7 Bad Financial Advice That a Lot of People Follow

Updated: November 12, 2020

When you need financial advice, who do you ask? For many, it’s their closest friends.

Unfortunately, not everyone can give good financial advice. If someone has no background nor experience in personal finance and investments, then they’ll most likely give misguided financial advice.

But because we trust our friends, people who seek such advice are often blinded by the fact that they might be getting bad counsel.

And to make things worse, when they lose money or go into financial difficulties, people often say it’s just bad luck or they blame the economy but rarely the poor financial advice they received.

Below are the most common financial pieces of advice that I’ve heard people give, and why you should not follow them.

1. Savers are losers.

Nobody became rich by saving money in the bank. You should invest your money to become rich.

Why it’s bad financial advice
It gives the notion that you should not keep money in the bank. When all your money is invested, then you’re at risk when a financial emergency happens.

I’ve seen a lot of people liquidate stock market investments or sell real estate properties below market price because they didn’t have an emergency fund in the bank.

A better advice
Learn the habit of saving. It’s a foundational skill for wealth building. Then ensure proper financial protection by creating an emergency fund, and getting health and life insurance.

Afterward, that’s the time you should invest. At this point, make sure to invest regularly and as much as you can afford.

2. Credit cards are bad. Avoid going into debt.

Credit cards have ruined the lives of a lot of people. You don’t need it.

Why it’s bad financial advice
If you don’t have a credit card, then you’re missing out on the opportunity to do financial leverage.

For example, you can use a good portion of your money for other things first when you buy something on zero-interest installment, as compared to paying full in cash. This is especially helpful for entrepreneurs.

Moreover, if you have a credit card, then you don’t have to bring lots of cash in your wallet. Additionally, you’ll enjoy perks from the reward points you’ll earn from it.

A better advice
Credit cards are for people who have the discipline to control their spending. If you don’t know how to manage your money, then focus on learning this first before getting one.

Also, credit cards don’t give you free money, so never use it to buy things you can’t afford. And never use it just to get reward points, which is a common cause for unnecessary spending.

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3. Renting is a waste of money. Buy a home instead.

When you’re renting, all the money goes to your landlord. When you buy a home, you’re building equity and increasing your net worth.

Why it’s bad financial advice
A lot of people, especially newly married couples, will rush into buying a home because they think it makes more financial sense to do so instead of renting a place.

What they don’t take into consideration is that your mortgage is just the tip of the iceberg that you’ll have to pay. There are property taxes, home maintenance costs, and homeowner’s insurance, to name a few.

Then there’s the aspect of permanence. When you’re still building your career, then you might need to move for work in the future. Then there’s the possibility of the neighborhood becoming undesirable later on.

When you’re renting, you don’t have as many payables, as it’s the landlord who needs to take care of taxes and the maintenance. Also, moving out to a better place is easier should the need arises.

Given that the property’s value will increase in the future, your profit from selling it at market value in the future won’t be as much if you consider the interest rates that you paid for with your mortgage. Also, selling an old property at market value is fairly difficult.

And if you don’t have plans of selling in the future, then it’s just paper gains that you don’t get to spend as cash.

A better advice
Buying a home and renting a place each has its advantages and disadvantages. Neither is absolutely better than the other.

If you really want to buy a home, then study your cash flow to check if you can afford ALL the expenses you’ll incur.

More importantly, if you can’t afford the monthly payments for a 10-year mortgage, then it’s better to just rent first.

If your home loan term is more than 10 years, then it’s likely that the interests you’ll pay will be higher than the gains in the market value of your property in the future.

Lastly, assess the neighborhood. Do you see yourself living in the area for at least 10 years? Does the location make sense if you consider your plans for your career and your family?

4. It’s good to have as much life insurance as you can.

Life insurance secures your family’s future. You don’t want them to become poor and suffer when you die.

Why it’s bad financial advice
Life insurance provides financial protection and it’s important to have one. But each person has an optimal amount of coverage and anything over that is just a waste of money.

I met someone who has five life insurance policies with total coverage of P20 million. When I calculated his required insurance coverage, it should only be P12 million.

This means that the last two policies he got were unnecessary. He could have invested the money instead in mutual funds or the stock market, or perhaps used it to fund a business idea.

A better advice
Life insurance is important but only get the necessary coverage. Once you’re financially protected, your money is better put in pure investments.

Evaluate your financial status once a year. If you require more coverage, then that’s the only time you should get an additional policy. To know how much coverage you need, you can use this life insurance calculator.

5. Putting money in the stock market is gambling.

It’s hard to predict where stock prices will go. That’s why a lot of people have lost money in the stock market.

