Recently I asked about the worst advice you had ever gotten. And damn, you did not disappoint. With all the “bad advice” that you have given me, I managed to easily write not one, but two articles! This is the second article within that mini-series. You can read the previous one here.
As said before, these articles are dedicated to the terrible advice you have been given. And to make it not just entertaining but actually educational, I’ll be giving my views on what I think a better approach to money and personal finance would be!
6. Don’t save when you’re young, that’s your time to live life! You tend to make a lot more money when you’re older, so that’s the time to start saving. Right?
It’s true that most people I know under 30 make a pittance, especially if you take into account their high levels of education and the enormity of their expenses (rent continues to rise). And it’s also true that most people I know above 50 seem to make a lot more money. Issue is, those above the age of 50 also have a lot more expenses. So I’m not too sure where their additional savings are supposed to come from.
Moreover, money you set aside now can be saved or invested against an annual interest rate. Sure, savings diminish by inflation, but investments don’t as much. And compound interest does really work in increasing money (if left alone for a while). So what you don’t spend “living your best life” can be set aside.
Knowing what we know about present bias, the desire to have things NOW, and the fact that most people vastly undersave for retirement, let alone anything else, just doesn’t bode well. It’s not the right attitude to promote. And as such, it’s terrible advice.
My advice: you will be more likely to save more later, both in absolute and relative terms. However, that is not an excuse for not starting the habit now. I’m not saying you need to amass a huge fortunate before 30. But to have at least a buffer and a rainy day fund seems something that even people on a meagre PhD fund (yes, I’m referencing myself here) can manage. And it really does pay to benefit from compound interest!
7. Always track your expenditure! In the last article there was a lot of advice on saving and investing, this seems to be what most advice focuses on. But not this one! No this one focuses on what for most people comes much before saving: spending!
Now I think tracking your expenditure is a good idea. It’s very important to know where your money is going, especially if you want to change or curb your spending. But there is a healthy balance to maintain here.
If you check your mobile bank balance every single time after an expenditure, it might have become an obsession. Now what checking your balance or your expenditures does is activate the pain of paying. You essentially relive the pain of paying that is normally associated with transaction. There is no real issue with ensuring you remember your spending, but if this is used as an almost torture device, maybe it’s time to call in some form of help?
My advice: do have an expenditure tracker, or just a banking app, on your phone. If possible, set goals in that app that you want to achieve (savings, % of spending in certain categories etc.) and enable it to send you notifications if you’re going overboard. But don’t look at this app 24 times a day. Just don’t. It’s unnecessary and unhealthy. If it continues to be a problem, switch to cash?
8. Want to make big bucks? Be an entrepreneur! Of course the ultimate money advice is how to make the “big bucks.” But unfortunately, the success rate for entrepreneurs isn’t particularly high. So, it seems rather risky advice.
Sure, everyone knows really famous entrepreneurs. People who have turned nothing into millions and billions. Issue is, they are the exception and not the norm.
The high failure rate for entrepreneurship has to partly stem from the fact that most people underestimate how much work and preparation entrepreneurship requires. Others simply didn’t have the right idea, mindset, connections, funds or luck (quite important that last one). So, make sure you do A LOT of research and have a decent amount of experience when jumping in. Especially if it requires jumping out of a well-paying job.
My advice: don’t leave your paying job yet. Entrepreneurship is risky and there is no real recipe for doing it right. If you’ve got enough capital to sustain yourself (and your dependents) it does seem to be a better decision, but still. Also, don’t expect to be working less because you can work your own hours now. That seems to be yet another illusion of entrepreneurship.
9. It’s all about those multiple income streams The amount of articles I have read that had titles such as “10 ways to passively double your income” or “5 ways to create more income streams” is too high for me to even admit to. And they were quite useless.
Having multiple income streams seems to be all the rage these days. Why wouldn’t you make money out of a hobby on top of your regular job. And if your hobby has become work, you’ll need a new hobby. Maybe you could make money from this newest hobby too?!
The cycle is endless.
Now there is nothing wrong with having more than one income stream, I hope to get there myself. But the issue is that the hype has misrepresented the phenomenon (surprise). Having multiple income streams often comes from passive income (investments) on top of (often) one main active income stream (job). To have multiple active income streams means to dedicate multiple hours per day, or at least per week, to them. Where do you find the time to all of them? Where do you find the time to do all of them well?
If you can manage your time like this, and don’t feel like you’re holding too many balls in the air whilst drowning (hint: it’s called a burn-out) props to you. But there has to be a reason for this all. If you’re trying new things out fine. But if you’re in a job (main income stream) that can’t support your lifestyle financially, something isn’t right. Either it’s recommended to look for a different job (that’s going to cost time too) or you need to cut down and re-prioritise your spending.
My advice: if it works, it works. But does it? Ask yourself why you feel the need to have many active income streams, and what else could be done rather than continuously taking on more work. Also, try looking into more passive ways of garnering income, it might help you, or at least your future self, out.
10. What advice? Now although I am complaining a lot about the not-so-great advice being given here, at least people talked about money. At least it was up for discussion, however disastrous the outcome of this discussion might have been (read: terrible advice).
The worst advice ever is not receiving any advice at all. I have written articles about why I think personal finance has to be taught in schools again. It’s because people who don’t understand interest rates have credit cards that get them into debt they can hardly get out of. Or worse: into payday loans.
Moreover, if you’ve grown up in a household, regardless of whether it was rich, poor or in the middle, if there was no talk about money and you could only see the result of your parents’ choices on money, chances are that you are going to make the same choices, without really understanding why. Now this can go well, but without any credit to yourself, or this can go terribly wrong, and then it’s to your own detriment. Not knowing what to do with money is a lose-lose.
To talk about money, to get advice (as bad as it may be) shows that it’s okay to think and openly talk about money. This is likely to make people do their research, either through talking to multiple different people, or just googling it.
My advice: talk about money. Ask for advice. Look for advice. Google it. Research it. Your first knowledge of finance doesn’t even have to be completely correct, as long as it gets the ball rolling. Because there is a wealth of information out there (most of it pretty decent), but you do need to get it yourself.