The pandemic changed quite a few things about our lives, and finances are no exception leaving a hangover of outdated money views. With many people losing their jobs, many leaving their jobs, and a recession to top it all off, the financial world we live in is much different than it used to be years ago.
Throughout life, you’ve probably heard many financial tips from your parents or grandparents. When hearing these tips, you need to keep in mind that the people giving advice grew up and experienced life in a completely different time and economic status.
While some of that advice may have stuck (and worked), there are some rules and views on money that just don’t work in our world’s current financial state. In fact, some of that advice may actually hold you back. Let’s take a look at some of the most common outdated money views you should avoid.
1. Buying a house is always smarter than renting
Buying a house is a huge investment that’s not always the right move for everyone
Buying a house vs renting is another money view that depends on your situation. More often than not, people assume that buying a house is always the smarter investment, but that’s not always the case.
Buying a home is a huge investment. You need to have the money for a down payment, agent fees, taxes, and your mortgage. On top of that, you have to be prepared to pay for any unexpected home repairs, like weather damage, appliance replacements, and leaks. While you are investing your money, this is not always a possible investment for everyone.
Renting, on the other hand, gives you much more flexibility. If you plan to move around from city to city, renting an apartment can provide a convenient and adaptable housing solution. This is especially beneficial if you’re not ready to commit to buying a house and want to explore different neighborhoods before deciding to settle down somewhere. You may have thought that Utah would be the perfect area for you to settle down, yet you could find yourself drawn to these Los Angeles apartments for rent as the area may align better with your dynamic lifestyle. You should have an extensive search of apartments in different states to find the one that is perfect for you.
2. Investing is only for the rich
Investing is one of the best ways to build your wealth
Investing may be easier for wealthy people, but it’s not JUST for rich people. Especially for people without much knowledge surrounding investing, a lack of experience holds people back from investing their money and growing their own wealth.
Using your money to invest is one of the best ways to build your long-term wealth. While you may not have thousands of dollars to risk in investing, you can start small and grow as you learn more about investing. There are lots of resources out there to help you get started. You can find articles or books to help with the education surrounding investing, what you can invest in, and how to make the most of your investment. Some apps and websites make it easy to invest if you don’t know how. Don’t hold yourself back from investing just because you believe it’s only for rich people. Dip your toes in the water and try to learn as much as you can to start making start investments!
3. You should only invest if you are debt-free
Just because you carry debt doesn’t mean you shouldn’t invest
People who have extra cash left over after paying their bills each month sometimes struggle to decide whether to invest it or put it towards paying off their debts. Many people believe that they shouldn’t invest their money if they still are paying down debts.
The best option for how to spend your money depends on your situation. It is not always the best option to prioritize paying off your loans before investing, but sometimes it is. Ultimately, it boils down to whether you can make more money by investing or if you can save more money by paying your debt off early. If you carry high interest rates on your debt or if you have a low credit score, then it’s probably best to pay your debt off before you invest.
However, if you can make more profit by investing, then that might be the right move for you. Keep in mind that you can always do both, too! Split your extra cash between your investments and your debt.
4. You should always carry a balance on your credit card
You will end up paying more in interest if you continually carry a balance on your credit card
It’s a very common misconception that keeping an outstanding balance on your credit card will help you boost your credit score. This is often rooted in the belief that if you show your credit card company that you can continually make payments on your balance, then your credit score will increase. This is bad advice for a number of reasons.
What’s more important for your credit score is that you pay your credit card on the due date and keep your utilization low. You want to aim to keep your credit card usage at around 30% of your total credit limit. If you only make the minimum payment, it’s much more difficult to pay off your debt, often leading to much higher credit utilization. Plus, when you don’t pay your entire balance, you are charged interest on your balance. This ultimately causes you to pay much more in the long run.
In general, it’s best to pay your credit card on time and try to spend only as much as you can pay off at the end of the month to both boost your credit score and ensure you aren’t paying more than you should.
