It's an unfortunate reality that there's a lot of bad money advice floating around on the Internet. With the expansion of the blogosphere, pretty much anyone can claim to be a money expert. Coupled with the fact that there are over 600,000 licensed financial advisors, it’s easy to see why there's a huge amount of conflicting and confusing information out there.
When it comes to our hard-earned money and life savings, poor advice can mean losing the ability to support our families in the manner that we want to — an excellent reminder of how important it is to work with people who we can trust to serve our best interests, not their own.
But don't fear — We're here to help.
Let’s examine four of the most common pieces of bad financial advice found online and analyze why that advice tends to be wrong.
1. Save 10% a Year for Retirement
Though it’s highly dependent on when we begin saving for retirement, earmarking just 10% annually is usually not enough. Researchers from the Center for Retirement Research at Boston College estimated that in order to ensure a comparable lifestyle after retirement, households would need roughly 70 percent of their pre-retirement income on average. While social security can replace part of the difference —roughly 35 percent — we need to look to our savings for the remainder. Sharon Epperson, Senior Personal Finance Correspondent at CNBC, writes about how much you really need to set aside for retirement in an NBC News article:
“To make up the difference, it estimates savers need to set aside about 15 percent of their pay over the course of 30 years to retire comfortably. Those with a longer time horizon—such as those who start saving in their 20s—can begin by saving 10 percent of their pay annually and gradually increase the percentage over time.”
Although it can feel difficult to set aside this much, over-planning for retirement is always safer than the alternative. Thirty years of saving (at least) 15 percent should allow you to support and provide for yourself and your loved ones through your retirement years. For those of you beginning to save earlier, your 10 percent should gradually increase as you advance in your career.
2. Work Hard to Retire Early
Though we might love our jobs, I’m certain that there are some days where many of us would retire on the spot if we could. Even though we fantasize about early retirement, leaving our jobs for the beach early might not be the wisest idea, even if we are financially prepared. In fact, retiring early can actually create more problems than we originally anticipate for the following reasons:
Decreased Social Security
Most program benefits are made available at the age of 62, but accessing your monthly check early (before 65) will mean that the amount will be smaller — in some cases up to 25 percent.
Increased Health Care Costs
Health care costs can be a big burden for those who retire early. Medicare isn’t accessible until the age of 65, so people who retire early are left to foot the bill for their own health care costs.
Leaving Behind Potential Income and Savings
It is likely that the years before we retire are the prime years of our career. In retiring early, we could be leaving thousands (possibly hundreds of thousands) of dollars of income on the table.
3. Avoid Credit Cards At All Costs
Though it’s important to avoid going into debt, establishing good credit through the smart use of credit cards is a very important and wise practice. Good credit pays dividends when making large purchases such as houses and cars, and even prospective employers may examine your credit score before making hiring decisions. Credit plays a major role in many of the financial decisions we make, and establishing a positive credit history makes those decisions that much easier.
4. Always Save Money… Wherever Possible
The saying, “a penny saved is a penny earned” doesn’t always hold true. In fact, in certain situations, one penny saved in the wrong place can turn into many pennies spent a few years later. When making purchases that we expect to last us for a while, spending extra money on quality up front can make a big difference. Being especially frugal may help us when buying a new pair of jeans, but it’s an unwise practice when buying a house or picking a doctor. Alan Henry, deputy editor and tech writer at LifeHack, explains when it makes sense to invest in quality:
“Buying a house isn't the time to skimp on the little things—especially if those little things make a big difference in how much you'd spend to maintain or repair your home in the future, or again, the total cost of ownership of your home.”
Even investing in quality items like wallets, suits, and shoes can end up saving us from the cost of needing to frequently replace these items in the future.
The scariest thing about many of these pieces of poor financial advice is that they benefit the people doling out the advice and harm those who are truly in need of guidance. With thousands of internet voices all shouting contradictory advice, it’s easy to feel overwhelmed. This is why we at Lindsey & Lindsey always strive to provide a level of service that allows our clients to support their families without having to worry about the trustworthiness of the advice they receive. If you ever have questions, we’re always here to answer them with your best interests in mind.
What money questions do you have that you would like answers to? Let us know by tweeting @Lindsey2Wealth!