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.
Worst Advice
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.
Reader Kim:
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.
Reader Melissa:
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.
And Candi:
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.
Best Advice
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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As cliche as it is, my Grandmother used to repeat “a penny saved is a penny earned” to me and my brother. It worked on me. Sometimes the classics are still the best.
“Sometimes the classics are still the best.”
Yep, timeless and simple.
My frugal parents gave me the best advice: “Always live below your means.” It helped that they also demonstrated this daily. 🙂
Mr. Freaky Frugal recently posted…Right investing effort
Having great role models is HUGE!!!!
Good points captured here – thanks for sharing. On your questions:
– My paternal grandfather worked as an electrical engineer for most of his life. Prior to that, he served in the US Army Signal Corps in Europe during WWII. He passed away from Alzheimer’s when I was about 10. I don’t remember much about him except visiting the nursing home. I’ve learned about him through stories from my dad and grandmother.
– Grandpa was a steady saver and investor. My grandparents bought shares of a good dividend paying company, as well as shares of its predecessor,
– When my grandmother passed away about 10 years ago, she lived comfortably on my grandparents’ savings, pension, and dividend income. That stock, and a number of other holdings, provided stable, predictable income during her retirement and after my grandfather passed.
Mike @ Balanced Dividends recently posted…Post-March Madness: 5 (Plus) Ways To Find Balance
The children of the Great Depression would probably all be modern day FIRE folks. It seems like we lost our way somewhere in between.
This is a little backwards compared to lots of FI advice… but for me it was when my now-wife said “I think we should buy a house.” It was 2009; we’d just watched house prices skyrocket, then plummet. Our combined salaries didn’t come near six figures. We live in the DC area. I thought she was nuts, but she was steadily plugging away with her savings account while I was instead socking money into a 401(k).
Well, a year later we put 10% down at pretty much the bottom of the trough in what turned out to be an amazing neighborhood. Neither of us had ever lived anywhere with such a sense of community and it is FANTASTIC. It’s actually inspired us to work harder toward FI, because we want to spend more time with our neighbors and volunteering locally.
Next best advice: every word of MMM’s “Shockingly Simple Math Behind Early Retirement” post. 😉
Maybe the “anti-house” movement has gone too far? Whenever I see posts on the topic, they make assumptions like as $250/month HOA and annual maintenance of $5,000. I don’t live in a place with an HOA and I’ve found that my annual maintenance is nowhere near $5,000. Regarding the latter, some of it is because I do the work myself. I do think you can make home ownership work for you if you’re thoughtful about it.
Your grandma sounds terrifying in the best way possible lol. Also, your lizard brain has excellent taste! What is that – a fried chicken biscuit? Mmmm.
I had the good fortune of watching a presentation on FIRE when I was in college. Unfortunately I thought the guy was insane and didn’t absorb much of the message. Years later, I’m seeing the wisdom. 😉
Grandma was terrifying! We all lived in fear! 🙂
And all I can say about the biscuit is that next time you find yourself in Portland, this is a must visit: https://www.pinestatebiscuits.com/
I’ve learned a lot of great things about saving money and investing in low fee options (looking at you JL Collins), but in terms of great early advice- it was probably my parents encouraging me to focus hard on studying and, in college, choosing a major that would present me with options. Getting a business degree was a huge stepping stone to a high income which now makes all of the saving and investing much easier.
I heard Mrs. 1500 talking on her podcast about regretting her fashion design degree and I think this sort of thing happens to tons of people. It’s great to study something you’re passionate about, but it pays to plan ahead and find a field that’s going to pay back the tuition many times over.
Andy recently posted…Get Rich with Compost
Yeah, I like the way you think and yeah, I think we’ve lost our way a little with college. You should study something that you find interesting, but if you’re going to come out with big loans, I hope it allows you to get a job too!
Best advice, quite simple three words:
Do your best!
In all things including finances. Odds are if you try your best it’ll be good enough to get you ahead. It’s also the only thing you can do.
Beautiful!
Best financial advice? “Run your life like a well run business”
Believe it or not, this advice came to me from a former boss. He was a local businessman that owned several small businesses in the town where I lived. I worked for him one summer out of highschool
He was killing it then, and I’m sure he’s killing it now.
Mr. Tako recently posted…Utility Stocks: Treasure Or Trash?
