Hi there, Mrs. 1500 today.
I am a member of the Choose FI Facebook group, and someone recently posted this question there:
What’s the Worst Piece of Financial Advice You’ve Ever Received?
I thought this was an excellent question because so much of what we’re taught about money is wrong. (Or, let’s be honest, we aren’t taught anything about it, which I guess is better than being given wrong information.)
Before we talk more about bad advice, I’m going to turn the post over to Mr. 1500 (aka The Unablogger) to address last week’s question.
Checking Out
Yes, I’m still here (stop groaning!). I haven’t checked out of society yet.
Last week, I wrote about my disturbing experience at a local Walmart. A scammer ripped off our Girl Scout troop and I saw a guy spend at least $50 on the claw machine.
It made me want to head for a cabin in the woods.
Here’s what you had to say:
Reader Jeff From Jersey had me cracking up:
All I can think about following this post is a fake movie trailer with the movie guy voice over going,..
“In a world where financial independence brings more than just freedom, One man attempts to escape the dark underbelly of society..ONE BLOG POST AT A TIME! He is the hero financial blogger we deserve, but not the one who should be passing out grooming tips. He is our protector during times of flatulence and volatility. He is the voice of reason that plays with toy dinosaurs. He is the UNABLOGGER!”In terms of a particular cause that my wife and I support, most of our annual giving goes towards Four Diamonds affiliated with Penn State Health Children’s Hospital. We got involved during college and have maintained an active role ever since. The organization’s mission is providing pediatric cancer support to children and their families. With a close friend recently passing away from cancer, it makes it that much more meaningful to be able to dedicate our resources in his name moving forward.
Andy from AardvarkAdvisor:
Two ways that I’ve been thinking about giving back, that would also be well suited to your skills, are 1) Building houses for the less fortunate with Habitat for Humanity and 2) Getting involved in some sort of financial literacy classes either for kids still in school or for people that can’t afford to pay for professional advice. I haven’t done much research into #2, but I’ve got to figure these exist or I could create one.
I really like Andy’s ideas, especially #2. I’ve thought about providing financial education at my kids’ school for students and parents alike. The latter would be tricky. For example, we know parents who struggle financially, yet have a $500-month payment on a new pickup truck or jeep. How do you gently tell people that they’re not doing it right?
Mr. WoW from Waffles On Wednesday:
After our most recent trip, which we discussed during our run, I’ve put a lot of thought into this.
There’s always something you can do. Even if it’s serve meals at the shelter, or something like that.
The most important thing though is to keep perspective, and not lose it. Remember that your problems are not bad comoaratively, and help out folks simply because you are blessed.
I had a chance to talk to Mr. WoW about his trip to Cambodia where he witnessed the horrors of the Khmer Rouge. The genocide committed by the group has atrocious (25% of the population was executed). Whenever I think about atrocities like this, one of Carl Sagan’s quotes comes to mind:
You’re an interesting species. An interesting mix. You’re capable of such beautiful dreams, and such horrible nightmares.
Never forget that horrible things still go on in dark corners of the world. I’m so thankful I wasn’t born in one of those places.
Budget On A Stick:
Most of our charity has been through donating stuff we no longer need/being more minimalist. My life is so wrapped up in my 3-year-old and 9-month old that time is a scarce commodity in the BoaS household (I have 1 hour a week to pump out a post). Otherwise, we mainly donate money during the holiday season. I know we need to get better at contributing back to society.
Mrs. LSF from Life, Simply Frugal:
This is an area I struggle with big time. Similar to you I do the odd donation here and there. But right now, being in the wealth building phase of life, I’m working hard to optimize every penny I spend. It makes it difficult to want to donate any significant amount regularly – even though I know there are people out there who need it far more than I do, and that I will still live an extremely comfortable life without that money in my pocket. I know I know, cue the egg throwing and boos. I’m not proud of it. But it is something I want to work to get better at.
