Thursday, March 17, 2011

When Is It Best To Ignore Money Advice?

ceramic piggy bankImage via Wikipedia
Retirement, IRA's, emergency fund, saving, debt so many things to keep track of. It can get a little overwhelming. Managing your finances can be confusing. Do you save for a house first or do you pay off debt? Both options are good if done in the right order. 

We all receive good financial advice, but is it appropriate to the current situation. Buy a house, don't rent is the one bit of advice you here the most. It's only good advice if your financial prepared, it could be disastrous advice if your not prepared. Good intentioned advice acted on at the wrong time will torpedo your financial goals.

Everyone has unique situations, it's the knowing when to do the right thing that will give you the results you want.

Buy a house, don't waste your money on rent.
It's the first thing you hear after some life changing event like a new job, marriage, or baby on the way. The advice is that your making the landlord rich while you could buy a house and be paying yourself instead. But being ready financially is the first step to buying a house. Do you have an emergency fund in place. Will the payment be affordable? Don't forget you don't just have the mortgage payment to worry about. Add to that insurance, property taxes, insurance, furnishings, utility bills, maintenance and repairs. Maybe renting sounds like a better idea now.

Are you saving enough for retirement? Are you getting the match on you 401k? Don't miss that match!
Again the wisdom of saving for retirement in a tax deferred account makes sense. Getting the match makes more sense. It's good advice. But is it good for you at this moment in your financial life. You have to weigh this good advice against do you have an emergency fund of 3 to 6 months savings. Do you have credit card debt still to pay off? It's not smart to ignore these more important things. What if you were sick or got laid off? How would your 401k help then? I would rather have a hefty emergency fund. These are things you need to consider.

Get life insurance so your family will be protected when your gone.
On the surface getting life insurance sounds good. How could leaving someone a large amount of money when you die not be seen as a loving and caring thing. You must decide if life insurance is even necessary. The purpose of it is to meet a financial need the deceased can no longer provide. Money to replace an income in the raising of a child or providing funds for a college education would seem appropriate goals. If it's not used to replace the deceased financial responsibilities , then it's not needed. If the deceased is leaving a spouse with no children, mortgage or other financial need; Insurance is not necessary.

These are only three examples of how good financial advice can be misapplied or applied at the wrong time for the wrong reasons. But there are many more.

Reader: Do have any examples of misapplied financial advice?

1 comment:

  1. I appreciate you taking the time to write all this up for us; it’s great to hear another point of view.

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