Common Pieces of Money Advice I’ve heard versus What I think we Should be Doing Instead

I’m willing to bet you can quickly recall some bad financial advice you were given.

It could have been just a comment from a friend who’s just passing on something they were told, a painful hour-long conversation that you get sucked into each year at Thanksgiving by a well-meaning relative, or unfortunately, an inherent social belief. 

What’s the effect of the bad advice in your life, though? 

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Episode 6 on Reaching Abundance: 7 Awful Financial Ideals and How to Handle Them

Maybe it was null and void because you knew better and shook it off quickly as a minor annoyance. Or maybe you didn’t know was bad advice – like that from your father – and you’ve been operating on those ideals for years now.

Is it possible you haven’t yet noticed the effects of the bad advice? 

Maybe you’re still just functioning, doing the best you can. If you’re just earning a check and paying bills, while attempting to afford a few fun things here and there, even though you aren’t actually happy with your finances, you aren’t alone.

Oh the Irony

Any other skill we practice for 5-10 years, earns us expert status in that field. We get a degree, and by the time we’re a few years into our career, we’re one of the go-to’s anytime there’s a problem in the department. So why is it that we all can become experts in one thing or another after just practicing and learning about it for 3-7 years, yet most people use money in some form or fashion every single day and continue to fail miserably our entire lives? 

Using the logic and experience length as applied to our careers, each of us should be a personal finance expert by the time we’re in our early 20’s. Even if we never earned an income until we graduated college, we’d still achieve expert status with our finances by about 27 years old. However, as the typical American nears closer to their ’30s and ’40s, begins to raise a family, and makes moves to increase income, they actually find themselves drowning in debt. What’s even scarier? You’d assume that there’d be a reverse correlation between income and debt and that at some point, people could out-earn the need for debt. You’d hope they could reach a point where their income superseded their bills and they could pay things off. But it doesn’t happen that way. Typically the higher the income, the higher the debt. 

So, Why is this such a Struggle?

One reason is, there’s a lot of bad advice out there. Whether it stems from a great marketing ploy, persuasive economic reports, Uncle Jim, or from whoever well-meaning person who’s passing on something that may have worked for them, it’s inundating us from every direction every day.

So, let’s tackle some of the bad advice out there, what’s wrong with it, and what to do instead. This way, not only can you be aware of it and know with confidence what you should be doing, but you can also completely disregard this bad advice when you hear it again and quit second-guessing yourself or feeling worried that you’re missing something. 

On top of that, if you find that you believed one of these bad advice bullet points to be true, you have the opportunity to examine where that belief came from, how long you’ve been perpetuating it, and if it’s been helpful to you. 

Out of the 7 financial beliefs I de-bunked (or pretty much ranted on) the other day on my podcast, know which one I hate the most? ⠀

#1 – Establish Credit As Early As Possible

The first piece of bad advice I’d heard since I was a teenager, actually believed and did was to get a credit card as soon as you can so you can begin to establish credit.Within a month of adulting, I was in the hole. A small hole since my credit limit was $200, but still. I remember my first days of toying with the credit limit – estimating what I could probably buy for groceries that week at Walmart and still stay under my credit limit. Right there, my 18-year-old self began financial roulette.

“Everything was okay” because I’d pay off the card on Friday with the paycheck I expected from my minimum-wage job.Many 30 & 40-year-olds are still stuck playing that same game. It’s the worst game ever though because you’re oblivious to the terrible cycle you’re getting into, you never get better at it, and you never win. The game just gets bigger. And It’s really, really hard to get out. 

A Different Conversation

I wish someone had told me to Build Savings & Good Habits Instead.

I’m not saying the “build your credit” advice is 100% bad. You will need a credit score at some point… probably in preparation to buy a home. 

BUT

What if the advice, instead, was to pay cash for everything, use little to no credit, and always carry more in savings than what your rent costs each month?

What if someone told me to use a credit card to make the purchase only after moving the equivalent amount in cash over to a savings account, where it’s specifically allocated to pay off the purchase in full when the bill comes?

How different my life would have been. 

How different would your life have been if someone was there to give you real, correct advice when you applied for your first credit card? 

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How to Break the Cycle

You’re reading this thinking “Holy cow that’s me! I didn’t even know I was doing things wrong!” 

Breaking the cycle might be painful, but 100% worth it. 

For two months, at least, you have to quit using the card completely and use your cash to make purchases AND make the payment. 

So, if you consistently charge $2K on your card and then pay it off with $2K in cash from your paycheck. You have to pattern interrupt.

For two months, you’ll need to take that $2K paycheck, pay only $1K to the card and live off of the other 1$K for a month. You’re used to spending $2K, so this is going to be tough. 

That means if you had a $2K balance and only paid $1K that you’ll get some interest charges. That $30-60 of interest is the fee you pay to break your bad pattern and well worth it to get out now instead of being stuck for another who-knows-how-many years. 

