NEW YORK ( MainStreet) -- What's the worst financial advice you've ever got?We posed this question to a group of average Americans and heard a variety of colorful responses -- from investment mistakes to real-estate blunders.
|Americans share the worst money advice they've ever received, and that means better financial advice for you.|
Hometown: New York
Worst advice: "About 10 years ago an old accountant advised we cash in a substantial 401(k) plan to pay off credit card debt, instead of instituting a plan to pay it off over time and learn how to spend and save at the same time." What the experts say: In general, touching your retirement plan before you reach retirement age is a no-no. "When folks are under 59.5 years of age, there is a 10% penalty
Hometown: Sarasota, Fla.
Worst advice: "To buy an extra house, get a tenant, and let the tenant's rent pay the mortgage and all the bills. So many people and books say this, but many tenants are horrible. I've had great
Hometown: Long Island, N.Y.
Worst advice: "Someone told me not to invest in my own small business. My partner and I decided to ignore this advice and invested in our start-up MyFreebeez.com anyway. It has turned into a huge success and we are absolutely glad we did it. We've already earned our investment back many times over, and are still continuing to earn on that investment." What the experts say: Providing advice on whether entrepreneurs should invest in their own company is a bit tricky. While Humet's business became a success, that isn't the case for all business owners. "I tell people to be very careful with this, since the majority of businesses don't make it," Kahler says. Rather than telling entrepreneurs to steer completely clear of investing in their own business, Kahler suggests that an adviser should help the business owner think through the risks and make an informed decision. Certified financial planner Laura Scharr-Bykowsky of Ascend Financial Planning in Columbia, S.C., says it's OK to "invest prudently" in your own business to maximize growth, but doesn't suggest investing exclusively in your business. "You can diversify away risk by spreading your investments out among several noncorrelated asset classes," Scharr-Bykowsky says. "For instance, if your business depends on overseas sales, you might want to dial down that exposure in your financial investments." 4. Brittany McDonough
Profession: Recent college graduate
Worst advice: "During college, I was told to open a credit card and use it to charge all my books and school fees on. The 19% or more interest on a credit card is far more than the subsidized government loan that ended up covering my school costs." What the experts say: Whether college students should have credit cards really boils down to whether they are able to keep on top of payments, Kahler says. "I don't think it's a good idea for college students to have a credit card if they're not going to pay off the balance each month," he says. Morrison adds that college kids are often offered a "teaser" rate of 0% interest or close to it, but eventually the real rate kicks in, which can get young people into trouble. Kahler says that using student loans can be a good alternative to pay for books. "If you are going to pay off the credit card monthly, that is far cheaper than paying interest
Hometown: Eastvale, Calif.
Profession: Public relations consultant
Worst advice: "Around 1998, before the tech crash, my husband's grandfather passed away. He left $5,000 for each of his grandchildren and great-grandchildren. My husband's mother and father advised us to invest in mutual funds for ourselves and our children,
Worst advice: "To not pay off your student loans until you're done with college. If I had started making payments in college like I had planned to do, it could have saved me thousands." What the experts say: Although college students often do not have the cash flow to begin paying off loans while still in school, "if one is able to pay down debt sooner, it generally does save what could be substantial interest over a period of years," Morrison says. Huntley recommends starting student loan repayment while still in school only if the following criteria are met: