This is a post that may make some parents upset, but I think it is a post that is needed.
Let’s be real, we all have gotten some good and bad advice from our parents growing up. I know their goal was to help us, but sometimes the advice they gave us was right for them when they were our age, but not right for us anymore. The world has changed since they were our age and I want to share some advice that you should avoid listening to from them and why. So here are 6 pieces of advice you should avoid that your parents probably gave you.
The decision on whether to buy or rent is always a tough one that should come down to your goals, where you live, how long you plan to live there, why you want a house, etc. It’s truly not as simple as “you should always buy.”
Most people are often surprised that the rate of return on your house is not that great. After property taxes, annual expenses, insurance, your mortgage and the interest on it, etc. you really don’t end up with much of a return in the long run. Most people think that because they bought it for $300,000 and sold for $450,000 that they had a $150,000 gain. That is just not true. You have to take into consideration all the costs to determine your return.
Buy a house because you want to set down roots, have a yard for your kids, not move as much, etc. not because you think it’s a great investment. Then rent because you aren’t sure if you will stay there for long, you don’t want to take care of a house or yard, or because you can’t afford a down payment right now.
Growing up, savings was always the topic of conversation. Try and save at least 20% of your paycheck is good advice if inflation was not sitting at almost 6.5% this year. All of the cash you are sitting on should serve a purpose: emergency fund, travel, down payment of a house, etc. The rest of your cash that is not needed short term, should be getting invested to keep up with inflation so you don’t lose purchasing power. I would like this advice better if it was to invest as much as you can.
Some parents push their kids to take risks and follow their dreams, but many push their kids to take the safe route. And for some, this is good advice. But for others, it is not. If you think you want to pursue being a business owner, there is no better time to try than now when you are younger and have less commitments. More businesses started in 2020 and 2021 than ever before. With a huge shift to an online world, businesses have a unique advantage to market online and prosper unlike 20 years ago. I am not saying go quit your day job today, but maybe you should try creating this business on the side and see where it goes. You will never know without trying. I would rather create a business, learn and fail, than regret never trying something I always wanted to try.
When our parents were our age, mortgage rates were anywhere from 6-10%. With interest rates that high, paying off your mortgage is a no brainer. However, today, interest rates are anywhere from 2.5-4% making a different story. I am not saying you shouldn’t pay off your mortgage quicker if you would like, but I am saying with how low the interest rates are today, you may want to consider investing instead of paying off the low interest debt. This is well intentioned advice from your parents based on what they should do, it just doesn’t make as much sense today with how low interest rates are comparatively.
Whether you parents are Dave Ramsey followers or not, they may view all debt as bad debt. “Pay for every car in cash.” “Pay off your mortgage as quickly as possible.” “if you are going to do a housing project don’t use a HELOC, save in cash.” As I said above, interest rates are low today, so selling investments to fund a new car or housing project may not be in your best interest. It may actually make sense to leverage these low interest rates and keep your money invested for the future. And contrary to popular belief, not all debt is bad debt. I would listen to your parents and avoid credit card debt, other high interest debt, or debt on things you truly can’t afford. But also, leverage debt in situations it makes sense.
This one is more career advice than financial advice, but I heard from so many people’s parents that for your resume you need to stay at every job for at least 2 years. Hopping around jobs makes you look bad and an employer doesn’t want someone who is going to leave quickly. There is some truth to this, but I don’t think you should feel forced to stay at a job you are unhappy at simply because of how it may look on a resume. Especially if you don’t have a pattern of job hopping. Additionally, if you have a better opportunity on the table, you should leave and take it. You should not stay at your current employer if you can move up the ranks somewhere else, get paid more, have more flexibility etc. just because of the time length on a resume.
Also, if you hate your job and are truly unhappy there, go find a new job if you are able to. Life is too short to stick with a job just because it may look better on a resume. Your happiness matters.
We all can be very thankful for our parents and what they did for us. However, we can choose to take some advice and leave others behind like the 6 above.
Financial Advisor