You’ve probably received your fair share of personal finance advice. You might get some tips from an older sibling or parent. Or, you can get financial advice from the internet.
Many of the tips you will hear will be useful. But these three particular tips are really anything but helpful. So all told, they are pieces of advice worth ignoring.
1. You can never have too much savings
You may have heard that there is no such thing as having too much money in your savings account. But actually, that’s a lie.
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You should absolutely keep enough money in savings to cover yourself for emergencies. At the very least, that means taking out enough cash to cover three months of essential bills. And you may decide you want to save beyond that point — say, up to a year’s worth of bills if that gives you peace of mind.
But if you’re prepared for emergencies, don’t just keep funneling money into your savings account. Instead, look to start investing money. Going this route can make you very rich in the long run.
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Currently, many high-yield savings accounts pay between 4% and 5% interest. But the average return on the stock market in the last half century is 10%. Also, savings account rates are now far from normal.
However, let’s say you earn a 5% annual return on a $10,000 savings account deposit over a 10-year period. At the end of that window, you’ll have about $16,300. With an average return of 10%, in that time, an investment portfolio can grow your $10,000 to almost $26,000.
2. All debt is bad debt
Some people will tell you that any type of debt you take on is bad news. But even though it’s usually best to avoid high interest credit card debt, you don’t have to stay away from it all debt. In fact, if you decide not to take on debt in any shape or form, then some goals, like buying a house, may be out of reach for most of your adult life.
Instead of dismissing the idea of debt, recognize that some debts, like a mortgage, can lead to more wealth. If you buy a house for $250,000, 30 years from now, it could be worth $750,000. So paying the interest on a loan that allows you not only to own a valuable property but also have a roof over your head for three decades, may be more than worth it.
3. A credit card balance can help you build credit
It’s true that paying your credit card bills on time each month can help you build credit. But that doesn’t mean you should owe money on your credit cards to benefit your credit score.
In fact, debt on your credit cards is not a good thing. This means losing money to interest (unless you happen to have a 0% introductory rate), and it can actually hurt your credit score more than help it.
One important factor that goes into calculating credit scores is utilization, or the amount of available credit you’re using at one time. Carrying too large a balance relative to your overall credit limit will hurt your credit score more than help it. And paying interest on a balance can prevent you from achieving other big goals. So while it’s OK to use a credit card, aim to pay off your balance in full each month.
Unfortunately, there is a world of bad financial advice out there. But these are three tips you really do not want to follow
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