We often turn to our friends for advice in our day-to-day lives. Whenever we encounter a problem in our relationships or a bump in our jobs, the support of our friends manages to help us get through it. This is why we talk to them about our money management as well. Friends stick together, right?
However, if these six worst financial suggestions are what you hear coming out of your friends’ mouths, perhaps it’s better for you to take a step back, reflect on this and turn to a professional financial advisor instead:
1. “If you can afford it, go and buy it.
Peer pressure is not just relevant to drinking alcohol or participating in illegal activities. It’s also highly prominent when it comes to spending money. How so?
When we’re with our friends, we subconsciously fall into the trap of lifestyle inflation. We think that we can just buy anything – even if we don’t want or need it – just because we can afford it.
Is your friend wearing a branded dress that you don’t even like the style of? It doesn’t matter! You’ll buy it anyway, just to show to everyone that you have enough money.
2. “Use your credit card all the time – it’s free money!”
One of the worst financial suggestions is telling someone to use their credit card because it’s free. “No one gets imprisoned by drowning in credit card debt,” they’ll tell you. “Spend as much as you like; it’s like free money handed out by your fairy godmother.”
Well, the next time you use your credit card for something that you know you can’t afford, think about this: is that item really worth the trouble of getting blacklisted by banks, being denied loans and receiving a bad credit rating?
Credit cards aren’t free. They are ridiculously expensive. Take time to read the fine print!
3. “Take as much time as you want going to college, it’s worth all the debt anyway.”
Going to college is a noble act of its own. But if you’re just going to study because you can’t find a job yet, or because you’re not sure what your passion is yet, then don’t.
Consider the opportunity cost involved in this scenario. How much money could you have earned working instead of getting your Master’s degree?
4. “Want easy money? Put all your money in ABC Inc.”
A universal rule in investing is that it always carries a risk. Investing is all about diversifying your investment so that you can manage the risks. Diversifying means that you won’t put everything in one company and in one security.
Instead of putting all your efforts in stocks and in just one company, why don’t you spread out your money in different companies? Take this one step further and hold different securities, such as treasury bills and term deposits too.
If you put all your money in one company and that company folds, then you’ll be sorry. Believe me: I learned this the hard way firsthand.
5. “Let’s travel luxuriously. We’re only young once.”
You might have heard this one before: “It’s easier to earn money than to earn moments.”
Now, that statement may be true. It may also be false.
But don’t you think it’s better to save money and earn moments at the same time? Traveling is about experiencing new cultures and being immersed in a new way of living. It’s not about checking in at five-star hotels and eating at hugely overpriced restaurants.
6. “Just save and you’ll be fine!”
Saving is important. It’s the first step up the financial ladder. But, if you want to manage your money wisely and let it work for you, don’t just settle with saving money. Start investing, too. First, start with investing in your knowledge by reading up on personal finance books. Then, save enough money for you to start an investment account.
Our friends may have our best interests at heart. But if they’re not experts at finance, they need to think twice about giving these terrible financial suggestions. Don’t you think so too?
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