Time is so precious. Even without a full-time job, my time is incredibly scarce. Mr. Budget On A Stick and Mrs. LSF are already ahead even if they haven’t done much because they’ve thought about charity. Maybe they’ll be like Warren Buffett and give their vast fortunes away when they die?
I still haven’t figured it out for myself yet. I will though.
Back to Mrs. 1500.
Bad Advice
So, let’s talk about bad advice. My answer to the question about bad advice was something a relative had said a while ago:
I do what I want, then figure out how to pay for it later.
This isn’t really advice, though. It’s just a really silly way to think about money.
Random other comments filled my head:
I need new clothes to feel good about myself.
I like having the latest phone.
I could never give up my weekly mani/pedi.
Again, these are just dumb money comments, rather than bad advice.
It took me a while to come up with the worst piece of money advice I’ve ever received:
Buy a new car so you aren’t inheriting other people’s problems.
We currently own three cars, two of which were purchased new, before we really understood FI – or even knew about the concept. But we’ll keep them until they die.
We “bought smart” in that they are both from manufacturers that have a reputation for building a quality car, and we keep them up with regular maintenance. But they haven’t been any more or less problematic than when we bought used cars in the past.
Why? Because we also “bought smart” when we bought used cars. Of course, you can buy a used car dud. But you can also buy a used car prize – even if you’re not a “car person.” Have the car checked out by a reliable mechanic. Check maintenance records. Look at the floor underneath for signs of leaks.
You?
So, what’s the worst piece of financial advice you’ve ever received?
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The worst advice I’ve received directly is to buy new cars because you “don’t want somebody else’s problem.” If I’d done so, the accelerated depreciation would be my big problem.
The other advice I’ve read that I think is terrible is to make extra payments on low interest debt and pass on earning a match from your employer for a 401(k) contribution to do so. I’d never want to pass on that free money. It’s crazy to me when I hear experts share that advice.
“The other advice I’ve read that I think is terrible is to make extra payments on low-interest debt and pass on earning a match from your employer for a 401(k) contribution to do so.”
It’s always insane to pass on a match! It’s like seeing money on the ground and just leaving it there.
Investing in vacation rentals? 😉
Once upon a time I invested my roll-over money from an old job with a financial advisor. That, in and of itself was just plain bad. Admin fees approaching 2%. No wonder my money was stagnant for five years. My advisors “advice” was to keep my money with him, because the market is the market and everyone is suffering. Bullcrap.
The best financial advisor in town is a guy out of Longmont and he’ll tell you how to DIY that sh*t.
-UnaCubert
“My advisors “advice” was to keep my money with him…” Funny how it always works out that way!
“Buy a new car so you aren’t inheriting other people’s problems”
This piece of advice might have been “good” in the 80s when there were a lot of really awful cars being built. But you could make the argument that even buying a new car then was a terrible idea.
It’s amazing how far cars have come. My parents once made the horrible mistake of buying an old Chevy Citation. Those were dark days for Detroit.
When a 2 year old car with 30,000 miles on it costs only 10% less than new, why buy used? I grew up believing in used. My last 2 cars were used. But when we went to replace my wife’s truck with a vehicle that could carry the kids, we found that the price differential between new and used was much much less than it used to be.
“When a 2-year-old car with 30,000 miles on it costs only 10% less than new…”
Is that all it is though? All sources I’ve found state that depreciation is much more severe: http://retireby40.org/dont-pay-depreciation/
This from Carfax:
Edmunds says 30% after 2 years: https://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html
That’s great theory, Mine is actual numbers though.
When we went to buy the new vehicle referenced above, we looked at used first. New vehicle was $18,000 or so. 2-3 year old, but otherwise essentially the same car, with 30-40K miles, were $15-16,000.
Is it worth $2000 to buy 30,000-40,000 miles?
At 51.5 cents/mile(current government figure for mileage reimbursement) that would be $15-$20K in ‘use cost’ for only $2000.
