Common Money Tips That Can Actually Be Really Bad

Your financial life undoubtedly has a lot of moving parts. From managing your savings and investments to paying your bills and staying on a budget, it’s normal to feel overwhelmed and need financial advice. The good news is that there is no shortage of financial advice available from a multitude of sources, from the financial press to brokerage websites and beyond. The bad news is that not all of this advice is accurate. Even sound, well-meaning advice cannot apply to everyone, because each person has their own financial situation. Here are some of the most frequently cited financial tips that may not apply in all situations and in some cases can hurt you.

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Cutting your daily coffee to $ 5 will make you a millionaire

You’ve probably heard the oft-repeated mantra that if you can only cut back on spending – daily $ 5 coffee is often used as a prime example – you can become a millionaire. And like a lot of questionable advice on this list, there is a kernel of truth to this idea. Granted, if you forgo your daily coffee and put that $ 5 a day in an investment account, you could be getting close to it. After all, if you put that $ 5 a day, or $ 150 a month, into an investment that pays 10% a year, after 40 years you would have roughly $ 950,000. But if that daily coffee brings you joy and inspiration, gives you ideas and allows you to work better, the real comeback in your life could be much bigger. As with many financial calculations, this one doesn’t account for what you’ll give up by giving up your daily coffee, including your quality of life. In fact, if you’re smart and determined, you can probably find another way to cut your monthly budget by $ 150 and invest that money instead. This way you can reach your 40 year goal of being a (almost) millionaire while enjoying your everyday luxury.

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Never use a credit card

Credit cards typically carry exorbitant interest rates of up to double digits. There is no safer way to go bankrupt financially than to pile up a bunch of charges on your credit card that you can’t pay off. This has led some financial experts to suggest that you should never even use a credit card. But the truth is, if you’re in the least financially responsible, using a credit card can actually be of great benefit to your life. Beyond the convenience factor of not having to carry cash, most credit cards these days give you some sort of financial reward for using them. Whether it’s receiving cash back rewards, airline miles, or exclusive points that can be redeemed for a wide variety of goods and services, responsible use of credit cards almost always generates rewards. Sometimes just having a credit card can give you benefits, such as hotel status, airline club admission, free baggage, or automatic discount on certain merchandise. If you can manage to pay your bill in full each month, using a credit card can earn you hundreds, if not thousands of dollars in benefits each year.

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Keeping a balance on your credit cards will improve your credit score

This bit of financial nonsense, again, comes from a kernel of truth. Yes it is true that if you want to build your credit score you will need to take out new credit and use it responsibly. However, that doesn’t mean you need to keep a balance on your cards from month to month. In fact, the opposite is true. A whopping 30% of your entire FICO credit score is based on your amount owed, which includes your credit usage. Your credit usage is the percentage of your available credit that you maintain as an outstanding balance. The higher your credit usage – and your outstanding debt – the lower your credit score. You can still build credit over time by using your credit cards and paying them off in full each month. In fact, your payment history is the only factor even more important than your credit usage, accounting for 35% of your FICO score. So get your credit and use it, but make sure you pay off your balances in full and on time if you want your credit score to continue rising.

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Earning A Huge Salary Is The Only Way To Accumulate $ 1 Million For Retirement

It’s certainly easier to end up with a million dollar retirement nest egg if you’re earning a huge salary, but that’s far from the only way. In fact, if you start at a fairly young age, it can be relatively easy to save $ 1 million when you retire. Imagine this scenario: you earn a modest salary of $ 36,000 per year and you can only afford to set aside 5% of your income for your retirement savings. This translates into a savings of just $ 1,800 per year, or $ 150 per month. If you’re 40 before your retirement, however, that’s about all you’ll need to reach your retirement goal of $ 1 million. If you invest $ 150 per month for 40 years and get an average annual return of 10%, you will end up with $ 948,612 when you retire. Since wages typically increase over time, if you keep your savings rate at 5% – or even increase it to 10 or 15% – you could end up with $ 2 million or more for your nest egg if you start quite young. Even if you’re starting later in life, you may need to increase your savings rate a bit, but you won’t necessarily need a huge paycheck to hit $ 1 million in retirement savings.

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Last updated: June 7, 2021

This article originally appeared on GOBankingRates.com: Common Financial Advice That Can Be Really Bad