Like anything else, financial advice comes in and out of fashion. A piece of advice might make perfect sense at one point in time, but the world changes, and sometimes our approach to money needs to change with it.
9 Pieces of Bad Money Advice
Once a piece of money advice works its way into the public consciousness, it can be surprisingly hard to get rid of, even when it no longer makes sense.
What worked in the 80s, 90s, or even the early 2000s may not work today. Blindly following outdated money advice can slow your progress rather than help it. With that in mind, here are 10 pieces of bad money advice that deserve a second look.
1. Buy a house as soon as you can
Buying a house as soon as possible used to make a lot of sense. Homes were cheaper relative to the average income, interest rates were low, and people tended to move less frequently.
Today, the decision is much more dependent on your personal situation. Buying a house may not make sense if it means taking on a mortgage that will be difficult to manage, especially if you aren’t sure where you will be living long-term.
Houses today are also more expensive relative to income than they’ve been in the past. For example, in 1984, the average income in the U.S. was $22,000, and the average house price was $78,000, meaning it took about 3.5 years’ worth of income to buy a home.
Today, the average income is about $75,000, and the average house price is $433,000. That puts the cost of an average home at almost six years’ worth of income.
Instead of buying a house as soon as possible simply because that’s what you’re “supposed” to do, wait until you’re in a stable financial position and reasonably confident you’ll stay put for at least five years.
2. Cutting out the small stuff first (latte factor)
The “latte factor” became popular financial advice in the early 2010s: stop spending on that daily Starbucks habit, and those savings will eventually transform your finances.
But giving up every small thing you enjoy to save a few dollars can leave you feeling deprived without making a significant difference to your overall financial picture.
If you need to make a larger impact on your budget, look at your biggest expenses first. Getting a roommate, for example, could dramatically reduce your housing costs. Lowering or eliminating a car payment could free up hundreds of dollars every month.
That doesn’t mean small expenses never matter. The original idea behind the latte factor was to stop spending money on things that don’t matter to you.
If you love your daily coffee and it genuinely makes your day better, buy the coffee. Instead, look for purchases you don’t really care about and would barely miss. It’s easy to obsess over everyday spending decisions while overlooking how much your broader financial choices are affecting your budget.
A financial management app like Lunch Money can help you see exactly where your money is going so you can spend more on what matters to you, and less on what doesn’t.
3. You need a fully funded emergency fund before you do anything else
Having a fully funded emergency fund typically means setting aside three to six months of living expenses in savings, depending on who you talk to. While that can provide a comfortable cushion when something goes wrong, it doesn’t always make sense to put every other financial goal on hold until you’ve saved tens of thousands of dollars.
Instead, you might start by saving enough to handle a medium-sized emergency comfortably. From there, you can begin working toward other goals, such as saving for retirement or paying down debt, while continuing to build your emergency fund.
Lunch Money can help you see exactly how much you spend each month, giving you a better idea of how large your emergency fund should be. You can also create a dedicated budget category for emergency savings, so you’re consistently contributing toward that goal.
4. Pursue passive income (it’s not what people think)
The idea of passive income can be very appealing. Set up an income source once and continue making money without doing much work. And while you can absolutely build income streams that require relatively little ongoing effort, most of them require significant money, time, or work upfront.
Dividend-paying stocks, for example, can provide genuinely passive income. But you need to invest a lot of money before those dividends generate enough income to make a meaningful difference, and accumulating that money takes time.
Passive income can be a great long-term goal, but you may be able to make a bigger impact on your finances by boosting your active income first.
That could mean pursuing a promotion, finding a higher-paying job, freelancing, or building a business on the side. Increasing your active income can give you more money to eventually invest in the assets that generate passive income.
5. More income will solve all of your problems
Making more money can make it easier to manage your finances, but a higher income doesn’t automatically solve every financial problem. There are people at all income levels living paycheck to paycheck.