Admittedly the 51.5cents is not actual cost for those who drive their car for 10+ years. But unless the cost per mile is less than 7-8cents/mile(gas at $2.50 gallon for a 25 mpg car costs 10 cents a mile), than you ‘saved’ yourself negative money.
Remember Edmunds is what you could get for your car. It is not what you’d pay for your car.
I say this as someone who fully believed in buying used. All but one of my prior cars were used. But I wasn’t willing to ‘save’ $2000 to lose $15,000 of value.
So, let’s say your $15,000 with 30,000 miles will last to 300,ooo miles as you claim below( a claim I find rather to difficult to believe as I am putting on average $200/month maintaining/repairing my 2004 Honda Accord now that has 170,000 miles on it so it making 300K seems unlikely. Even if it only requires 200/month, the time lost on repairs has some value as well)
That is depreciation of 5.5 cents/mile. That does work to 30,000 miles being worth $1650 so technically worth it.
At 200,000 miles as a expected lifetime, it is $2475. Technically not worth it.
And yes, I realize the gas part of my above response is nonsensical. Ignore it. There is no edit option here.
I agree – I’ve run these numbers a few times and both of my vehicle purchases ended up being new rather than used.
When I bought my second car, I also did some number crunching on the vehicle I was about to give up. When you look at total cost of ownership over the life of a vehicle, I came out ahead buying new and driving the car for 13 years versus buying a three year old car and driving it for 10.
I honestly don’t think it matters if you buy new or used if you 1) buy a quality vehicle, and 2) drive it until it’s 12+ years old.
I believe there are a number of factors that determines how much depreciation has affected a vehicle in the first year or two.
One is how popular the vehicle is: In my area Toyota’s and Honda’s (Lexus/Acura) tend to hold their value more so than Ford/Chevy/Hyundai/Kia, etc.
Two is how well of a deal you can negotiate when you buy the car. Sure it might be 25% difference between new and a two year old car if you are basing new off of MRSP or more. No one should pay MSRP for a new car. If you are then you shouldn’t be buying new. I shoot for invoice price for the car or invoice plus $500 if it is a popular car.
In my opinion if you get a new car at invoice, plan in keeping it till it dies, over 13 years, then you are just as well off buying new as used. Not to mention you know how the car is being driven and maintained during those first few years.
Reminds me of the Seinfeld episode where the car rental place asked Jerry if he wanted the extra insurance on the car and he said something like yes, cause I’m going to beat the hell out of the thing.
That is how I feel people treat their leases or short term use cars cause they know they are going to be exchanging them in a year or two.
“Penny stocks are great ways to make money”
*BUZZZZ* WRONG!!! Try again!
Penny stocks are a great way to lose a lot of money very quickly. I have to keep my Scottrade account for over 10 years because one of the companies I bought has been locked down by the FCC. I looked them up recently and I guess someone is going to jail for it. (Plus side?)
Budget On a Stick recently posted…BoaS Question Series – Episode 0
Penny stocks!: http://www.nbc.com/saturday-night-live/video/bad-idea-jeans/n9937?snl=1
I think I’ll fall more in the dumb comment rather than specific advice category as well. When we were paying off our debt, we were told, “you’ll always have some debt” and “everyone has car payments.” I’d usually just smile and nod and allow social niceties to rule the day. But I really wanted to shake them and tell them “you’re stuck in the matrix!”
Yikes. Scary. I’d say that no one should ever have a car payment. If you can’t pay cash, skip it.
I was told during my mid-twenties to not save for retirement until my 40’s because I’d be making more money by then and would be able to save more. I was told this during a personal finance and budgeting class. Luckily I didn’t follow this advice.
Oh wow. Just wow. No one can top this.
I have that one too! Someone said that save for retirement later and enjoy your salary now while you are young. That’s really weird advice! Think of all the time wasted to save for retirement, and the compounding interest opportunities! I think the best retirement saving advice is to save as soon as you started earning then possibly your future will be real golden years!