The following month you do the same thing, you get your $2K paycheck, pay off the $1K + interest remaining on the card and live off of $1K. 

During the 3rd month, you have no credit card payment and you get to live off of your full $2K paycheck and do what you want! 

Tada!

Disclaimer here – I made this sound easy by using simple numbers. No matter your numbers, the premise is the same. You must stop using your card completely, reserve cash to make a decent payment, and live off cash. If needed, break the cycle over a 3 or 4 or even 6 month period. Those few months of cutbacks plus the little bit of interest you’ll be charged is 100% worth it to break the cycle. 

You can do it, I promise.

#2 – Your Credit Score is SO Important

Along those same lines, it was impressed upon me that your credit score is one of the most important numbers of your life.

While this is partially true, because you need it for large, financed purchases like a home, this is a myth because you don’t need credit to “survive”.  While plenty of people play games to manipulate their credit score, the big lie floating around out there is that you need to “work” on your credit score.

We need to work on behaving responsibly with purchasing decisions. It works like magic, as you prove good financial behavior long-term, your credit history reflects low credit-to-debt ratios, on-time payments, and …BOOM… Your credit score increases.

Typically the folks trying to increase their credit score are just starting out, planning for a big purchase, or are recovering from money mistakes. I get it – I’ve shared openly that we were near bankruptcy at one point, and trust me our credit scores were in the dumps. 

Why? Because every credit line was maxed out, I was making only the minimum payments on everything, and it was apparent we had nowhere else to go.

How to Increase Your Credit Score

If you want to make a difference in your credit score, begin to practice positive, controlled, reasonable financial behavior – living within your means, no overusing /abusing credit lines, not financing everything possible, not maxing out purchase power. 

When someone focuses on positive financial behavior, what do you think they will do? 

1. Begin paying off credit. 
2. Use credit less often. 

In just a few months from the moment I decided I didn’t enjoy facing bankruptcy, I started getting emails that our score had changed. I had been focusing hard on debt pay off plans, budgeting, and creating extra income to pay toward debt. 

The next month, more notifications flocked my inbox (yes, I had THAT many credit cards), so I finally checked on things. 

To my surprise, our awful 500ish credit score was going up! We had a long way to go toward the 800s, but the glimmer of hope was there. There was no payment game I had to play, no credit score guru I hired. The FICO algorithm usually, accurately, scores good or bad behavior.

Perspective Shift

Instead of being told in my 20’s to maintain a good credit score, what if I was told to focus on increasing my net worth? Now that would have been a valuable conversation!

The focus instantly shifts from debt-usage and payment games (negative financial behaviors) toward the wealth-building perspective of asset accumulation and investment possibilities.

If I’d understood the magnitude of what asset-building could do… and what an advantage I would have had in my 20’s if my eyes had been opened to compounding interest!

Just the simple awareness of what net worth is can do so much to shift focus and allow someone to begin concentrating on the correct goal. 

What about you? Have you been focused on your credit score this whole time? 

#3 – Renting is a Waste, Homeownership is Key

The next piece of financial advice I can’t stand is along the lines of Buying a Home is Better than Renting because your payments build equity.

The general assumption is that when you pay rent, you’re just throwing money at living expenses and earning nothing. In contrast, if you made payments toward a home, you’d be earning equity. 

However, equity is just like your credit score, you only need it if you plan on using it. It’s just another form of value you have the opportunity to leverage. 

For young adults, the whole world is new and big and exciting, and, if no one’s there to advise them otherwise, they could easily get sucked into buying a much more expensive home than they should. This accidental over commitment ties up their cash and puts unnecessary strain on that starter salary.

The pressure of homeownership costs could take away from their focus on savings and investing, create a budget strain on their social life, and cause aversion to potential job transfers or career opportunities, all because they are tied down to a mortgage.

Altering the Focus

How different would your life look if, instead of someone harping that homeownership is the golden ticket, they told you that maxing out your 401K contributions and living off of only 70% of your income was the key?  Imagine having conversations about savings and retirement accounts at 20 something instead of feeling pressure to become a homeowner!

Prior generations (at least my parents) are still stuck on achieving that American Dream – the office job, the house, the car – I grew up thinking that those things meant success too. That’s where I thought my focus should be.

When that’s what you come from and that’s all that you’ve been told your whole life, how could you possibly do anything differently?

If you’ve been hellbent on homeownership, or you know a young person who is, they need to know what’s really important – once someone is comfortable maxing out their retirement accounts, living off of 70% of their income, and then still wants to and can afford to buy a home – I’d say go for it. But if not, let’s step back and examine why they think they need to buy a home. 

