Why You Should Always Ignore Certain Savings Advice

Everyone, at one time or another, as part of a childhood lesson learned was given this ubiquitous, familiar cliche as advice on what not to do as far as emulating someone else for all the wrong reasons.

“If your friend wanted to jump off a bridge, does that mean you would jump, too?”

This message is simply translated beyond the hyperbole and imagery to suggest that you should necessarily mirror what you do after someone else, even if they’re telling you that it is in your best interest.

Funny enough, as outdated and overdone as this phrase is, the rhetorical question carries with it a lot of meaning when you get to the heart of it, particularly when talking about financial advice and how it is doled out from a friend, family member, co-worker or anyone else who thinks they knew best, money wise, but really aren’t the foremost expert on it.

Just because someone gives advice about money doesn’t mean you should follow it, right?

Exactly, in fact.

Now this isn’t to suggest that some advice about money isn’t iron-clad or worth listening to, but you have to consider the source, the advice specifically and what exactly their financial situations is.

Take for instance how much you should be saving in a paycheck each week (or bi-weekly).

The rule of thumb is that you should be savings 20 percent of your paycheck and putting it toward a savings account.^[1]

That sort of advice is standard, sensible and can be used as a means of being extremely declarative in your wants and needs.

When you start to fall into trouble is when you listen to someone, for example, who has less money saved than you (i.e. considering the source) or if the advice is so outlandish and head-shaking in nature that you’re either drawn to it miraculously like a set of magic beans or quickly dispel it without reproach (usually the best move).

And financial advice isn’t just about your savings account, income or budgeting but also can reach to retirement and how to save for that, for example.

Misguided financial advice also can center on how much or often you use credit cards, buying a home as an investment or anything else that is financial driven that might not necessarily be tailored as a perfect fit for you.

Consider that while some financial advice works topically for all (that’s the kind you should gravitate toward), often times it isn’t for everyone.

No matter how you view financial advice, the person giving it or saving money as a whole, you can easily spot common missteps financially that often are given as sage advice that needs its own sanity check.

That doesn’t mean the person doesn’t have your best interest in mind but instead is off based with their running financial commentary.

Bad financial advice also isn’t exclusive to just friends or people without a background in finance. Those individuals, much like any profession really, who are adept and trained in financial advice aren’t always the most spot-on, either.

The typical fee for a financial advisor that is computer driven is between .25 percent or .89 percent, depending on size of the account, and as much as 2 percent with an actual person.^[2]

If your financial advisor charges more or way below that, you could be in the midst of a huge red flag.

Whether it’s actual advice, person behind it or the general scope of what you’re being told, you have to be prepared to rebuke most of it and look for these tips that are quite simply terribly overrated and wrong for the masses.

Never use credit cards, and never pass up a good deal

When it comes to debt and using credit cards, they often times are mutually exclusive to one another, meaning you can avoid debt and use credit cards.

That advice often is intertwined with far too many broad brush statements about how you should never use credit cards or, worse yet, those who tell you that going into debt is a good thing.

Consider the average person carries about $62,000 worth of debt.^[3]

On top of that, the average credit card balance in the United States is $5,551 on two cards, per person.^[4]

Here’s the financial advice you should skip: when someone tells you debt is good and that you should never use credit cards.

The latter makes little sense only if you’re someone who can use a credit card and pay it off in the 30 days after the bill arrives. Establishing, maintaining and showing a good credit history is a vital part of your credit score and overall health financially.

This isn’t about a full-scale war on department stores and online shopping but rather a sense of how to use them properly.

As far as going into debt, this one is followed by more than you’d think and a real doozy as far as advice goes. Often times, you’ll hear “financial wizards” point you in the direction of 0 percent interest or borrowing money at low rates that aren’t fixed.

Something that you’d tab as a “good deal” often has a lot of fine print to it, and thus turns out to be more costly in the long run.

Spending money is understood because it’s an investment, and Pay off home ASAP

Some debt is understood (not good; no debt is good), but you can’t overlook a person who reasons with you about buying a house or brand new car as an “investment you can’t miss (more in a minute on that) or the minimal repairs you’ll have based the fact that it’s new.

Spending money isn’t good advice, particularly when it’s not rational, and you simply can’t afford the purchase.

