There will always be tried-and-true financial strategies we can rely on. However, that isn’t true of all age-old wisdom. Believe it or not, the same advice that worked for your dad and his dad won’t necessarily work for you. If you’re looking for financial wisdom, you must be sure it’s relevant and applicable to your time, circumstances, and personal finance.
Here are a few pieces of fiscal wisdom that are best left in the past.
6 Pieces of Financial Advice That Are No Longer Serving You
1. "All debt is bad" or "Avoid all debt"
We know, of course, that not all debt is bad debt. While you want to be wary of credit cards and high-interest lending, debt also creates leverage. For the investor, debt is often necessary and advantageous. Don’t be afraid of a mortgage. Use other people’s money to bolster your own wealth. All you need is a solid, consistent plan to repay that debt.
If you’re investing in rental properties, your rental residents pay off your mortgage debt for you!
2. "Stocks and bonds are the best way to invest"
Once upon a time, maybe the combination of stocks and bonds in a play-it-safe portfolio was enough for retirement. Perhaps you could be comfortable with a 401K. For most people today, that’s not the case. It’s far better to look for investments that generate wealth in more ways than one. Instead of relying on dividends or an investment account, look for cash flow and growth in net worth.
3. "Your house is your investment"
Surprisingly, this piece of advice is terrible! Rental properties are an investment. Your personal residence is not an investment. First, it’s almost guaranteed that a single property (your home) won’t cut the mustard as a retirement plan. Not unless you bought a California beach house in the 1960s. The appreciation often isn’t enough. It’s not just about value, though.
Personal homes aren’t often kept as well as investment properties are. When it comes time to sell, you’re almost guaranteed to face any number of necessary repairs, rehabs, and overhauls.
4. "Buying is always better than renting"
Buying a home was once integral to the American Dream, but times have changed. Not only is real estate increasingly cost-prohibitive to first-time homebuyers, but our increasingly transient society doesn’t necessarily want to put down roots in one place. In the long run, buying a home might save you money. And we won’t deny there’s the benefit of appreciation.
However, buying a home isn’t always a feasible option. For some, the potential property taxes may be too high a burden or the maintenance responsibility may be too much. A personal residence isn’t so crucial an investment (see above) that you can rent and find other avenues of securing your financial future.
5. "Your emergency fund should cover 3 months of expenses"
The problem with most of this advice is that it’s too general. Truth be told, how big your emergency fund is should depend entirely on what you want out of it. Yes, everyone should have money to cover emergencies and unexpected costs. If you’re going to quit your job, you need enough cash to empower you to do so comfortably.
Quitting in hopes of being hired somewhere else is also wildly different than leaving to start your own business! Emergency fund coverage is personal. Plan based on your goals, needs, and risk tolerance.
6. "Talking about money is bad etiquette"
Money still seems to be one of the taboo topics of conversation, particularly in the workplace. Transparency around finances, however, is valuable and empowering. When you speak to colleagues and fellow investors about their salaries and passive income, you better understand what you should be getting. Then you can negotiate and strategize accordingly.
At REI Nation, we're not shy when it comes to helping you get to your financial goals.