Leandro Mueller recently posted…Successful Aging: 7 Outta Sight Tips to Attain and Experience Its True Definition
“it’s a great time to borrow right now.” was said to me by a realtor friend.
we’ve been 100% debt free for 3-4 years now and i strongly disagree with that. i have to hold back sometimes in order to preserve a friendship. holding back is not my strong suit.
freddy smidlap recently posted…Financial Success With a Rock’n’Roll Lifestyle? Hell Yeah!
Did the realtor also tell you to buy the biggest house you could afford? I’ve heard that one many, many times.
And yeah, it’s really, really hard to hold back…
Worst piece of financial advice: Stay in your job, because its a good job and after 25 years you can go do something you enjoy.
My father said this to me after I had been in my job for a couple of years and was questioning whether it was for me or not. The job had a good salary, benefits, pension, and the best possible golden handcuffs around…if I stayed for 25 years. Now 14 years later, I am learning about FI/RE and trying to remove said golden handcuffs to pursue more fulfilling endeavors.
“Now 14 years later, I am learning about FI/RE and trying to remove said golden handcuffs to pursue more fulfilling endeavors.”
Nice. Those golden handcuffs can be really, really difficult to take off. I could have taken mine off years before I did. Better late than never?
Are you me?
Ooooh. The worst money advice I ever got was from my dad, who said, “Debt is normal. Just get used to it – you’re always going to have some debt. Just get life insurance to pay it all off.”
Ouch, dad!
Mrs. Picky Pincher recently posted…What A Frugal Weekend! March 18
Yikes. That is a scary hedonic treadmill to jump on!
A realtor told us that the price of property in the area we were looking to buy in would double in 5 years. 7 years later and they have gone up about 30%, which is still good, but not what he predicted. The worst piece of indirect money advice that I see online is that couples should combine their finances. I am sure that works for a lot of couples but it is definitely not what I want for myself. We have been married for 16 years and have a teenager so we are both definitely committed to the relationship, but we both enjoy not having anybody tell us what to do with our money. You don’t need to combine finances to prove your commitment to each other.
“You don’t need to combine finances to prove your commitment to each other.”
I don’t disagree, but I’d be curious to hear how you handle common expenses like housing and groceries. The Mrs. and I have combined our finances, but thinking on it now, I’d probably prefer them to be separate. I like knowing exactly where my money is going.
“A realtor told us that the price of property in the area we were looking to buy in would double in 5 years.”
Wow, just wow. Anyone who tells you where housing (or the stock market) will be at any point in the future is a little nuts, ignorant or both!
Well because you are curious, we each have household expenses that we are in charge of. We both contribute to groceries and household supplies. Where we used to live I paid the mortgage and my husband paid all other bills, including cel phones for the three of us. Where we are now the mortgage is more expensive so my husband pays all other bills and writes me a cheque for $xxx every month. When a large expense comes up (summer camp for the kid, a new toilet) we split it 50/50. You may be wondering – if we are splitting expenses pretty equally, why not just combine our finances? We started on a pretty equal financial footing when we first got together, we each had nothing! Now, I have $xxx in savings, and he has $xxx in debt. We are financial opposites so while we each pay our share of the expenses, our expendable money is not shared.
I think the realtor was a combination of ignorant and greedy.
“We are financial opposites so while we each pay our share of the expenses, our expendable money is not shared.”
Splitting finances seems like a good way to not kill each other! Since you’re reading these blogs, dare I assume that you’re more responsible or maybe more conservative with money? If so, have you rubbed off on him at all?
“Buy Canada Savings Bonds or GICs because they’re safe”. Thanks Gramma/Mom. I prefer to get my advice elsewhere than from tNLatB (the Nice Lady at the Bank).
Nice Lady at the Bank! Ha!