Why it’s bad financial advice
Gambling refers to playing a game of chance, which is not what the stock market is about. With proper skills, strategy, and the right mindset, you can consistently make money in the stock market.

If you avoid stocks, then you’re wasting the opportunity to make money from one of the highest-earning investments out there. It’s an asset that’s good to have in anyone’s long-term portfolio.

A better advice
If you don’t know how the stock market works, then you’re gambling. Never put money on any investment that you don’t understand.

It’s prudent to learn the basics first before diving into stocks. Follow a proven strategy such as long-term cost-averaging to minimize your risk.

Lastly, don’t invest in stocks alone. Diversify your portfolio with mutual funds, UITFs, bonds, and other assets.

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6. Art and jewelry are good investments.

The value of these things greatly appreciates throughout the years. So buy them cheap and sell them later for great profits.

Why it’s bad financial advice
Not all art pieces will have a higher value in the future. And jewelry prices can be quite subjective.

Moreover, the value of precious metals and gems, such as gold, silver, and diamonds, are incredibly volatile. Their prices go up and fall at a greater pace and magnitude than the stock market.

A better advice
Buy art and collect jewelry because you appreciate them, and without high expectations that you’ll make a good profit in selling them after many years.

While they can be considered as investments, it is, however, not necessary to include them in your portfolio. In my opinion, it only makes sense to buy them if you are fond of art.

Lastly, never buy jewelry because you can bring them to a pawnshop later when you need money. It’s better to just buy stocks or units of an investment fund if that’s your plan.

7. Your goal should be to retire young and retire rich.

Build wealth as fast as you can, so can start living your life to the fullest as early as you can. It’s hard to enjoy life when you’re old.

Why it’s bad financial advice
First, this goal can create unnecessary stress in the mind. Second, both the terms “young” and “rich” are quite subjective, which makes this advice vague and hard to achieve.

Moreover, this advice assumes that retirement is the only time you can really enjoy life. This is of course, very far from the truth.

A better advice
Plan for your retirement as early as possible. But understand that retirement doesn’t necessarily refer to the time that you don’t have to work anymore.

Unsubscribe to the idea that retirement is when you can finally quit your job and start enjoying life. This should not be the case.

For me, I see retirement as the time when you don’t need to work anymore, but you still choose to work because it gives you purpose and self-fulfillment.

Thus, your goal is not necessarily to retire young but to pursue meaningful work that you can imagine yourself doing until you grow old. You’ll enjoy life more deeply when you do this instead.

Moreover, your goal is not necessarily to retire rich but to build just enough wealth and create sources of income that can make you afford the kind of life you desire for yourself and your family.

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13 comments

  1. This is a good reminder! I especially agree with the credit card one wherein one should only get a credit card when they are responsible with their money.

  2. Hi Fitz, great tips! I would like to add something with regard to #3. Renting is like trying before buying, and you get to become an expert in the area as time passes.

    You have to stay in an area for a long time to learn the real situation, lets say traffic for example, and another would be if it’s really flood free (you’d be surprised that some areas considered flood free before, do get flooded nowadays). And after awhile, you can also get an idea of the market, and if the numbers make sense/you like the location (among other reasons), that should be the only time to buy.

  3. This is some solid advice. I like that you distinguish between people who are good at saving versus people who are not when it comes to credit cards. This is an important distinction as an above commenter has noted and should determine whether you get a credit card or not.

  4. Hi Fitz! – Well, what can I say…you just gave a 5 minuter advise that can last for many years.

    Tutal matagal mo na akong follower ng blogs mo at frequent buyer sa mga webinars mo…Advance Merry Christmas to you and More Business to come in the coming New Year — Wala na siguro makaka beat nya ako na pina unang bumati sayo hehehe. God Bless you and your Family.

  5. Hi Sir Fitz! Thank you for your financial advice. Great help for us 🙂

    May I ask your opinion about BPI-Philam, recently I have signed to Invest Peso Max tied to Equity Funds with annual payments of P60,000. I am having second thoughts if I would cancel the investment since it is still within the 15-day cooling period. Is this a good investment or will it be better if I would instead use this for investing into mutual funds, UITF and stocks? Please advise.

    Thank you so much Sir and more power!

  6. Dear Sir Fitz, does it make more financial sense to prepay a home loan (17yrs term remaining) or to invest the amount? Appreciate your learned advise. Thank you!

  7. Thank you very much Sir Fitz. I am very happy that I was able to discover your page. It was very informative and I really learned a lot. You’re a blessing. God bless you and the people you are helping!

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