Our parents give us advice with the best of intentions (at least you would hope so). My own parents have dished out their fair share of tips and tricks and for the most part they’ve served me well. However, there is some outdated financial advice that could be hurting you.Even in today’s age I still see questionable advice make its rounds through the Millennial generation. Check out our list of outdated financial advice that could be hurting you and what you could be doing instead.
I will never tell anyone that they should not save money. Maintaining a savings account with at least 3-6 months of living expenses for an emergency fund is crucial. Life can happen and you don’t want to be stuck in a precarious situation without a fallback. For maximum return, I recommend holding your savings in a high-yield savings account.
However, I do not agree with the notion that you should save ALL your money. A savings account provides little to no return. In fact, a savings account grows at a slower rate than inflation. The difference in yield means you are actually losing money with the value of your dollar decreasing. If you want to build wealth your money has to work for you. Investing in a variety of assets such as a 401k, mutual fund, or ETF would be far more beneficial than dumping all your extra cash into a savings account. For more help on how to allocate your money, you can check out our post here.
While a home can be a great investment, it can also be a sinking ship as we saw during the 2008 housing crisis. Purchasing a home is a serious commitment and one you should think about carefully based on your lifestyle and financial situation. Living in your primary home costs money every month-it doesn’t make money. Most home owners hope that one day the home will sell for more than what they paid. However, after sinking money in via repairs, taxes, and other miscellaneous costs, netting a profit is actually quite difficult. To help you decide if you should buy vs. rent, check out our post on buying vs. renting.
In the age of technology and freelance culture, it is entirely possible to net a very lucrative lifestyle without a degree. Last I checked, starting your own business does not require a bachelors. I am not advocating for or against college. I am advocating for you to think about what you want to do in life and work backwards from there. The cost of private university is astronomical and seeking a $200,000 degree for a job that may net you less than $50,000 a year doesn’t really sound like a good deal to me. Alternatives like trade school, cosmetology or even entrepreneurship are great career paths. These alternative paths pay well and won’t leave you hundreds of thousands of dollars of student debt.
My parents paid off a 30-year mortgage in less than 15 years. While paying off your mortgage early is a great achievement, I would only encourage this if it wasn’t at the expense of other potential investments. For example, I would not encourage anyone to pour extra money into their mortgage without first allocating funds to a retirement account. If after investing money into a retirement fund, and saving an emergency fund, you still have money left over, then I would add it to the principal. Paying off your home early made sense when interest rates were much higher. However, in today’s world with good credit you can secure an interest rate between 2-4%. If you are paying more than 4% interest, I suggest contacting your bank to see if refinancing at a lower rate is an option. You can also check out bankrate to shop interest rates.
These tips and suggestions are just our personal thoughts on outdated financial advice. If you want to pay off your mortgage early, then do so. If you insist on going to college, do so. There is no one size fits all for money management