When it comes to money, everyone has an opinion, and they want to share it with the world. Unfortunately, though, popularity in and of itself does not make an opinion true. Let’s take a look at three commonly offered money tips that aren’t all that great.
#1 The Latte Factor
This one is responsible for too many would-be budgeters being disappointed when a small change of habit does not turn them into an overnight millionaire.
The claim: Cutting out your daily latte will solve all your money problems.
The truth: Trimming discretionary expenses will only have an impact on your budget IF you are responsibly able to not spend it elsewhere.
Yes, if you make a conscious effort to trim your budget, you can turn your financial situation around. However, simply deciding to forgo your daily latte won’t necessarily make a difference to your finances.
Here’s what often happens: When a person cuts down on their coffee habit, they feel deprived and end up spending that money on something else. Everyone desires a little indulgence. That small coffee habit may be what gets you through the day, so cutting it out may leave you feeling resentful, to the point that it weakens your willpower for making responsible money choices the rest of the day.
Also, while the six-dollar-a-day latte is not insignificant, it likely won’t make a huge dent in an underwater budget. Expecting that this minor change will get you out of debt within the year or help you save up for a new car will probably lead to disappointment.
The fix: You can cut down on your coffee habit and enjoy the financial benefit with these easy tips. First, consider if you really want to do without your daily latte. If it’s your only indulgence, consider trimming your budget in another area, or only buying a latte every other day instead of seven days a week. Also, be sure to set aside the money you save on your latte so it doesn’t disappear. You can transfer the six bucks to your savings account each time you skip the coffee, or set aside cash in an envelope and then make a larger deposit at the end of the month.
In addition, if you’re looking for a way to make significant changes to your financial situation, consider cutting back on bigger expenses. For example, downsizing to a simpler or older car instead of insisting on new can save you thousands of dollars a year.
#2 Cut Up Your Credit Cards
This one sounds bold and powerful, but in reality it doesn’t do all that much for your finances.
The claim: Get yourself out of debt by taking a pair of scissors to your credit cards.
The truth: You can still accumulate debt even when your cards are in pieces. Also, destroying your cards won’t help you kick a rooted behavior of overspending.
This advice is quite outdated and is really a matter of symbolism more than anything else. In a world of online shopping, no one needs a physical credit card to spend money. With only your credit card numbers, which your computer and phone may “remember” on their own, you can shop to your heart’s content.
You may decide to take it to the next level and close your credit card accounts. While this will render you unable to rack up more debt on this card, it won’t solve the root cause of your debt. For example, if you’re depending on your credit cards to make ends meet, closing your accounts won’t help much. Also, it’s important to have some open credit cards as they are an essential part of building credit history and getting approved for large and low-rate loans. Closing accounts will lower your available credit and increase your credit utilization, thus lowering your score.
The fix: If your credit card debt is out of control, take steps to rein it in. First, create a detailed monthly budget that assigns a dollar amount to every expense and includes some just-for-fun money as well. Next, make a plan for paying down your outstanding debt. Finally, look for ways to trim expenses or boost your income so you can get out of debt sooner.
#3 Follow Your Passions
This advice sounds great and wonderful, but in real life it doesn’t always play out all that well.
The claim: Do something you love, and you’ll never work a day in your life.
The truth: Passions don’t always pay the bills.
In an ideal world, we can pay our bills and cover our expenses by working at something we love to do. But sometimes, our passions don’t translate into lucrative careers. For the wealthy-born, or those only working to supplement an already adequate family income, choosing a career based on passion alone can work, but for many people, doing so can mean a lifetime of financial struggle. Also, sometimes turning a beloved hobby into a job makes a person quickly lose their liking of that hobby.
The fix: It’s best to work at a job you find enjoyable and fulfilling that also pays the bills. When choosing a career path, list your passions, and then research the various occupations in these areas and their general pay scale. Next, make a rough calculation for how much income you’ll need to cover your expenses. If your numbers line up, you’re good to go. Otherwise, you may need to make some adjustments to your dream career or lifestyle.
If this is the case, consider a job that plays to your skills, if not your passions. This way, you’re more likely to succeed at your career and to find it fulfilling as well. You can also start a side hustle that utilizes your passions. It may turn into a full-time career. It’s far more likely, though, that it will remain a side hustle forever, while still providing the outlet your passions need.
Money tips can be helpful, but it’s important to remember that not all advice is created equal. If you have questions about budgeting or managing your money, visit our Financial Wellness Toolbox, stop by any of our convenient branch locations or call 248-322-9800 extension 5 to speak with a team member today.
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