The most common type of spending money is a good investment centers not surprisingly on house buying. Buying a house isn’t a good investment if it’s not something you can afford, beyond just the average monthly mortgage payment. When you factor in utilities, taxes and other payments that go along with owning a home, you’d be wise to avoid that advice because it isn’t always feasible or practical for everyone.

The average household debt when it comes to owning a home is $168,614, with other “necessary debt” at $48,172 in school loans.^[5]

You have to keep in mind that $168,614 figure isn’t a stand alone, and that a house comes with it not just bills but also repairs that have to be factored into your buying decision.

And as long as we’re on the house topic, don’t listen to everyone and anyone who tells you to pay off your house as soon as you can.

Here’s the thing: the reason a house is considered necessary debt (again, not good) is because of the low interest rates, same with school loans. If you have any opportunity to pay down debt, look more toward unsecured debt and high interest credit cards, medical bills, etc. The same study above that cited the house and school loan figures shows more than $15,000 in credit card debt per household; that’s where you should be focusing your additional payments to, not the house and school loan.

The average credit card ranges anywhere from 13 on the low side (although still high) to 23 percent, high-side.^[6]

Paying more on your home loan only is sensible because you will avoid deferred interest but that plan only makes sense as long as you’re not carrying 15 or 20 percent interest on credit cards or are using more money to pay off school loans and mortgages when it’s taking away from being able to save for retirement or even a simple savings account being bolstered instead.

Always invest a lot when you’re young, ignore risk and budgeting, too

How much does the average 30 year old have saved?

Well, what you should have saved by the time you reach 30 is about half of what you make, so a $50,000 salary means you should have $25,000 in the bank.^[7]

Some research suggests that 30, as far as what you have saved, is a 1 for 1 type deal: a $30,000 salary means $30,000 saved, no exceptions.^[8]

That isn’t the case for a lot of 30 something year olds, either because they spent most of their 20s in school (see the aforementioned average of student debt) or they just finally landed a job that matters, one with a retirement plan and equipped with the kind of salary that actually would allow you to save money.

A lot of advice given you those in their 20s and 30s is that you should be saving a lot and taking big risks, all in one fell, misguided swoop. While this makes sense when you consider the logic of you probably have a modest if not low cost of living and maybe you aren’t married, don’t have kids or responsibility that equals financial burden of sorts, it isn't for anyone. If you’re not thrilled with implementing an all or nothing approach, why not just start with saving something.

If you’ve landed a job in your 20s or 30s that offers a retirement plan of sorts, take advantage of it on any level, and do so modestly, minus the risk. The idea of starting a retirement plan in your 20s means you’ll save that much more and actual be able to retire in your 60s, rather than waiting until you’re 40 and then work well into your 70s.

Even more laughable than forcing a 20 or 30-something year old into risky, aggressive stocks or savings plan is the idea that a budget is a bad thing. Yes, you’ll get financial advice that reminds you that budgeting is overrated.

Quite the opposite.

Budgeting is the cornerstone of your tracking system in that you aren’t going to understand conceptually overspending or how much you are saving if you don’t have a checks and balances system in place.

Only a little over 30 percent of the population budgets.^[9]

You'd stand to reason that not having a budget is nothing more than mass hysteria financially, and you can easily find your way into debt, particularly when you realize that you’re spending hundreds on coffee at a barista or thousands a year on take-out food.

Financial advice often is something the majority of people gravitate toward because of the importance it carries, and that fact can’t be debated.

Maybe that’s why you might be more inclined to listen to financial advice, no matter what it sounds like.

Consider that the average 40 year old should have three times their annual salary saved.^[10]

So if you’re 40 and you make $50,000 per year, that’s $150,000 you should have stocked in the bank. If you’re short (or well short) chances are you’d like to find that silver lining and “quick fix,” but often times there isn’t such a thing when it comes to money and saving it.

Usually those who are adept at saving money do so inherently, or seek the help of a trained professional as a tool to make and save more money.

Taking advice from all avenues is not only a bad decision but can get confusing, much like when someone swears by a diet you have to do because it “works” even though they’re heavier than you are. If it’s too good to be true, chances are, it is.

Your path of travel is one that has to be rooted in sound advice, prudent saving and information to follow that is filtered and has you poised for financial success, rather than toiling around from one bad money idea to another.

If you’re fine taking a leap of faith and following financial advice based on what someone else does, you’re on your own, and you’ll suffer repercussions if that person is steering you off the proverbial bridge and into unchartered, rocky waters that wind up costing you big.

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