Outdated Financial Advice That You Must Reconsider

We have been given financial advice consciously or unconsciously by everyone all our lives. Be it our parents or friends. I am sure you must have experienced it at some point in your life. You've probably heard your fair share of financial advice, whether you're just trying to get by, pay rent or mortgage, or save a little money each month. For example, "You should have this amount in your savings account at this age," or "If you skip purchasing coffee every morning, you'll be able to save $X each year."

This financial advice has been passed down from generation to generation and is an excellent approach to saving money. Still, you should also enjoy the present while investing in the future. However, you should disregard this obsolete advice since new attractive investment options allow you to store your hard-earned money and grow wealthy.

One thing is also a fact that what worked for someone else may not necessarily work for you. Like technology, fashion, almost everything else in life evolves with time, and so does financial advice.

We are living in 2021, and some bits of advice should be banished. So here is some financial advice that financial experts suggest you should ditch — and what you should do instead.

6 Financial Advice You Must Ignore

Your Home Is An Investment

I'm sure you'll hear this a lot if you live in a rented flat. So why not just purchase it? Whether it's a home or a car, conventional financial advice holds that it's always preferable to own it than paying rent. This proverb is founded on the idea that owning an object generates wealth, but renting is only an expense. Of course, buying can be preferable to renting in certain aspects and some instances. However, there are situations when renting is a better option than buying.

Consider investing in real estate: you'll need to save and put down significant sums of money, and you'll also need to find buyers if you want to sell it. Real estate is increasingly seen as a liability rather than an investment. Millennials are content to pay their rent.

PayOff Your Mortgage Early

Another financial advice from your elders is to pay off your mortgage. The majority of individuals require a mortgage to purchase a property. Financing a home, on the other hand, requires paying thousands of money in interest. As a result, some borrowers devise a strategy to pay off their mortgages sooner by making additional payments to save money on interest.

With increasing concession on interest rates on home mortgages, investment advice we would like to impart is to keep paying your mortgage as long as you plan to hold the property.

Set Your Retirement Plan And Forget It

With the life expectancy increased to 80, one does not have to worry about retirement after 60 years of age or invest in post retirement schemes for monthly payouts. Instead, you can start planning and investing in mutual funds, diversify your portfolio to grow wealthy, and build a corpus to beat inflation.

You must consider a piece of financial advice to update your savings when you can, especially when you get a raise, bonus, or promotion. It is possible with SIP investments without being heavy on the pocket. Your future ‘you’ will be grateful to you for the power of compounding.

Save Money And Set It Aside For Emergency Funds

You may be wondering what an emergency fund is? It is a type of savings fund that you might need to deal with unexpected financial changes in the future, like a drop in income or being jobless.

An outdated piece of financial advice you must ignore is to keep at least six months' salary for an emergency fund. But, of course, everyone's financial situation is different, so any money saved for the future is promising.

But the buffer amount varies from one family to another. Keeping one or two months' spending in cash may be sufficient for households with a steady 9-to-5 job and covering pretty basic costs. Saving more money would be a waste of a chance to invest and generate high returns. Cash has a negative return every year because it loses money to inflation, typically roughly 2% every year.

Likewise, households with fluctuating earnings or spending should have extra cash on hand as a thicker buffer to weather the storm. For them, the danger of several bumpy months is frequently more significant than the risk provided by inflation. Therefore, it is crucial to strategize and plan for different savings funds.

Credit Cards Are A Bad Idea

Arguably, credit cards are not for everyone, but it is not a good idea to keep paying with your debit cards either. You've probably heard your parents suggest that using a credit card means you're poor or don't have enough money in your bank account.

Credit cards, like other tools, may be used to pay your phone and electricity bills, fill up your fuel tank, and earn reward points and cashback on those payments. However, financial advice you must forget is to use cash all the time. Instead, practice discipline, learn to budget, pay your balance in full every month and enjoy the benefits of using credit cards.

Use Your Age To Allocate Your Funds

Using the thumb rule, it is said to allocate your funds according to your age. But it no longer applies and is one financial advice that you must avoid.

The financial status of each investor is distinct. Therefore, age alone cannot influence portfolio allocation since it does not consider an individual's overall financial situation. More significantly, people are living longer than they have in the past. As a result, many prospective retirees will have 20 years or more of retirement ahead of them, and if they don't put enough money into growth assets like equities, they may run out of money as they become older.

FINAL WORDS

Time evolves, and so does financial advice. Individuals are becoming more responsible for their finances and retirement planning, which involves questioning your parents' and grandparents' economic beliefs.

When in doubt, seek assistance. Discuss your thoughts with your friends and family. To receive tailored guidance, hire a financial advisor. Consider what's best for your financial condition and objectives, and act appropriately.

FREQUENTLY ASKED QUESTIONS

What Is The Best Financial Advice Right Now?

Some Top financial advice to be taken into consideration is as follows:

• Spend Less than you earn and ask for what you deserve.
• Set up a budget and stick to it
• Manage credit card debt- pay balances every month.
• Plan your retirement early- do not wait till you get old.
• Set aside funds for savings.
• Invest in mutual funds.

How do you ignore your money?

If you cannot curb your expenditure, try the following:

• Set short-term goals- this will motivate you to save once you get into the habit
• Lose your credit card
• Understand your spending triggers
• Keep track of your spendings.

Who Can Give Financial Advice?

Professionals who have the knowledge, resources and have been in the business for a long time can give you financial advice.

What's the 50 30 20 budget rule?

The 50/30/20 rule is a simple budgeting approach that can support you in managing your money. The general idea is to divide your monthly after-tax income into three spending categories: 50% for necessities, 30% for desires, and 20% for savings.

Disclaimer: All Mutual Funds are subject to market risk. Please read all scheme-related documents carefully.