5 Outdated Money Tips That Everyone Still Believes
Reading quick money tips is my junk food. But sometimes the tips are so outdated, they leave a bitter taste in my mouth. A lot of (lazy) personal finance writers would argue that their advice is timeless but that cannot be true. The world is changing, tech is changing, our priorities and we are changing. We should continually scrutinize advice to make sure it makes sense for us, our lives, our times. Here are a few examples of outdated money tips that I think have not stood the test of time.
1. Student Loans and Mortgages are “Good Debt.”
I thought the idea of “good debt” died six years ago, when outstanding student loan debt hit a trillion dollars. Yet I recently saw this idea of “good debt” pop back up in a book published this year and in a recent money magazine article.
And in a way I get it. When someone is in over the head with student loan or mortgage debt, it softens the blow by telling them this debt is different. This also absolves financial advisors, as they are likely the people who spread the gospel of “good debt” in the first place.
But good intentions and good decisions are different things. If someone has the choice between $100k debt for a hot stock tip or for a college education, the “good intentions” choice is the latter. But the better financial decision may be the stock. You can sell it at any time for a profit or a tax-deductible loss. And worse to worse, you can go through bankruptcy. But you can’t sell your education for any sum of money and you can never discharge the loans in bankruptcy.
The insidious thing about this bad money tip is that student loans and mortgage debt can easily wreck your life. Calling it “good debt”makes it seem like it is easier to pay back or produces dividends, and that’s not necessarily true. Just look at how many people are desperate for student loan relief. It’s one of President-elect Joe Biden’s top issues because so many people are devastated by it. Heavy mortgages are heavy burdens too.
The truth of the matter is – debt is debt. Don’t take out more than you can afford to pay back.
2. You Must Follow a Budget.
Outdated money tips advocate for the complicated, but simple solutions are better. Complications can distract us from solving our problems. For example, in the past, people tried to lower their cholesterol, because high cholesterol was associated with heart disease. But low-cholesterol diets led to skyrocketing heart disease and cholesterol-lowering drugs had terrible side effects. Having high cholesterol is actually fine so long as you don’t have heart disease. But we got so used to fighting the symptom that we lost sight of the problem, preventing heart disease.
The same mistake is often present with budgets. I’ll see someone choose to buy something useless because it’s in the budget. Or they might forgo something really great because it’s not in the budget. But it’s the same fallacy as with heart disease – you should be very wary of distracting yourself from your main goal. Busting your budget one month doesn’t matter if your finances are fine and if it’s worth buying. Buying something that’s dumb, is still dumb even if it’s in the budget.
3. Save Money at the Gas Station.
Trying to save money at the gas station is completely stupid right? This calculator runs the numbers and even assuming the best case scenario – a short distance and a generous price differential that’s replicable every week for a year – shows that you save $50/year for all your effort. That amounts to $1/week. Time has a cost too. And pollution.
There are a million little tips and tricks. Things like the latte factor – where the idea is every little dollar adds up. It’s not necessarily bad, but it’s a lot of effort for little reward. Focus on the big things first, and don’t get caught up in saving pennies while frittering away your time.
4. Put Your Emergency Fund in a Savings Account.
For most of us, a year’s worth of emergency savings runs into the tens of thousands of dollars and can take years to build up. We are told to save this money in a high-yield savings account so we can have access to it at any time. “High-yield” is just a little joke – savings account interest rates are at less than 1%. That’s a lot of money sitting around for years earning very little interest in a savings account.
While I was saving my emergency fund, I got concerned about the pile of money sitting idly while the stock market was roaring. I also thought about my plan if I were to lose my job. Not all the money for the whole year needed to be accessible. I could keep some in the stock market and by the time it’s an emergency, it will likely have gone up considerably.
Now, I follow Early Retirement Now’s strategy and have a very small emergency savings fund. The emphasis is not the money, but rather, having a plan in place.
5. Move Somewhere Affordable.
Sometimes outdated money tips fail to take into account our individual different values. I live in a high-cost-of-living area and it’s not even a fun place with good food like SF, NYC, or LA. It’s just overpriced. A lot of people move here for their jobs. I live here because my whole family lives here.
When the lockdown happened, I felt completely justified. My family is in my quarantine pod and I don’t have to worry about traveling to see them. Look, I would love to pay less for rent and have better food options. But I know I have a choice in the matter and I choose to live here. What’s the point of money if you’re more focused on saving it than getting what you want?