It’s all about the thought process- 

• taking the thing you think you’re supposed to do 
• stopping to examine why you think that and if it’s really the best choice

#4 – If You Can Afford the Payment, You Can Afford the Thing

So the next piece of advice that drives me crazy is this idea that If you can afford the payment, you can get the thing. If you can afford $20 a month, you can upgrade to the next iPhone or if you can afford $350 per month, you can afford to ride around in luxury.

Somehow our personal finances and our brains have been manipulated into this narrow, month-to-month focus. Creditors and marketers have been working on us since we were kids watching Mickey Mouse Club, slowly persuading us to believe that their shiny new thing is affordable.

As a society, we’ve become complacent with long-term commitments toward payments. The thrill we feel when we take home that shiny new thing is somehow worth the years of bills and interest we’ll have to pay. 

When, if you stopped and asked yourself, 

Do I have $2K where I could just buy this new phone outright? 

Or 

Have I ever before felt that I had $20 “extra” each month? 

For most people, the answers to both of these questions are no. So, if you haven’t ever committed to $20 a month in savings, what makes you think you can add a $20 a month contractual commitment? Or worse, if you haven’t easily been putting hundreds in savings each month, why on earth would it be a good plan to sign up for a 5-year commitment of hundreds of dollars per month? I have news for you, iPhones and leather seats are wants, not needs. 

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At this point, I think we’re on the same page. We both want our kids to grow up waaaay more financially savvy than we did. Let’s be real, teaching kids about money using cash is necessary, but to prevent them from suffering the same money issues we have, they need practice using apps and plastic, which is where Famzoo comes in. For a few months now, my family’s been using Famzoo, an app connected with prepaid cards, one for each family member, where we have all the parental control to pay allowance, gift cash, split earnings between spending and savings, monitor balances and transactions, track savings goals, teach budgeting, and SO much more. 

The kids think it’s so cool to look at their own balances through the app and use their own card when making purchases. The cards’ funds are FDIC Insured and cardholders are protected by Mastercard’s Zero Liability policy against unauthorized purchases. Check out all the ways Famzoo can help boost financial literacy for your little ones by clicking below.

Pumping the Brakes on Financing

Instead, if you know of a purchase you will need or that you want, research how much the item actually costs. Then, divide up the full value into “monthly payments” you could make to your savings account. Prove to yourself that you can handle that commitment. How much can you save by buying the thing outright? How good would that feel? By testing that savings muscle on something small like $20-$50 a month, prove to yourself that you CAN.  As a next step, make the goal a little larger – maybe toward a $1000 purchase. You can play with the monthly savings amounts, just slowly move your goal up. Note: This discussion is about saving for a purchase. This is assuming you’re already saving toward retirement, emergency funds, etc. 

#5 – Just Save $1,000

Along those lines, an emergency fund is a savings account where you’ve set aside money in case of an emergency, like a tire blow out, an emergency vet visit, or an ER trip with a crazy fever in the middle of the night. 

It’s your first line of defense against a pop-up expense. This is one of the main things that will begin to pull you toward abundance with confidence and stability versus remaining on the edge of credit dependency, fear, and dread when it comes to money.

I’ve heard it misconstrued though, that you only need $1,000 in savings. This recommendation is only for a STARTER emergency fund. 

The trouble is, people hear what they want to hear and pick out the single word or two that they need in the moment. We’re all guilty – we can read an entire book, listen to an hour-long podcast, or watch a program and our brain naturally extracts the single most important detail for us to move forward with. 

That’s exactly what happened as this advice to save $1,000 popularized. You don’t just need $1,000 in savings. You need to START by saving $1,000 and then continue to make progress. 

What You Really Need

I suggest maintaining $1,000 per family member in a savings account. So, if you have a family of 4 like ours, keep $4,000 in savings at all times….just in case.

Savings like this boosts your confidence because, not only is this probably the most cash you’ve ever had in a savings account, but it also provides a beautiful wall of protection between your family and any sort of catastrophe. 

Have a house fire and you need to pay the 2K deductible for your homeowners’ insurance? That happened to us… done. 

Suddenly life doesn’t feel so overwhelming when you have the cash to pay for things and you don’t have to figure out which credit card has a big enough limit for you to take care of business. 

#6 – Cut Up Your Credit Cards to Get Out of Debt

Credit cards are not evil. People who use credit cards are not evil.  

I’m not an advocate for debit-card-only-use. It’s not how I live and I completely see the benefits of using credit cards for points, consumer fraud protection and all of the other benefits. So, I’m not a cut-up-your-credit cards advocate. 

There’s a real connection between using cash and spending less.

What I do teach, is there’s a real connection between using cash and spending less. Notice I said cash, not debit. 

If you’re someone who’s constantly over budget or in a position where finances just seem too chaotic, cash is going to be my recommendation. 

