Everyone has given us financial advice throughout our lives consciously or unconsciously. Be it our parents or friends. You must have experienced this at some point in your life. You’ve probably heard your fair share of financial advice, whether you’re just trying to make ends meet, pay your rent or loans, or save a little money each month. For example, “At this age, you should have this amount in a savings account” or “If you skip buying coffee every morning, you will be able to save this much money every year.”
This financial advice is passed down from generation to generation and is an excellent approach to saving money. Still, you should enjoy the present and invest in the future. However, you should ignore this outdated advice because attractive new investment options will allow you to save your hard-earned money and become rich.
One thing is that what worked for someone else may not necessarily work for you. Like technology and fashion, almost everything else in life evolves with time, and so does financial advice.
We live in 2022 and some advice should be removed. Here’s some financial advice you should ditch — and what you should do instead.
1. Home is an investment
I’m sure you’ll hear this a lot if you live in a rented apartment. So why not just buy it? Whether it’s a house or a car, conventional financial advice says it’s always better to own than to pay rent. This proverb is based on the idea that owning an item creates wealth, but renting it is just an expense. Of course, in certain ways, and in some cases, buying can be more advantageous than renting. However, there are situations where renting is a better option than buying.
Consider investing in real estate: you’ll need to save and put aside significant amounts of money, and you’ll also need to find a buyer if you want to sell it. Real estate is increasingly seen as a liability rather than an investment. You should only invest 20% to 45% of your asset into real estate.
Real estate is an overperforming asset class. It is hard to predict the future performance of real estate. Investing in real estate is like putting all eggs in one basket. Real estate might seem attractive but the ironic truth is that it is a high-risk and low-return investment avenue for an average middle-class Indian. It’s important to consider multiple factors when investing in real estate. These factors should include your net worth, risk appetite, diversification, etc. Furthermore, one should put only a part of their wealth into real estate rather than pitching in everything in one go. Millennials are happy to pay rent.
2. Payoff loans early
Another piece of financial advice from your elders is to pay off your loans. Most people need a loan to buy a property. Financing a home, on the other hand, requires paying thousands of money in interest. As a result, some borrowers strategize to pay off their loans early by making extra payments to save money on interest.
If you getting home loan interest rate discounts on the rise, we’d like to give you investment advice so you can pay off your loans for as long as you plan to hold the property. And you can get high returns back from mutual fund investment opportunities.
3. Set a retirement plan and forget it
With the average life expectancy extended to 70 years, one does not have to worry about retiring after 60 years of age or investing in pension schemes with monthly payouts. Instead, you can start planning and investing in mutual funds, diversify your portfolio to get rich, and build a corpus that beats inflation.
You need to consider financial advice to update your savings when you can, especially when you get a raise, bonus, or promotion. With SIP investments, this is possible without being heavy on the pocket. Your future self will thank you for the power of compounding.
4. Save money and set it aside for emergency funds
You may be wondering what is an emergency fund? This is the type of fund that you may need to deal with unexpected financial changes in the future, such as a drop in income or job loss.
The outdated financial advice you need to ignore is to keep at least six months of salary in an emergency fund. But of course, everyone’s financial situation is different, so any money saved for the future is perspective.
But the amount of buffer varies from one family to another. A household with a steady 9-5 job and covering fairly basic expenses can leave a month or two of spending cash. Saving more money would be a missed opportunity to invest and generate high returns. Cash has a negative return every year because it loses money to inflation, usually around 5% every year.
Likewise, households with variable earnings or expenses should keep extra cash on hand as a stronger buffer to weather the storm. For them, the danger of a few bumpy months is often more significant than the risk of inflation. Therefore, it is crucial to strategize and plan different savings funds.
5. Credit cards are a bad idea
Credit cards probably aren’t for everyone, but it’s not a good idea to keep paying with debit cards. You’ve probably heard parents suggest that using a credit card means you’re poor or don’t have enough money in your bank account.
Credit cards, like other tools, can be used to pay phone and electricity bills, fill up the gas tank and earn rewards points and cashback for those payments. However, the financial advice you need to remember is to use cash all the time. Instead, practice discipline, learn how to count, pay off your balance in full each month, and enjoy the benefits of using credit cards.
6. Use age to allocate funds
Using a rule of thumb is said to allocate your funds according to your age. But that’s no longer the case, and it’s one piece of financial advice you need to avoid.
Every investor’s financial situation is different. Therefore, age alone cannot affect portfolio allocation because it does not take into account the individual’s overall financial situation. More importantly, people are living longer than in the past. As a result, many future retirees will have 20 or more years of retirement ahead of them, and if they don’t put enough money into growth assets like stocks, they may run out of money as they get older.
What you should do?
Times evolve and so does financial advice. Individuals are increasingly responsible for their finances and retirement planning, which includes challenging the economic beliefs of their parents and grandparents.
When in doubt, seek help. Discuss your thoughts with your friends and family. For professional advice, contact us. Consider what is best for your financial situation and goals and act accordingly.