What could possibly go wrong?
This one isn’t really advice per se.
Last week, I got an email with this subject – First Book to be Published on How to Use Retirement Funds to Purchase Cryptocurrencies.
This has to be a contender for worst financial advice ever.
Wow! Just wow.
Just a few short months ago, everyone was nuts about cryptocurrency. I remember stories about people mortgaging their house to “invest” in them. It’s so hard to watch people make monumentally bad decisions.
IF this is about how to invest in crypto in a Roth wrapper to avoid LTCG taxes on moonshots, I’d be interested. I don’t think the main ones have any point for investing – I don’t like the currency strategy, but ones that actually solve a problem seem decent. Kind of similar to startup risk in those categories for crypto with applications.
I know we’re all index funds, index funds, index funds, but alternative assets making up a small portion of your portfolio when you’re very young is not the worst thing you could ever do I feel. As long as you calculate your FIRE date as if that investment portion of your portfolio is ever worth $0.
That being said, this book would be for my personal knowledge and I’d be incredibly hesitant to write a blog post about it because I can just imagine one person dumping their entire savings into it or misunderstanding the post. Or maybe I’d write it with a very very large disclaimer.
Maybe investing in crypto should be an accredited thing,
Olivia recently posted…Living in a Gentrifying Neighborhood Will Save You Money
Ha, when I got my first full time job and moved out on my own around the 2004/2005 time frame, I told my mom how excited I was that my company did a full 401k match up to 10%. I told her that I signed up to make the 10% contributions in order to get the full match.
My mom (and my dad for that matter too), is definitely not financially savvy. She said, “Just remember Melissa, you won’t be able to access that money for a VERY LONG TIME, and 10% is a LOT of money. You have bills to pay now!” She then went on to explain how she and my dad didn’t start contributing to his 401k until he was in his 50’s. Yikes, even then I knew enough that 401k’s were important!
Oh wow, that’s kind of sad. Has your mom come around at all?
“A house is a great investment”
– Followed by an explanation of how their house value *should be* $X, but instead has lost value due to the housing bubble. I do plan to buy eventually, but not as an investment vehicle.
“Car payments are normal. Normal people don’t buy cars with cash.”
– Thankfully I’ve always had a negative disposition toward debt and didn’t accept this “normal.”
“A house is a great investment”
YES! It’s amazing how many still subscribe to this!
A house CAN be a great investment, if you buy a dump and fix it up. (See just about every house we’ve ever owned.)
It hurts me to read that “Car payments are normal” comment. The only time we’ve ever had car payments is when we bought our 2010 new car and had a 0% interest loan. We didn’t pay a dime extra per month, did not pay it off early, and when they asked us how much we wanted to put for a down payment, I said “as little as possible!”
Yet everyone we know has a car payment, and as soon as the car is paid off, it’s time to buy a new one. UGH!
I had to think about this because I was lucky to get good advice from my parents.
Worst advice:
“You’ll never lose money buying a house.”
Note: I bought in 2005, right before the bubble burst. I haven’t lost money because. Haven’t sold (and prices are way higher now), but if you add in all the mantenance and other costs, house aren’t a sure thing.
“Renting is throwing away your money” See above.
I wonder about the buying new is always a bad idea line of thought. I bought my Civic new in 2000 and am still driving it. I think if you keep a new car long enough it can even out.
Candi @ minhus recently posted…A paid off home
Cars are tricky. If you maintain a modern car well, 300,000 miles should be easy and relatively troublefree. And the crazy thing is that in a lot of cases, cheaper cars are better quality and cheaper to maintain. A Honda Civic is the perfect example of this.
With that in mind, it’s still crazy that cars depreciate like they do. Thinking along the same lines, a car with 100,000 miles on it will probably sell for less than half of its original value even though its life isn’t nearly half over. My favorite car was an old Acura Integra (really a rebadged Honda Accord). We bought it for $2,400 with 120,000 miles on the clock. We drove if for another 100,000 miles, putting an exhaust system and brakes on it (< $500) and then sold it for close to $2,0000.
