actual cards are not the root of the raging credit card debt problem — it’s how we use them.
In fact, there are many benefits to having one, or multiple, credit cards, especially if you use them responsibly.
In addition to offering rewards, most credit cards also offer insurance, such as travel insurance, car rental insurance, and fraud protection. It’s also important to use one in order to establish good credit, which will allow you to make big purchases later on, like a car or home.
4. Close unused credit card accounts.
Better advice: Use your least-favourite credit cards periodically and pay them off in full.
If you’re switching credit cards, it may seem smart to cancel you old accounts, but that can actually hurt your credit score. While closing a card doesn’t shorten your account history, it decreases your total amount of credit available, and therefore increases your credit utilization rate, which could negatively impact your credit score.
Additionally, commitment counts, and hanging onto your cards can boost your credit score. “Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score,” writes Ramit Sethi in “I Will Teach You To Be Rich.” “As long as there are no fees, keep it open.”
Don’t just keep it open — keep it active. If your account remains inactive for a long period of time, credit card companies can take it upon themselves to close your account.
John Ulzheimer, credit expert at Credit Sesame, recommends
setting a calendar reminder and use old cards sporadically. “My advice would be to put them on a revolving door,” he says, “just to knock the dust off them, and to use as an incentive for the issuer not to close it underneath you.”
5. Retire as soon as you can.
Better advice: Retire when you can afford to, both financially and emotionally.
“The days of retiring and sitting on the front porch are over with,” Larry Rosenthal, certified financial planner and president of Rosenthal Wealth Management Group, tells Business Insider. “Retirement is strictly a lifestyle decision. Some people want to keep working, while others wants to get out of the stress and pressures that come with a job as soon as possible.”
Retiring early can certainly be your goal, but it doesn’t have to be. We don’t all have to follow the same path.
Rather than focusing on an early retirement, determine your long-term goals and exactly what you want your future to look like. Then, create a sound financial plan that will allow you to save enough money to reach those goals and retire with options and flexibility.
6. Wait and take your Social Security at age 70.
Better advice: Consider your options before deciding when to claim benefits.
While waiting until age 70 to claim or begin your Social Security benefits in order to max them out is applicable for some people, it’s not the best option for everyone, Rosenthal emphasises.
“Oftentimes, people mess up their Social Security decision,” he explains. It may be best for you to wait, or it may be best for you to start receiving your checks as soon as you can, at age 62. “Sit down, run it out in a financial plan, and see which was is best for your family,” he advises.
7. You need a financial planner no matter what.
Better advice: If your assets are uncomplicated and you feel comfortable managing them, you might not need professional help right away.
There are certainly times when hiring a financial planner is a good idea, but not everyone needs one, and some people are better off without one. Even the financial planners say so.
“If you are in a situation where your assets are modest and need to either get out of debt or build up your emergency fund, you already have your plan. Just go out and do it. Don’t waste money on someone to tell you something you already know,” writes Neal Frankle, a certified financial planner and owner of personal finance website Wealth Pilgrim.
If you do decide to invest in a financial planner, Sethi recommends using a fee-based adviser, rather than a commission-based adviser. “If they’re paid on commission, they usually will direct you to expensive, bloated funds to earn their commissions,” he writes in “I Will Teach You To Be Rich.” “By contrast, fee-based financial advisers simply charge a flat fee and are much more reputable.”