There are a lot of opinions out there in the personal finance world. I didn’t really know about how diverse they were until I started writing this blog. And let me tell you. There are a lot of C-R-A-Z-Y opinions out there. Which is cool. I’m glad I live in a country that allows people to not only have crazy opinions, but also lets them embarrass themselves with them all over the Internets. I’m sure we all do it now and then. I’ve done it a time or two (or maybe three or four…maybe). But there are certain things that have in some way or another become absolutes, meaning if you don’t follow them, you’re stupid and irresponsible.
In general, I don’t particularly love absolutes. Obviously, there are certain absolutes I do believe in, but when it comes to something like finance, most of the time they’re created because it’s really just easier to throw out general advice than it is to consider the diverse personalities and habits of the audience. With time, I’ve come to learn that there are certain personal finance absolutes that need to go away entirely. Why? Well, because they’re stupid and irresponsible.
There are certainly more than three that I believe should go, but for the sake of time and your attention, I’m only going to talk about three. Feel free to disagree with me. Maybe we can start an Internet fight and we can both walk away thinking we won (isn’t that how all Internet fights go? :)).
Here’s one of my biggest beefs with Dave Ramsey, who blasts anyone who would even consider owning a credit card. The fact is, there is such thing as responsible credit card use. We’ve earned thousands of dollars off of credit card rewards without paying a single dime on interest or late fees. It takes following a strict budget and keeping yourself in check, but it can work. You can make it work.
Now obviously, there are people out there who would tend to spend more money if they had a credit card. And Dave’s advice for them is spot on. But a credit card is nothing but a financial product. If you want nothing to do with them, that’s your decision. But there needs to be more focus on the behaviors that lead to uncontrollable spending rather than blaming the products people use to do it.
Owning a Home
Americans are obsessed with home ownership, and it’s ridiculously unhealthy. And it doesn’t help that our government does its darndest to enable it, especially since the housing market crashed. Tax deductions, subsidies, and relaxed mortgage lending regulations for low-income people all point to the idea that owning a home is somehow part of the American Dream.
I’ve been asked more than a few times when my wife and I are going to buy a house. I was actually pretty focused on it as the end goal when we were living in Arkansas. But there are a few reasons why we decided against it, but the main thing is home ownership is a long-term investment. Most people lock themselves into a 30-year mortgage. But the average number of years people actually stay in a home is only 9 years.
So basically if you buy a $200,000 home today at a 4.5% interest rate, you’ve only paid $35,000 to the principal with another $74,000 going to interest. As investments go, depending on where you live and what the economic situation of the time is, you might sell the home for a gain–or you might not. And of course, that’s also not adding in property tax, homeowner’s insurance, private mortgage insurance, repairs, and all that other fun stuff.
People are also moving around a lot more than they used to. I know a handful of people who have been stuck paying two mortgages or stuck in a home too small for their family because they can’t sell it.
So remember, home ownership isn’t always an outward sign of financial success. In fact, nowadays it’s often a sign of sheer stupidity. That being said, if people want to make stupid decisions, that’s their right.
Term Insurance or Die
See what I did there? :) Life insurance is a morbid topic. And sad. When I sold the stuff, some wives would even start crying right there. It was awkward. But here’s the thing. Most people will tell you that term life insurance is the only way to go. ever. And if you buy anything else, you’re a cottonheaded ninnymuggins.
The fact is, there are situations where whole life insurance is actually a good product to have in your arsenal. While we don’t have enough money yet to convert some of our term insurance to whole life, it’s definitely in our future plans. But that’s the thing. You get these wacko money-grubbing insurance agents who will do anything to get you to buy whole life because it gets them a bigger commission. So I get the turn off there. Trust me, I do.
But when I sold insurance, I met a ton of people who had great experiences with it and used it as just another tool in their overall portfolio. Does that mean it’s for everyone? No. And am I going to call you a cottonheaded ninnymuggins if you don’t want it for yourself? Maybe, but just for funsies. No really, it’s OK to go either way. Just don’t do it blindly or without a necessary research. AKA don’t be a moron.
Don’t Be a Jerk
In the end, it’s cool if you have differing opinions on what works best for you financially. We’re all different and there are thousands of different ways we can manage our finances. But don’t for one second think that you’re so special that you get to be the one person who decides how everyone should do it. We call those type of people dictators. Or jerks, if it makes you feel better about yourself.
If you think credit cards are bad, that’s cool. But don’t be self-righteous about it (the same goes the other way too). If you see someone buying a house before they should, don’t talk smack behind their back. That’s their decision, and they’ll probably pay for it later. And rather than spending all our time debating products, let’s focus more on behaviors, because that’s really where the seed of financial independence lies.
Are there other personal finance absolutes that you think are ridiculous? Do you think I’m ridiculous? Do you like pizza?