Big Picture, Financial Planning, Millennials

5 Personal Finance Beliefs I Disagree With

Personal finance is as personal as it gets. We all have different beliefs on what everyone should be doing with their money, but the thing is we should all be doing different things with our money. In this post, I am going to examine 5 different personal finance beliefs that I completely disagree with. 

1. You Need To Budget and Track Every Dollar 💵

The lower your income and surplus, the more you need to budget and track every dollar. However, for most middle class and above Americans, budgeting is not something you need to regularly do. The trick is to budget for a few months, become aware of your spending, then automate the difference between your income and average expenses towards your goals

Let’s say you make $10,000 a month and on average spend $6,000, you should automate that $4,000 difference towards retirement, travel, kids education, etc. Tracking your expenses to the exact dollar amount every month will just cause you to burn out in the long run. Set up an automated system this way, then use a budgeting software every few months to ensure spending hasn’t gotten out of hand. Overtime you will learn how to spend the correct amount with little to no budgeting. 

2. The S&P 500 Is A Diversified Portfolio 🌎

This one is going to cause some debate I’m sure, but the S&P 500 is not a diversified portfolio. It is more so a make up of the 500 largest US companies. It only has some international exposure. It lacks exposure to small and mid size companies. And on top of that, 21% of the Index Comes from 5 Companies. 10 years ago, the 5 companies only made up around 10%. The S&P 500 can be part of your portfolio, but maybe it shouldn’t be your whole portfolio with its lack of diversification. 

3. Buying A Home Is Always Better Than Renting 🏡

I am not anti buying a home whatsoever. Owning a house can be great for you and your family. It can allow you to set down your roots, not have to move every year, and can end up being an okay investment long term when done correctly. The problem is, most people move before they even have built equity in your house. Plus, with realtor fees, annual costs to fix up your house, insurance, property taxes, etc. homes don’t have that great of returns even though they have in the past few years. So don’t rush into buying a home just because you were told you should. 

4. Leasing A Car Is Always A Bad Idea 🚗

Pretty much any car is a bad purchase since they depreciate 10 minutes after you drive the car off the lot (minus the last 2 years). People will always tell you that you need to buy the oldest car and drive it into the ground. And yes, this would be the most financially wise decision, but so would never eating out, never traveling, having the smallest house, etc. 

If you hate fixing up a car, want a new car every few years, don’t drive a ton of miles, etc. leasing a car could be an okay option for you. You could even lease a car or two until you find the one you like and purchase it at the end. 

5. You Need A High Savings Rate 🏦

Everyone talks about savings rates, but what is way more important is investing rates. If you save 20% of your income but only 5-10% is for investing, you are probably not going to be hitting your goals. To figure out how much you should save you have 2 options:

  • Map out your goals and determine how much a month you would need to save to get there 
  • Invest as much as you can, probably somewhere near or above 20% to get you on track for your future. 

Mapping it out is definitely the better method so you aren’t guessing, but if you don’t have an advisor it can be hard to do. Regardless, focus on increasing your investing rate so you can hit your future goals.

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Disclaimer: none of this is advice, it is just for informational purposes. Talk with your financial planner before implementing any of these strategies.