5 Popular Money Rules That Could Be Hurting Your Finances
Personal finance advice is all around us. Social media is full of influencers claiming to know everything there is to know about managing your money. While some are true experts, others are not so much. Being able to sort through the information and understand what’s going to be beneficial to your situation is important.
To help give you a head start, we’ve put together five popular money rules that people love to talk about -- but could actually be hurting your finances.
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1. Always Pay Off Your Mortgage as Fast as Possible
For many people, being completely debt-free is the ultimate financial goal. This is why many people emphasize paying off your mortgage as soon as possible. However, if you were lucky enough to lock in a mortgage rate between 2.5% and 4.0% in the early 2020s, that doesn’t make much sense.
If you’re lucky enough to have a low-rate mortgage, the financial return from aggressively paying it off doesn’t match the return you could earn by investing that money over the next several decades instead. This tactic can also leave you house-rich but cash-poor.
2. Buying a Home Is Always Better Than Renting
Many people believe that homeownership is the best path to building wealth. While this is true for some, it’s not the case for everyone. Sometimes, it can actually be cheaper to rent your home instead of buying. This is because homeownership comes with many additional costs, such as property taxes, closing costs, maintenance, HOA dues, insurance and more.
If you’re not planning to stay in the same home for more than a few years, it can make more financial sense to rent instead of buy.
3. Never Use Credit Cards
Credit cards can lead to overspending and finance charges if you’re not careful. This is why some people suggest staying away from credit cards altogether. However, if you’re responsible with your spending, this can actually hurt your finances.
Credit cards provide valuable benefits to cardholders. Not only can you earn rewards, but they also come with purchase and travel protections, fraud protection and extended warranties.
Credit cards shouldn’t be avoided altogether, but the balance should be paid in full each month to avoid paying interest.
4. You Should Always Buy the Cheapest Option
Financially savvy people are always looking for ways to save money. However, buying the cheapest of everything isn’t always the smartest move.
If you’re at the grocery store, buying the lower-priced store brand instead of the name brand usually makes sense. You’re getting nearly the same product for less money. But if you’re shopping for car tires, buying the cheapest pair could mean a shorter lifespan and lower quality. That could cost you more in the long run. This is true for many other things as well, like appliances, electronics, clothing and more.
Sometimes buying something more expensive can lower the replacement costs you’ll face and improve the overall value.
5. You Should Never Finance a Car
There are people out there who will tell you it’s important to avoid debt at all costs. Cars top the list because they can depreciate quickly after purchase. However, paying cash for a car doesn’t always make the most sense either.
If you can get an auto loan at a low interest rate, it can make more sense to finance. This lets you keep the cash invested or in your emergency fund, which can provide financial peace of mind.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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