I think the best once sentence financial advice is: “Live on half your income, and invest the other half.”
Fervent Finance recently posted…Falling on Deaf Ears
Gonna steal this one from “The Wealthy Barber” (and I’m going to paraphrase), but:
“A penny saved is more than a penny earned.”
Because every penny you save and then invest has already had payroll taxes, healthcare costs, your 401k contribution, and income taxes already taken out of it, that penny is worth MORE than a penny you earn at your job (which still has all those fees/taxes that need to be taken out of it). So while you absolutely SHOULD attempt to earn more and save more, saving more (both in terms of paying less in big/ongoing expenses and in saving/investing money generally) gives you a bigger bang for your buck.
Not sure why that always stuck with me, but it did.
Good one!
Thanks for sharing my quote about bad car advice!
As for best advice, maybe something from David Bach about investing automatically. Having a portion of your paycheck automatically invested before you see the money is a fantastic way not to overspend.
Jason@WinningPersonalFinance recently posted…I Love Credit Cards and So Should You
Best financial advice: Have a Plan B, because as soon as the fighting starts, Plan A already failed.
Told to me by my grandfather in relation to almost anything in life. He lived by the Scout Motto of “Be Prepared”. Plan A was to always make a good income and have money coming in regularly. Plan B was putting money aside so it didn’t matter if Plan A worked or not.
I think it’s probably been said a million different ways by a million different people, but I was told by my Dad.
“Make sure you pay yourself first. Everyone always has their hands out for your paycheck, so you might as well be at the front of the line.”
It’s true, and while I’ve always done it to some extent. I wish I would have heeded that advice earlier in a bigger way. But c’est la vie. It’s funny huh? You never appreciate what the older generation tells you until you figure it out on your own… and you’re like Damn they know what they’re talking about!
MrWow recently posted…Half Marathon – Only Half Crazy!
“You never appreciate what the older generation tells you until you figure it out on your own…”
I know, right? I thought my grandmother was nuts. Hell, I still do, but I should have listened more.
Very nice collection of bad advices.
My favourite best advice would definitely be: “A penny saved is more than a penny earned.”
(Not really original I am)
The Poor Swiss recently posted…How to integrate second pillar in my net worth
One of my favorite pieces of advice I’ve been given is from my dad. All growing up he’d tell me and my siblings, “Don’t let anyone tell you that you can’t reach your dreams.” What he meant by this was ignore the doubters and naysayers, work hard, and pursue what you’re passionate about. His dream was always to work at Apple and he had plenty of people telling him he couldn’t do it, was too old, etc. He’s now been working there for 21 years. This advice has been inspiring to me throughout my life because it has shown the importance of having an internal locus of control.
I think “automate your savings” has been really beneficial for me. Requires much less willpower to save money if it never hits my checking accounts.
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My grandparents got me started in Roth IRA when I was 18 and while the place they got me invested wasn’t the greatest (high expense ratios and front load commissions), it was a great lesson and I’ve been investing ever since.
Your grandparents are awesome!
“Work Backwards.”
My dad ( an engineer) would say that and this is what it meant. Lay out your vision of the future and then work backwards to make it happen.
Retire: age 50
Current age: 30
Savings on hand: X
Savings needed: X x2
Goal:Income after tax $60,000 per year
Life expectancy: 30 years
Once you have the vision and you figure out what it takes to make it work then you can spend the rest.
Love this!
buy NVDA for 25/share. motley fool about 2 years ago.
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My mom worked for an attorney who started an investment firm on the side. (He’s since sold that and shared part of the profits from the sale with the employees! He’s truly a great guy!) Investments always seemed so complicated, that he simplified it for me. “Just save 10% of what you make, beginning with your first job. It will give you a start, and you can tweak it later. But start with 10%.” He even gave me some mutual fund recommendations, free of charge! It was so nice to have that starting point, with my first job. I was still working on my Master’s, while working full time, so one less thing to worry about, and being pointed in a good direction, was priceless!
Good advice + young age == awesomeness
I had a game growing up where to win you had to be the first person to furnish a home. You collected pay and could either use credit or cash to purchase items. My parents would tell me credit cards were evil whenever I would want to use that option in the game. When I got my first credit card I treated it like a debit card. While they taught me to abhore credit card debt, it is a do as they say not as they do situation.