We asked about the worst financial advice recently and got some great (or not) answers. The next question to ask is about the best financial advice. So obvious, I know. But I’m tired and when I’m sleep deprived, my creativity suffers. Before we get to that, we must get to the worst financial advice. Brace yourselves.
There is a lot of bad advice out there. Lots.
Budget on a Stick’s comment made me cringe:
Penny stocks are great ways to make money.
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.
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!
Many of the answers revolved around cars. Jason from Winning Personal Finance:
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.
Along the same lines, reader Brian:
“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.
Reader JustADoc had an opposing viewpoint on cars:
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, 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.
So, let’s say your $15,000 with 30,000 miles will last to 300,000 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.
Reader Beth agreed with JustADoc:
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.
Reader Ed69 also agreed as well:
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.
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.
Beth, JustADoc, Ed69 and Candi defy traditional advice and my own experiences. In particular, JustADoc’s $200/month for maintenance and repairs on a 2004 Accord seems high.
One of my favorite cars happened to be a 90s era old Honda Accord I bought with 130,000 miles on the clock for $2,400. Over the next 100,000 miles, besides regular maintenance, I installed new brakes, an exhaust system, a new radiator and a couple sets of tires. All of that was less than $2,000 (I did do some of the work myself). At 230,000 miles, we no longer needed the car and sold it for $1,900.
Our current car with the most mileage is a 2003 Honda Element with 180,000 miles on the odometer. Besides regular maintenance, we’ve spent about $1,000 on repairs (a rear caliper seized up and we recently had to replace the exhaust manifold). That’s it. It’s been incredibly reliable.
We also have a Mazda 5 with 140,000 miles on it. It’s had nothing go wrong. We just do the maintenance that the guide tells us to do and it keeps going.
With all of that said:
- I do think Beth, Ed69 and Candi have a point in that the differences diminish the longer you keep the car. We did buy our Honda Element new and even though it’s 15 years old, we can see keeping it for another decade or even longer.
- I haven’t shopped for a car in a long time, so perhaps my perspective is dated. Perhaps folks have figured out that used cars aren’t a bad deal and the arbitrage advantage is now a thing of the past.
If I had to buy a car now, I’d still try to buy used. I’d look for one with under 100,000 miles that had a well-documented maintenance record. I’d also buy an electric car (probably a Nissan Leaf), but that is a story for another day.
Let’s be more positive. I’ll tell you my two best pieces of advice before I turn it over to you.
Save Your Money!
My maternal grandmother had a salty personality and she wasn’t afraid to unleash her strong opinions. Grandma would often ignite feuds at holiday dinners that would leave other family members in tears. She was also not afraid to dispense her financial wisdom. Her favorite advice to lay on the grandchildren was this:
Save your money!
She’d say it with fire and brimstone. It was kinda terrifying.
Your Advantage Is Your Youth
When I was in college, I had a girlfriend who was majoring in business. Her accounting professor told her that she should attend a weekend investing seminar. I thought that it was a scam, so was hesitant to go. However, it turned into one of the most valuable weekends of my life. It was run by a non-profit group and the sole purpose was to educate attendees on the basics of investing.
At one point in the seminar, the teacher was talking about compound interest. He looked around, locked eyes and said something like:
Your advantage is your youth. Start saving as soon as you can.
I did just that when I got my first job a couple years later and hey look, $2,100,000 net worth! Thanks investment seminar dude wherever you are!
How about you?
- Did you receive any advice that changed your life?
- Did any relatives or friends have a profound influence?
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