General vs Personalized Part 1
A lot of advice gets passed around that is not necessarily the best for you. Whether it is for your health, your financial well-being or other areas of your life. We tend to get general advice from friends, family, or work colleagues who are ultimately trying to help, but may not be giving the best advice for your specific situation. I want to go over a few generalized financial advice examples that I see come up occasionally to set the record straight.
No Debt is Good Debt
The first piece of general advice I hear people pass around is to pay off debt as quickly as possible! The fact is that debt helps us afford items that we would have to wait years to be able to purchase. It builds our credit. It can even give us cash back.
Here are just a few examples of how keeping debt can help us:
- Having a good credit score is an important part of your financial health. It allows you to have access to better rates and larger loans for important purchases like a home. If you do not intend to be a homeowner, it is beneficial when applying for an apartment. Some landlords require a credit check to verify that you will be timely with your payments. So, if you do not have a good credit score you may be required to have a co-signer on your lease who does.
If you do not have credit an easy way to work on getting a good score is to either be added on a credit line with someone who has good credit.This is something that can come in handy for parents to help their kids out by adding them when they are young, so when they leave the nest, they will have a credit score of their own.
- Your mortgage is not your enemy (unless you cannot afford it). This is the most common debt instrument that I see people trying to get rid of as fast as possible. There are some positive reasons to keep your mortgage.
If you have a low rate and are paying more than the minimum you could be losing the long-term game! For instance, if you are paying down a 3.5% mortgage, but expect approximately a 6% average return in your portfolio, then the math will tell you to invest those dollars rather than throw them at your debt.
Having a mortgage is also helpful around tax time. If you tend to itemize your deduction rather than taking the standard deduction, then keeping your mortgage and paying the minimum can reduce your taxes due.
- Keeping some debt is not good, like outstanding credit on your high interest-bearing credit card. However, using a credit card to your advantage is a great financial move. Many credit card companies give you cash back on certain purchase from as low as 1% to as high as 4% or some type of point system. The best use of a credit card is to only charge an amount on it that you can pay in full on the due date. Think of your credit card like your checking, but with the benefit of money back in your pocket.
I will share some more examples in part 2!
When it comes to general advice, it is just that general. What works for someone else might not work for you. It is best to review your situation and get advice that is personalized to your goals. If you only go by generalities, you may miss out on what is best for you!