5. You should cancel your credit card if you don’t use it
Canceling your credit cards may actually do more harm than good
Credit cards tend to scare people because they don’t understand how to properly use them. While it may be tempting to cancel a credit card, it’s actually better to keep credit card accounts open—even if you don’t use them.
The longer you’ve carried credit and made consistent payments, the better your credit score will be. With more credit card accounts, you will also carry a larger amount of credit.
This plays into two different factors in your credit score: credit utilization rate and account age.
- Credit utilization rate – as mentioned above, you should aim to only use 30% of your total credit limit. If you cancel credit cards, you will lower your credit limit and potentially increase your utilization rate.
- Account age – Closing older accounts reduces the age of your accounts. If you do choose to cancel credit cards, try to keep your oldest account open.
With all of this being said, there are still times when it may make sense for someone to cancel their credit cards. If your card has a high annual fee and you can’t afford to pay it, then it’s probably best to cancel it. If you feel like you can’t control your spending, it also may be a good idea to cancel.
6. Life insurance is unaffordable and unnecessary
The younger and healthier you are, the better your rates will be
Many young people assume that life insurance is something they can’t afford and is something they don’t need to have. Most commonly, life insurance is seen as something that only people with children and families should have. While it is true that many people raising families do invest in life insurance, they are not the only people who can benefit from it.
Whether or not you need life insurance depends on your financial situation. Do you carry debt that would transfer to a loved one to pay off if you were to pass away? Do you have a partner that you share a mortgage with that would not be able to afford the payment on their own? Are you thinking about starting a family in the future? While these are not the only reasons to get life insurance, they can be a good starting point.
It’s actually best to get life insurance when you’re young and healthy. Insurance companies consider both age and health as important factors in determining how much coverage you can get and how much you may pay for it. When you’re young and healthy, you pose much less of a risk to an insurance company. Because of that, you’ll get a much more affordable rate.
As a young person, you will have the best options for the type of life insurance. Normally, the top choices are between term life insurance and whole life insurance.
- Term life insurance: a type of life insurance that guarantees a certain amount of coverage for an agreed-upon period of time, normally between 10 to 30 years.
- Whole life insurance: a type of life insurance that guarantees a certain amount of coverage for your entire life.
The main difference between these two is that term life insurance only carries the death benefit for that period of time whereas whole life insurance carries the death benefit plus a cash value. As you make payments, your policy builds a cash value that can then be used as a sort of loan in the future.
With these additional benefits comes a higher price, though. Whole life insurance is typically unaffordable for young people, which is why people normally opt for term life insurance. With how easy it is to find policies online, it’s easier than ever now to find cheap term life insurance policies with the amount of coverage you need.
7. You shouldn’t frequently switch jobs
Switching jobs every couple of years is often the best way to unlock higher earning potential
While at one point in time, staying at the same company for 10, 20, or even 30 years may have been a smart financial move, that’s just not the case anymore. Job hopping—or constantly switching jobs every few months—is one thing, but there’s nothing wrong with switching jobs every couple of years.
In fact, starting a new job every 1-3 years is actually the best way to ensure that you are getting better experience and increasing your salary. Throwing yourself into a new position helps get you out of your comfort zone and helps you learn much more than you would in a stagnant position. With more experience and growth, you increase your earning potential tremendously. So, don’t be afraid to leave your job every couple of years if better opportunities arise!
8. You shouldn’t talk about money with other people
Salary transparency is becoming much more accepted in younger generations
Money is one of those topics that’s generally considered taboo to discuss with others—and they really shouldn’t be.
Luckily, though, salary transparency and a willingness to discuss finances more openly are becoming much more common in younger generations. Even now, states are starting to pass laws that require companies to be more transparent about how much they pay their employees.
Transparency can help people understand how much their counterparts are making and negotiate for what they deserve to be making as well. It can also help people make smarter financial decisions as they can learn from their friends and family how they spend their money.
Finances can be difficult for anyone to manage. And when you add in some outdated money views, you’re only holding yourself back from reaching your true financial potential. So, take what advice works for you and leave behind the advice that just doesn’t apply to our present-day economy.
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