People fail to realise that the goal isn’t more money; the goal is living life on your terms. This and many more are part of the downsides of wrong interpretation of financial advice.
What’s even worse is that some advice oversimplifies money management, while others completely overlook the bigger picture.
Like many others, I once believed common myths about financial literacy. But over time, I’ve unlearned those misconceptions and gained a better understanding of money management. I want to give you better alternatives to help you make better financial decisions.
“Cut as Many Expenses as Possible”
The idea is that small daily savings will add up over time and lead to significant financial gains. Some financial gurus claim that giving up a $5 latte every day could help you save a million dollars over time.
- Why It’s Bad Advice
“Cut as Many Expenses as Possible” assumes that small sacrifices alone can make you wealthy. Although reducing wasteful spending is important, obsessing over minor expenses ignores larger financial factors like managing debts wisely.
The reality is that wealth is built through long-term strategies not just by skipping your favorite drink. Of course you’ll master financial discipline through making pinpoint decisions like cutting excesses, but don’t miss the crux which is to focus on things that matter.
- A Better Approach
Instead of eliminating every small expense, focus on increasing your earnings and making smarter investments. Find ways to advance in your career, start a profitable side hustle, or explore passive income opportunities.
“Pay Off All Your Debt Before You Start Investing”
On the surface, this sounds logical—after all, being debt-free feels like a great financial goal.
- Why It’s Bad Advice
Not all debt is created equal. Classify your debts into high-interest and low-interest debts. High-interest debt like credit card balances should be paid off as soon as possible; and low-interest debts —such as student loans or mortgages— can even be settled in the long run.
Additionally, waiting too long to invest means missing out on years of compound growth. If you put off investing until you’re completely debt-free, you might find yourself years behind in building wealth.
- A Better Approach
Pay off high-interest debt quickly, but at the same time, start investing in assets that grow over time such as stocks or mutual funds.
“Your Savings Will Save Your Life”
Saving money is important, but relying solely on savings to build financial security is not a great strategy.
- Why It’s Bad Advice
Most bank savings accounts offer very low interest rates on your savings, often lower than inflation. This means that over time, the purchasing power of your money actually decreases.
On top of that, keeping all your money in cash leaves you unprepared for financial emergencies that require large sums—such as medical bills, job loss, or urgent home repairs.
- A Better Approach
- Build an emergency fund – Set aside three to six months’ worth of living expenses in a savings account for unexpected situations.
- Get insured – Protect yourself with health and life insurance to avoid financial devastation during emergencies.
- Start investing – Once you have an emergency fund, invest the rest of your money in stocks, bonds, or real estate to ensure your wealth grows over time.
“Art and Jewelry Are Smart Investments”
This advice stems from the general belief that gold does not depreciate. So, people buy jewelry as a way to build investments. The downside, however, is that this strategy only works for wealthy collectors. It’s not a reliable investment plan for an average person.
- Why It’s Bad Advice
The value of art and jewelry is highly unpredictable. Unlike traditional investments like stocks or real estate, these assets don’t generate passive income and their prices fluctuate based on market trends and demand.
Moreover, precious metals and gems—such as gold, silver, and diamonds—experience extreme price volatility. Their value can rise and fall dramatically and can be subject to purchase situations.
- A Better Approach
Focus on assets with predictable returns and liquidity compared to collectibles.
To Wrap It Up
It is okay to save money and invest in jewelry, but it’s more important to invest in opportunities that offer passive income. Index funds and stocks are solid investments you can bank on if you want long term financial success.
UphivaBETAR
Joseph Busari