If your spending seems to always rise with your income, earning more may not leave you any further ahead. Instead, create a system for your money that allows you to consistently save and build wealth at whatever income level you’re currently earning. Once you have a system that works, additional income can make it even more powerful.
Budgeting tools like Lunch Money are packed with features that can help ensure your money is going where you actually want it to go.
6. You only have to pay the minimum every month
Technically, you do only have to make the minimum required payment on your debt each month. But paying even a little more can make a huge difference in how long it takes to become debt-free.
For example, let’s say you have a credit card with a $5,000 balance at 18% interest and your minimum payment is the monthly interest plus 1% of your balance. Your minimum payment would be $125 this month and will gradually decrease as the balance decreases.
If you only pay the minimum payment, it would take over 22 years to pay off, and you’ll spend $6,923 in interest.
However, if you make the $125 payment every month until it’s paid off, you’ll pay it off in just over 5 years, and spend $2,693 in interest.
That’s a huge difference when all you did was not decrease your monthly payment as the balance went down. Just keep paying your current minimum payment every month.
If you actually added $50 a month, so paying $175 instead of $125, you’d pay off the balance in just over 3 years, and you’d pay $1,578 in interest.
| Monthly payment | Time to pay off | Interest paid |
|---|---|---|
| Minimum only | 22 years | $6,923 |
| $125 | 5 years | $2,693 |
| $175 | 3 years | $1,578 |
7. You can’t be financially successful without a 9-5 job
This advice comes from a time when the traditional path to financial stability was to get a “good” job, stay with the same company for decades, and eventually retire with a nice pension.
That’s not the only path anymore. Today, it’s common to change jobs, and even careers, multiple times over your working life. We’re no longer locked into one definition of what work or a successful career needs to look like.
You can build a business, freelance, consult, work two part-time jobs, have a regular job alongside a side hustle, or create another combination that works for you.
You definitely don’t need a traditional 9-to-5 job to be financially successful.
But the opposite advice gets thrown around too: that you can’t become financially successful if you only have a traditional full-time job. That isn’t true either.
If your job pays you fairly, covers your expenses, and leaves you enough to consistently save and invest, you don’t need a side hustle or small business to be financially successful.
Plenty of people work a traditional job, save consistently, and retire with more than enough.
8. Never use a credit card
If you’ve struggled with credit card debt in the past, avoiding credit cards may be the right decision for you. But if you can use a credit card responsibly and pay your balance in full, there can be real benefits.
One is security. If someone gains access to your debit card, they may be spending money directly from your bank account, using the same money you need for bills, groceries, and other expenses. Even if those fraudulent charges are eventually reversed, you could temporarily be without those funds while the situation is resolved.
With a credit card, the fraudulent transaction doesn’t immediately remove cash from your checking account. You can also switch to another card or your debit card while the issue is being sorted out.
Another potential benefit is rewards. If you regularly use a credit card and pay it off in full, you may be able to earn cash back or travel points on purchases you were going to make anyway.
You probably won’t get rich from credit card rewards, but getting a little something back on your regular spending can be a nice bonus.
9. College is (or isn’t) a waste of time
Advice about whether you should go to college has swung from one extreme to the other.
For years, the conventional advice was that almost everyone should go to college. As college became more expensive and student loan debt became a bigger concern, the pendulum swung in the opposite direction and “college is a waste of money” became a popular message.
But college is neither universally required nor universally a waste of time. Whether it makes sense depends on your individual circumstances.
If you don’t know what you want to do for a career, it may not make sense to spend $50,000 on a degree without a clear idea of how you’ll use it.
On the other hand, if you have a career path in mind that requires a college degree, pursuing that education could be incredibly valuable. Like so much financial advice, the right answer depends on your specific circumstances.
Summary
Very little financial advice is good or bad in every situation. What works for one person might backfire for another. While it’s good to learn from others, you should always decide for yourself if a piece of advice fits your specific circumstances.
For more on this topic, check out our YouTube video, where Jacob Wade shares his thoughts on bad money advice!