How to Avoid Outdated Money Tips
The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.Albert Einstein
So much bad money advice is just traditional. It made sense decades ago when student loans and mortgages were lower and when savings account interest rates were higher. Though we should listen to our elders about certain things, we still need to judge for ourselves what makes sense now. We need to constantly reevaluate our own thinking.
1. Don’t Overemphasize Feeling Smart or In Control.
The appeal of tips like saving money on gas or moving somewhere more affordable is that they give you a sense of control and make you feel smart. When the world seems chaotic, well you can save $0.50 at the gas station. That is something completely in your realm of control.
It’s absolutely important to believe you have some control over your life. But there’s only so much control we have in saving money. And if we emphasize feeling smart or in-control, we might put too much emphasis on the advice from “experts.” Often we need to try out novel ideas that might not have expert-approval to find the processes that work best for us. Don’t try so hard to be smart that you end up being stupid.
2. Traditions Don’t Matter More than Math.
I get a lot of pushback when I say that college isn’t worth it for many people. But the math is undeniable. The problem is that college is so ingrained.
There is always pushback when people refute age-old advice – like go to college, marry your high school sweetheart, eat a low-fat diet. But it’s obvious that this advice hasn’t stood the test of time. Student loan debt is out of control, and divorce and obesity are skyrocketing. These may have been good tips at some point, or maybe they were always terrible. But we have the information now to know they don’t work. We can’t get bogged down with tradition and good intentions – we have to find what works for us because there’s some serious peril if we get to our finances and our health if we get these things wrong.
3. Don’t Ignore Emotions.
I just talked about how important math is – but math isn’t the whole story. Our emotions are just as important in determining how we treat mathematical decisions. My friends and I have been discussing how so many men are intimidated by ambitious, higher-earning women. I’ve had quite a bit of personal experience with this myself. Of course mathematically, if you have the choice for more household money or less household money, you should
It’s not just about money. Its about our identity, our social status, our self-esteem. We are all imperfect irrational creatures, and burying or ignoring that does no good. The problem with some men being intimidated by ambitious higher-earning women isn’t necessarily that these men don’t date these women. The main problem is that these men marry these women, denying who they truly are, and thus denying whom the women truly are. When we talk about money, we have to talk about self-knowledge and knowing what works for us.
In my mind, it’s understandable to be intimidated, but it’s not ok to mislead – either yourself or your future spouse. The final word with all advice – money or otherwise – is find what works for you.
Conclusion – Outdated Money Tips that Everyone Still Believes
I’m sure this whole article is irrational and contradictory. And to a certain extent money advice is as well. Money touches every part of our lives in some way and our priorities and our uses of money will vary based on all these competing priorities multiplied by time. So I can certainly think this advice is crap in ten years. But for right now, this makes sense with the information we have and without a crystal ball, that’s the best we can do.
Definitely agree budgeting is unnecessary for people with good money skills. But I do think debt taken out on an appreciating asset is fundamentally less risky than debt taken on a depreciating asset. College education, if it’s a carefully chosen major at a low cost college that you have the skills to master, is an appreciating asset, it’s an investment in you. An affordable house mortgage is low risk compared to a car loan and almost always appreciates at least in line with inflation. I would agree it isn’t good debt, but it’s much less bad debt.
I think college and house loan advice is actually incredibly dangerous as evidenced by your own descriptions of this advice.
Your advice: college + “carefully chosen major” + “low-cost college” + “you have the skills to master” = great investment
What most people hear: college is a great investment
Your advice: “affordable house” ALMOST always appreciates
What most people hear: a house is a great investment!
And with these two investments, they’re INCREDIBLY EXPENSIVE. It’s hard to dig yourself out of these holes if you choose wrong – and there are more wrong turns than most financial “experts” are willing to admit.
I think for most people that do not have high salaries or a more tenuous job an emergency fund is reality and necessity. I do agree that debt is debt. It just depends what you use it for.
I think emergency funds certainly help emotionally and practically when you’re beginning in your career. Once you’ve saved a few months of emergency savings though, you start to think, this money is just sitting there waiting for an emergency! I need to make my money work for me. But that realization can take years – both to save the money, and live without emergencies.
This makes me so happy. Moving away from overly complicated budgets has been a life (and money) saver. If it’s too complicated you can’t internalize it. Keep it simple and win!
Five-stars, thanks for sharing.
Thank you! Yes, anything overly complicated is a dealbreaker for me. I can barely keep up my simple routines.
Your tips are perfect! Very rational! And the “What’s the point of money if you’re more focused on saving it than getting what you want?” is something that I also believe in 🙂
Glad that you liked it! Thanks for reading.