Over my fews years in this world, I have gotten some pretty lousy advice from some pretty competent people. When you hear things from people like a “financial adviser” you assume it is the best financial decision. You hear it from your parents, your siblings, your friends. You hear it from your golf buddies, your cab driver, and the waiter. It’s Bad Advice, and here are the Top 10 Worst Pieces of Financial Advice you will ever get.
1. Get Whole Life Insurance
The idea here is that you get health insurance and you get part of your premium as the “cash value” portion of your insurance. You can then draw on that cash in the event of an emergency. With this option your premium will be about 80% more than if you chose Term Life. Oh yeah, that “cash value” is all but gone when you die if you take into account the huge taxes and the insurance company’s cut.
Why, you ask, would anyone try to talk you into such a terrible investment? It’s because your insurance guy is a salesman. He gets a commission on your premium so the higher the premium, the more money he makes.
2 & 3. Use Debt or Don’t Use Debt
These could both be good and bad advice depending on who is giving it, who is taking it, and in what sense they mean. Many people have very little self discipline and even the idea of a credit card puts them into debt. These people should subscribe to the Dave Ramsey philosophy of “Debt is Dumb, Cash is King, and the paid off home mortgage has taken the place of the BMW as the status symbol of choice.”
On the other hand, there are people who are very disciplined and have enough self control to take advantage of credit card offers and use them to their benefit. In this case, you can make a good bit of money using leverage as a tool.
4. Debt Consolidation
Can’t pay your bills? Why not refinance your house and roll your credit card debt into the house payment? You’ll have a lower interest payment and just one bill to worry about.
Here’s why you don’t want to do that…First of all, you clearly can’t control your spending so what is going to keep you from running those credit cards back up to where you can’t afford the payments again? Second, when your debt is on credit cards, the worst thing that can happen is you get a bad credit score. But if you can’t pay your mortgage payment, you lose your house and that is much much worse on your credit than some late credit card payments.
5. Save For Kid’s College First!
This is just silly. I’ve actually had people tell me to do this. Let’s say I’ve put lots and lots of money in a 529 college savings plan for my son. The son turns 18 and decides to take a trip to Africa for 6 months. He gets home and decides to join The National Guard. Now you’ve got a bunch of money tied up and you’ll have to take a huge tax hit in order to get it.
Save for your own retirement and when your kids get to college age, you’ll have the available funds to help should you choose to help and should they choose to attend school. p.s. people place value upon something based on what they pay for it. Give your kids school for free and see how much they value it.
6. Sign Up For Bi-Weekly Mortgage Payments
Bi-weekly mortgage payments can be a very good way to pay off your house early because when you send a half-payment every two weeks you end up sending 26 payments that amount to one extra monthly payment per year.
The problem comes when you go through a third party to set up the bi-weekly payments. They generally hit you with a $300 set up fee and some sort of yearly fee because they have been such a tremendous help with paying off your house. The fact of the matter is prepaying your mortgage can be a good things, but you can and should do it yourself. Contact your mortgage company directly with any questions.
7. Mortgage Life Insurance
This sounds like a good thing when you get the info in the mail because this is a way that your family can keep their house should the unthinkable happen. There are a couple of glaring problems with this.
First, your premium stays the same but your benefits decrease as you pay down the principle on your loan. If you own $100K, they’ll pay off $100K. If you owe $50K, that’s what they’ll pay off.
Second, this is not really a policy to protect your family, but to protect the bank! They would MUCH rather have you pay than to default. If you would like your family protected in the event of your death, get yourself some Term-Life Insurance from Zander Insurance. You’ll have very low premium and the benefits can be used for anything you’d like, including house payments.
8. Claim Zero on Your W-4 To Get a Tax Refund
Congratulations! You’ve just loaned money to the government Interest-Free for a year! If you know the amount of refund you got this year, adjust your withholdings down so that you can keep more of your paycheck. Then, put that money right into savings, investments, or debt reduction and you’ll come out ahead without earning any more money!
9. Let a Professional Do It - No Need To Know Anything
I am a big fan of having advisers, mentors, and resources, but to turn your financial future over to someone else completely is a bit irresponsible. Many financial advisers are upstanding people with your best interest at heart, but many are also in it for nothing but the commission and they will think of their wallet before yours every time.
I suggest taking an active interest in your money, as I’m sure you already have if you’re reading this. If you do, you’ll see your net worth grow faster than ever!
10. The Stock Market is The Only Way To Go
Thomas Stanley in The Millionaire Mind
talks about the millionaires’ take on this subject. Only 12% said that “investing in the equities of public corporations” was a factor in their success. A much larger percentage said that “investing in my own business” and “making wise investments” were factors in their success.
More often than not, the millionaires in this country opt for private investments in properties and companies, including their own.
My Goal
Over the coming months, I hope to bring you some of the best advice on personal finance as well as ways to increase your income both on and off line. Maybe we can make lots of money together!
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Horrible Advice Featuring Smart Money and AOL Money & Finance
Gitomer, a former salesman who is now a consultant and journalist, shares his tips on how to be a successful salesperson. He provides motivational advice and practical techniques for initiating, maintaining, and closing a sales presentation. Written in a breezy manner with short, easy-to-remember suggestions, this book should prove popular with persons just getting started in this field or those needing an inspirational pep talk. I, for one, think this is one of the most practical books on sales that I have ever read.
I read this one in a single sitting during a recent business trip in which I had about 2 hours to kill. It happened to be -3 degrees, so I decided to hunker down in Borders. Once I started reading, I couldn’t put it down. It’s not a terribly long book, but it’s filled with the positive idea of give-and-take that will lead to a better marriage, better relationships both professionally and privately, and easier life, and more satisfaction for everyone involved. I say it is very worth your time to pick this one up.
Written by Jon Krakauer of “Into Thin Air