Chances are, you’ll get your fair share of personal finance advice. You may get some advice from an older sibling or parent. Or you might get financial advice from the Internet.
Many of the tips you will hear may be helpful. But these three particular tips are actually anything but helpful. So, all in all, it’s 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 in reality it is false.
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You should definitely keep enough money aside to cover yourself in case of an emergency. At a minimum, this means setting aside enough money to pay three months of essential bills. And you may decide to save beyond that limit, such as up to a year’s worth of bills, if that gives you peace of mind.
But once you’re ready for emergencies, don’t keep funneling cash into your savings account. Instead, try to start investing money. Going this route could make you much richer in the long run.
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Right now, many high-yield savings accounts pay between 4% and 5% interest. But the average stock market return over the last half century has been 10%. Additionally, today’s savings account rates are far from the norm.
Even so, let’s say you get 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%, an investment portfolio could grow your $10,000 to nearly $26,000 during this period.
2. All debts are bad debts
Some people will tell you that any type of debt you take on is bad news. But while it’s generally best to avoid high-interest credit card debt, you don’t necessarily need to stay away from it All debt. In fact, if you decide to never have money debt in any shape or form, some goals, such as buying a home, may remain out of reach for most of your adult life.
Rather than writing off the idea of debt, recognize that some debt, like a mortgage, can actually lead to greater wealth. If you buy a house for $250,000, in 30 years it could be worth $750,000. So paying interest on a loan that allows you to not only own a valuable asset but have a roof over your head for three decades might be worth it.
3. Your 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 it’s necessary owe money on your credit cards to benefit your credit score.
In fact, having money on your credit cards is not a good thing. It means losing money due to interest (unless you have a 0% introductory rate), and could actually hurt your credit score rather than help it.
An important factor that goes into calculating credit scores is your usage, or how much available credit you are using at one time. Carrying a balance that is too large for your total credit limit could hurt your credit score rather than help it. And paying interest on a balance could prevent you from achieving other big goals. So while it’s perfectly fine to use a credit card, try to pay off your balance in full every month.
Unfortunately, there’s a world of bad financial advice out there. But these are really three tips Not I want to follow.
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