Top 3 Bits of Advice From Personal Finance Gurus That Annoy Me
It seems like everyone's a personal finance advice guru nowadays! Whether it's on YouTube, TikTok, old-fashioned blogs, or shows on Netflix (How to Get Rich with Ramit Sethi is a good one), lots of people are sharing their vision for how you should spend, save, and invest.
It's good to get inspired about buying stocks, paying off debt, and managing money. But some personal finance gurus really grind my gears, because they sound arrogant and out of touch. They badger people with impractical, scolding, risky advice that doesn't match the reality of most people's lives.
Here's some of the most annoying advice I've seen from personal finance gurus -- and why I disagree with their approach.
1. "All debt is bad. Pay off all debt as fast as possible."
Debt is not a moral failing, it's a financial tool. Debt can be bad if you can't afford it. If you are falling behind on your payments or if your debt is snowballing into an ever-bigger and deeper pile that you can never pay off, then yes -- those debts are "bad." Sometimes if you have too much high-interest debt, declaring bankruptcy becomes your best option.
But most people can actually afford their debts. Most people are not delinquent on their credit cards. Most people find that buying a safe, reliable car with an auto loan is a better fit for their monthly income than having to pay in cash or get by with an old clunker. Most people use mortgages to buy a home, and paying off that debt over 30 years is a reasonable, fair decision based on their income and goals.
Here's what debt really is: debt is a way to "buy time." You are buying the ability to pay for the things you need in life right now (a home, a functioning vehicle, a new refrigerator) over the longer-term future of your adult working years. You are borrowing from your "future self" so that your "present-day self" can have a better life today. And often, for many people that's OK! Your "future self" might be totally happy to give you that money!
Even some "bad debt" can be good in the short term. Sometimes you need to put emergency expenses on your credit card. Several years ago, when my children were small and we were living on one income, our car broke down and we didn't have cash to pay for it. So we put $3,500 on our credit card, and ended up paying a few hundred dollars of interest.
Does that make me a bad person and a failure as a parent? Should I have been forced to surrender my car to the authorities and turn myself in to debtors' prison? No! Using my credit card, even though I couldn't afford to pay it off immediately, was not a moral failure -- it was just a way to buy myself some time.
Over the next 12 months, I paid off that debt. And over the next few years, I went on to make a lot more money, and I've never had credit card debt again. My "future self" is happy with that deal.
2. "You could be a millionaire if you'd just stop buying coffee."
Personal finance gurus need to stop shaming people for spending money. Sometimes you need to spend some money to take a trip, improve your home, and make your life better. Buying that daily $7 cappuccino is part of enjoying life.
Extreme frugality makes you devalue your time. "Time is money," right? When frugality goes too far, you end up effectively paying yourself a low hourly wage to do things that you could have just spent money to solve.
Don't spend five hours shopping around to save $20 on a purchase, or spend the whole weekend struggling to install a ceiling fan that you could've paid an electrician $300 to do right the first time. I once read about a personal finance guru who uses a mechanic's vise to squeeze every last drop of juice out of limes. Is this how you want to spend your one and only precious life?
If you're handy with tools and you love home improvement projects, that's great! But lots of people should "buy time" by spending money on things that they don't have the skills, physical energy, or mental bandwidth to do for themselves.
3. "Buy these stocks and you'll beat the market and be rich!"
I don't buy individual stocks myself, and I don't trust gurus who encourage other people to bet on individual stocks. The S&P 500 index has delivered average annual returns of 10.7% per year for the past 30 years. Very few investors can beat the stock market consistently over time. Warren Buffett is one; Motley Fool Stock Advisor is another. (And past performance is no guarantee of future results.)
Instead of trying to pick stocks, most people will be better off working hard at their jobs, trying to get pay raises and promotions to raise their income, and buying lots of stocks with diversified portfolios of low-cost index funds. Hands-off ("passive") investing in index funds can build wealth for you faster than most stock-picking gurus ever will.
Bottom line
I want people to feel better about their money. Being well-informed and frugal can be good, and it's important to save for the future. But people also need to give themselves a break and have fun with their money. Don't let some rich guy shame you for buying coffee or using a credit card. Keep buying stocks and investing for the future when you can, but don't feel bad about spending money or "buying time" at the moments in life when you need it most.
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Top 3 Bits of Advice From Personal Finance Gurus That Annoy Me was originally published by The Motley Fool
