Q: I’m a 48 year old single mother of three. My oldest son recently moved out on his own, but I still have two teenagers at home with me. My ex-husband is difficult to deal with, but our relationship is mostly civil and he, albeit begrudgingly, pays his child support on time. However, along with the support payments, he always seems to feel the need to dole out financial advice. I work at the credit union in our small town, and his advice often seems quite opposite to what I hear at work and from friends who seem to be good with their money. How can I tell if any personal financial advice I receive is to be avoided or followed? ~Mary-Anne
A: Personal financial advice is very easy to come by, however it can be hard to discern the good from the bad. And to make it even more confusing, what’s good for one person might not be favourable for another. This is because everyone’s situation is unique – no two people hold exactly the same values, have the same spending habits and past money experiences, or face the same circumstances. That said, there is however, certain advice that has the guaranteed potential to turn out poorly for everyone.
Here are 4 examples of bad personal finance advice and why you should ignore each one:
1. Apply for Lots of Credit to Establish a Good Credit Rating
You don't need a fistful of credit cards to establish a good credit rating.
This piece of bad advice has landed countless people in a lot of financial trouble. The truth is that you only need one credit card, with a conservative limit based on what you can manage comfortably, to establish a good credit rating.
Why ignore this advice? Having a lot of credit available to you, especially if you’ve acquired it in a fairly short period of time, can actually lower your credit rating and limit your potential to borrow what you need in the future. There’s a lot that goes into a credit rating and how lenders assess what a borrower can handle. Educate yourself before you plan to apply for new credit.
The “just in case” myth applies here too: Getting an additional credit card, line of credit or overdraft protection for “just in case” can spell danger. When ‘just in case’ happens, you likely won’t be able to afford to pay back the additional money you borrowed and could end up in more debt than before the “just in case” happened.
2. Invest In This Because It’s a “Sure Thing”
Whenever someone suggests that an investment is a “sure thing,” your Spidey senses should start tingling. A lot.
Why is this advice bad? No one can predict the future with absolute certainty, so any “friend” who says otherwise needs to better understand their own investments before they start dispensing advice to others. And if something sounds too good to be true, it probably is.
3. You Don’t Need Life Insurance When You’re Young
While this might be more of an assumption than specific advice, countless people abide by it.
Proceed with caution: When you’re young, healthy and have no family of your own, life insurance might be the furthest thing from your mind. However, the time to buy insurance is before you need it, and when it comes to life insurance specifically, when you’re young and healthy the premiums are the cheapest. The caveat though is that you don’t want to waste money paying for insurance you don’t need.
You might also be interested in: Life Happens - Life Insurance 101
4. Interest Rates are Low – Borrow, Don’t Save, for What You Want
Nearly one generation of Canadians has lived with historically low interest rates, so when borrowing is cheap and easy, saving for a rainy day, retirement or for whatever you need or want might seem like more work than it’s worth.
Why is this bad advice? Everything ends up costing more because you pay interest on everything you buy. It also leaves you at the mercy of the lenders and the economy – if they raise interest rates, you could end up not able to afford even your basic living costs.
The Bottom Line on Personal Finance Tips to Avoid & What to Do Instead
Many people spend their entire life complaining or worrying about money, but when it comes to acquiring skills to manage their finances better, they are reluctant to spend even a few hours learning what they can do better. Sometimes it’s just easier to follow someone else’s lead; other times acquiring the skills and knowledge you need to make an informed decision ends up at the bottom of life’s to-do list. Put yourself at the top of your priority list. This will help ease your money worries and keep you working towards your goals and dreams successfully.