Common financial advice that will keep you broke and in debt

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Common Financial Advice That Will Keep You Broke and in Debt
Well-meaning friends and family often share financial advice. Unsolicited or not, they are generous with offering up their financial pearls of wisdom.

Oftentimes, though, this advice is not based on solid financial knowledge, but rather on what culture portrays as normal and acceptable.

Because we live in a "buy now, pay later" culture, financial advice offered up by the people in our lives usually perpetuates the assumptions that debt will always be a way of life.

There are few common pieces of financial advice that we hear all the time. A well-intentioned relative or friend may have told you one of these at some point. You may have even said one or more of these to someone else. See if these sound familiar.

1. You Should Have at Least One Credit Card for Emergencies

Have you ever been told this one? I have — a lot. Surprisingly, I even heard it in response to sharing that I decided to live a debt-free life.

Are emergencies going to happen? Unfortunately, yes. Do we need to be prepared for them? Absolutely! But slapping the cost of an emergency on a credit card isn't exactly preparing for it. If that is your only line of defense, then you're setting yourself up for trouble later.

When you think of a few examples of emergencies like job loss, car trouble, an ER visit, or a death in the family, those are all scenarios where adding debt to the mix is just going to make the situation worst. You not only have to deal with the emergency, you now have to deal with the emergency AND credit card debt.

The best way to handle an emergency is to build up a cash emergency fund. When you have cash on hand, and an emergency comes your way, you can focus on the situation you are facing without the financial worry.

2. Student Loan Debt is Good Debt.

I think most people will agree that investing in higher education can be a wise choice for some. What is not necessarily wise is going into massive amounts of debt for it.

Well-meaning relatives encourage taking on student loans based on the rationalization that the expected salary upon graduation will wipe out the debt in "no time." Unfortunately, reality tells us that is usually not the case for the 70% of students that take on student loans.

Between four years of college turning into six and not landing that dream job, too many college graduates find themselves scrambling to make their payments and are overwhelmed by the impact of starting off life with an enormous amount of debt.

Yes, college is a worthwhile investment, but saddling yourself with debt isn't the only way to make that investment. Explore and pursue alternatives before signing on the dotted line.

3. It's the Right Time to Buy a House

Home prices AND interest rates are low, and it's the "right" time to buy??? Great! There's a foreclosure around the corner that you can scoop up for a dime? Awesome! Do you have the money? No? Then it's not the right time for YOU to buy.

Contrary to what friends and family may say, the conditions in the housing market are only part of the equation of determining when is a good time for YOU to buy a house. Whether or not it's a buyer's market doesn't matter if you are saddled with other debt, have no emergency fund, or can't come up with the down payment on a house.

Be patient and choose to buy when it's the right time for you, not everyone else.

4. Buy the Most House You Can Afford

This common financial advice encourages us to stretch ourselves thin when it comes to getting a mortgage. We are encouraged to take on the biggest mortgage payment we think we can handle. Unfortunately, what we believe we can handle is usually significantly more than what we truly can handle.

Also, this advice is usually offered at the exclusion of the other things we need to do like actually maintain the house, put kids through college, and save for retirement. Even banks will lend you more than what is healthy for your particular situation. We have the financial crisis of 2008 to prove that. Personally, it took going through a short-sale to fully wake up to the fact that the house I thought I could afford was not affordable at all.

Following the advice to buy the most house you can "afford" will leave you house-poor or worse — house-less.

5. Don't Throw Your Money Away on Rent

This advice is the cousin to "It's the Right Time to Buy a House" and "Buy the Most House You Can Afford." It seems like we're just eager to push others into buying homes, even if conditions aren't ideal for them.

Many people incorrectly assume that renting is a waste of money and they are very vocal about telling you. But there are many scenarios where renting is wise including, getting settled in a career or marriage (or life in general), taking the time to build up an emergency fund and a healthy down payment, or getting over a personal or financial crisis.

What you pay on rent is not a waste if you are not in a position to buy a house.

6. You'll Always Have a Car Payment.

This is common. It doesn't occur to most people that you can purchase a car without having a car payment. Because we live in a "buy now, pay later" culture we think the only way to purchase a car is with a car loan.

But, If we are willing to exercise some patience we would realize that if we can "afford" a car payment and then we can afford to wait and save up to buy a car with cash.

Choose to put the payment before the purchase by saving up for your next car.

Related Reading: 5 Financial Lies We Tell Ourselves

Did any of this advice sound familiar? I've heard it all. I've followed it all. And it kept me broke and in debt. Waking up to the realities of following this advice will bring you freedom and peace.

What other common financial advice have you heard that leads to being broke and in debt? What financial advice have you been given that's awesome and has helped you in your journey?

The post Common Financial Advice That Will Keep You Broke and in Debt appeared first on Hope + Cents.

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