17 Nov The Worst Advice We’ve Ever Heard about Savings
If you live in the Western Hemisphere and are older than 18 years old, you are familiar with debt, and that’s even more so if you’ve earned a post-secondary education or if you drive a car. While 41% of Americans are in debt due to car loans according to credit.com, car loans are the greatest source of debt for Canadians (46%) according to Loan and Go. Is it a good idea to not achieve higher learning in this case? Is it better to commute for two hours via public transit instead of buying a car? Well it really depends on who you ask and their personal circumstances. We’ve heard a lot of crazy advice out there on how to save money, but here is the absolute worst of the worst advice we’ve ever heard about savings:
- Only Save 10 Percent for Retirement
While you might be several decades away from retiring, starting to save money now means you start building a solid foundation you can continue to work on year after year. You might have heard you’ll be good to go if you save just 10 percent of your net income, but it’s best that you increase that to at least 15 percent. That being said 20 percent it actually more ideal. The reason for this increased savings is that people live longer now, which means you’ll need your savings to stretch further. Something else to think about is the fact that the way Social Security works might change over the years. For instance, Social Security might be either reduced or delayed. It’s also possible that you may not have a pension or any other benefits to fall back on when you retire, making it more essential than ever for you to start taking steps to take better financial care of your future self.
- Renting Is a Waste of Money
Everyone and their mother has heard that renting is pretty much throwing money away or putting it in someone else’s pocket. You’re better off buying a home and making an investment in yourself, right? The truth is that there are situations in which it’s much better for your personal finances if you rent instead of buy. Renters don’t have to worry about property taxes, mortgage insurance, homeowners insurance, homeowners association fees or the cost to maintain your property and everything on and in it. All of that money you’re spending could be money you’re saving, say for retirement. The most favorable circumstances for buying instead of renting are if you plan on staying in an area for at least five years and your mortgage payment is at least 25 percent less than what you’d be paying in rent in the same area. Remember that every piece of financial advice isn’t a good choice for everyone.
- Don’t Save Money for Yourself Until You’ve Paid Off Your Credit Cards
If you’ve got credit card debt, you’re more than likely devoting as much of your finances as you can to paying it off. Doing so reduces the amount of interest you’re paying in the long run and can increase your credit score faster. You also might be under the impression that the .5 percent interest you’re making on your savings is nothing compared to the interest you’re paying on your credit cards. Rather than devote every single extra cent you make to paying down your credit card balances, don’t forget to put some money in an emergency fund. It’s true that you can use your credit cards if you have a financial emergency, but you don’t have to pay interest on using money in your savings account the same as you do with using money on a credit card. If you’ve got access to credit card funds and personal savings, your financial safety net is even stronger.
Do yourself and your future savings a favor and be wary of the most popular financial advice. It’s a tree that might not be rooted in sensible soil.