I look at finances from a holistic perspective and consider all variables. If there are credit cards that are unused, that won’t be used – like a store card that was opened when you bought couches and haven’t used again since or a medical credit card that was for a specific surgery and it’s been a while with no new surgeries planned – then I suggest those be closed. 

But your points earning, regular Citi or Chase or whatever, that’s fine. You can keep it, it may just need to be kept in time-out for a bit until we can establish and practice some healthy boundaries.

The Problem

Most people swipe their card multiple times a day without even looking at the total. So every-time they look at the balance or receive a statement, even though they were present for each of those purchases, it’s a total shock. 

The only way to put an immediate halt on this shock-factor, pump the brakes on the ever-increasing balances, and get an initial budget in place is to use a system with controls. 

The Solution

Think about what you would do if a project wasn’t making progress at work. Your team would likely decide to scrap the things that aren’t working and get back to the basics. 

This is what you have to do with your finances. It’s obviously not working to allow yourself to have autonomy over this credit card since you can’t exhibit self-control, so you have to scrap that plan and get back to basics. 

What’s the most basic form of currency in today’s economy? Cash. 

Once a working budget is in a place and you’ve proven that you can, in fact, succeed at spending within your means, then, and only then, is credit card use reasonable. You can cautiously begin to bring using the credit card back into the picture. 

Of course, there’d be rules associated, but you could begin using your card for groceries, for example, little by little. 

I don’t like to use or even carry around my debit card. So, if someone wants to use debit, and they see that as a viable solution to the issue, that’s fine. I won’t dissuade them. But you won’t find me pushing them that direction either. 

It’s pretty simple for me to draw the line on this one, there’s no grey area for me – debit card usage falls into the grey area. It looks like a credit card, but it’s a direct line to your cash and that’s risky business in my book. I say either use your credit wisely and reap all the rewards or, if you can’t remain within budget and you are struggling with overspending, use paper cash. 

With any medium, there are going to be challenges, but that’s where I stand – I’m not a cut-up-your-credit cards advocate, but I am a cash advocate. 

#7 – Having Payments is Inevitable

I’ve heard different phrases like “everybody’s got a car payment” or variations of the belief that “you’re always going to have payments”. 

I’ve actually heard this logic: Well, I already pay $500 a month, so what’s $550 when I get, Bluetooth, leather, shiny rims, and a back-up camera? 

The problem grows exponentially as you get used to that $550 and three years from now, you find yourself back at the dealership upgrading for the next new ride for another additional 50-100 a month. It never stops when you go on like this. 

Not EVERYONE has a car payment, and you’d be best suited not to have one as well. Plenty of people out there have made the decision to quit upgrading their vehicle every couple of years, quit digging that hole, and to just pay off their car.

Look at the math. Assume you have a $500 car payment. You’re paying $6K per year for the newest body style, the latest technology, and what you think is the right to be able to take your vehicle to the dealership IF something goes wrong during the warranty period.  

Even after the complementary oil changes and “free” perks have expired, you still owe over half the car’s value. That $500 a month budget-cramping payment is barely making progress on that $30K balance! 

Oh The Possibilities

On the flip side, we have two paid off vehicles. This means instead of having car payments, we pay for an oil change and some other maintenance (under $100 for each vehicle) about every 6 months. For the older vehicle, we might have a $1,000 repair once a year or sometimes every two years. So, $1200 for the year in maintenance for 2 vehicles as opposed to $6k per year for one?

In just 4 years of saving $4,800 in a savings account, you could buy an almost-new $20K vehicle in cash! That’s what we’re planning to do.

We have experience on both sides of the coin, and I highly recommend the one without payments. We bought one car for cash years ago and then bought a newer car with a payment – that was one of the financial mistakes we made that I’m pretty open about. So, when everything hit the fan, I made it a point to pay off the car and decided that we will never, ever have a car payment again. 

I challenge you, what would it be like if you didn’t have a car payment? How much is left on your balance? What difference would that make in financial pressure each month? 

Realize that you don’t NEED the shiniest, newest vehicle and that no one actually cares what you drive – they are too busy being obsessed with what they drive.  Not everyone has a car payment and you don’t have to either. 

Your Financial Assumptions have been Rocked, Now What?

In hopes these 7 pieces of bad advice got you thinking, I encourage you to notice assumptions you have about the “way things are”. 

Do you really have to have payments? 

How much savings do you really need? 

Do you have to own a home and cut up your credit cards to exhibit financial stability?

Try to dig up what financial assumptions you’re operating from, and explore where they came from, and, most importantly, if they’re helping you move toward abundance or away from it. 

Through this little action, you’re training yourself to think when it comes to your money, and not to just do things because that’s what everyone does. We have to notice the lies we tell ourselves – not all our friends have new cars, not everyone goes shopping every weekend, not everyone goes to the spa every 3 weeks. 

What stories are you telling yourself?

What new stories can you create?