Things like “Rent is throwing away money, you need to buy a house immediately”. I live in NYC, it’s not worth it unless I spend a decade plus here.
Traveling the world is more expensive than how much you would spend in the US. Again, NYC > travel costs!
Also, “All your $ needs to be in index funds!!!”. If you’re young and willing to take the risk and have calculated an FI date as if that portion of your portfolio is worth $0 and are willing to risk it, it should be ok.
Olivia recently posted…Living in a Gentrifying Neighborhood Will Save You Money
“Go to college. ” easily worst financial advice ever.
And that advice becomes more useless as tuitions go up.
Actually, for me it is the source of my wealth.
Then of course I am pretty intelligent, plus I chose a subject that lead to a well-paying job.
So I guess the best advice regarding college would be: “If you’re a decent to good student, then go to college to study a decent subject or two – those with high chances of a nicely paying career. Try to fund this by getting grants, work a bit on the side, and be frugal with your money.”
As a young employee attending my first 401k information session, I was told this gem by a department supervisor who was in the same session: “You are lucky you are young and have time on you side. You can choose the conservative fund. At my age (50s), the only choice I have is to put it all in the aggressive fund since I have less time.”
Thanks, no thanks. I do wonder how their start late and take big risks wth high fee managed funds strategy worked out. Morbid curiosity, I guess.
OK my, what backward advice. Scary.
“I do wonder how their start late and take big risks with high fee managed funds strategy worked out.”
That could go really bad, really good or anywhere in between. I wouldn’t be able to sleep at night.
I think for me the worst has been to not get enough advice. My parents are wonderful but I do wish we had talked more about investing, mortgages, etc. as I was growing up. I’ve learned a lot about those things on my own as I went through my early 20’s.
With regard to financial literacy in schools, you should check out the Junior Achievement program. They provide the curriculum/materials and you volunteer to teach by arrangement with a school or teacher. As kids get older, the curriculum gets more complex and goes up through high school where kids can visit a “town” for the day to find a job, take out a home loan, etc.
I remember going through that Junior Achievement program in 7th or 8th grade. I don’t know if that was the right time, but luckily I had jobs around that time where my parents had me save 50%. Oh boy I moaned about that, I also remember a social studies project where we invested pretend money in the stock market, I realized quickly that cheap stocks (basically penny stocks) tended to provide higher returns (really was just lucky). I am glad I did not do that in real life.
As for bad advice, it was more like bad peer pressure (watching everyone else buy houses, buy new cars, buy everything on credit, etc). I don’t think I ever received bad advice directly that was acted upon (just bad influences). Ok, one maybe-open a credit card so you can build your credit. Credit for what? Street cred? That first credit card is a gateway that can one direction or another..
Those 0% interest store cards, are not free interest either, they are not giving you anything for free. You are trading a 20-30% discount for the 0% loan in the case of furniture buying – suckers! I fell for this trick more than once in my dummy days.
In my mid-20’s I had a conversation with a friend-of-a-friend that totally amazed me. I was saying something about my budget that was concerning me and I just summed it up by saying I didn’t think I was saving enough. This person looked quizzically at me and said…”what are you saving for?” I think I must have returned his quizzical look multiplied by a factor of 10…not knowing how to respond to such a ridiculous statement.
Wow, this one may take the cake! I’d turn it around with: “What are you spending for?”
Well first off I want to say I am brand new to FI and your blog has really inspired me to go on the FI journey!
Second, for worst financial advice is to buy a bare minimum Actual Cash Value insurance policy instead or replacement cost. I am dealing with that as we speak. Way to much stress and unknowns. Pay the extra for replacement cost and peace of mind!
Thanks Mr. Espaz!
And I just read about the fire in your rental. Yikes. Sorry to hear about that!