Lately, a good friend of mine was planning an extensive renovation for his newly OC’ed condo unit when she received some pretty crazy advice from a friendly contractor
“You should expect to spend around 25% of your home’s value on renovation,” the contractor exclaimed. “Anything less than that you won’t feel happy staying in it”
Of course, my friend balked at the idea. Not because he cannot afford it; just because it is the norm, it doesn’t mean he has to follow the herd.
This whole situation with my friend got me thinking about all the insane financial “rule of thumb” I have heard over the years. Because, let’s face it, bad financial advice is all around us. And while some is just outdated, other are borderline absurd.
Here are some of them which you may be guilty of:
1. Expect to blow no lesser than two months’ salary on an engagement ring.
Ouch! The idea that a prospective groom should fork over two month’s salary for an engagement ring. Ponder over it. A man earning $84,000 should expect to spend $14,000 on a ring. Good riddance! Even a guy getting by on $36,000 would need to drop $6,000 to fulfill this “requirement”
So how the hell does this come about? The answer lies with the jewelry giant – DeBeers.
Come on, diamond is just a crystallized rock. And contrary to popular belief, there isn’t a limited supply around the globe – the supplies are actually intentionally limited by the few cartels that monopolize it. And yes, many would have bought into this shit. It’s amazing what perception can do for the value of a rock.
The bottom line: When we allow a company’s marketing campaign to decide how much we should spend, expectations will be high. So spend as much as you can reasonably afford on an engagement ring, and not a cent more. For most of us, two month’s salary makes little to no sense.
Recommended watch – Below, on engagement rings. Both educating and entertaining!
2. Credit cards are evil.
Although this particular advice is outdated, advice are dispensed to us to discontinue using credit card as a means of payment. That, we will overspent. That we will be digging our own hole of bad debts.
This opinion may not have changed much, but the world sure has, and will continue to. Now you can barely get by without at least having a credit card for emergencies. These days, you need credit to rent a hotel room or a rental car. (You can use debit, but they will put a hold against the actual funds in your account if you do.)
Meanwhile, credit cards offer certain protections that we just can’t get if we use cash – or even debit. Travel insurance, trip insurance, and fraud protection are a few of the biggest perks, but there are plenty of others.
The truth is, credit cards are not the devil – the way we use them is the problem. Credit cards don’t get us in debt per se; we do. Don’t burn the mosquito net because of a mosquito. So we learn to use credit wisely, instead of blaming a piece of magnetized plastic for our problems.
3. Save 10% and we’ll be on track to carefree retirement
For as long as we can remember, we’ve heard that we should save 10% of our earnings for that distant occasion in the future known simply as “retirement.”
But over the course of our career, the path will not be as linear as we thought it would be. In fact, the landscape of business has changed dramatically. Some industries are sunrise industries, while many will get obsolete. Back in our father’s time, where employees worked at the same company for 20 or 30 years, people are now much more likely to change jobs whenever the wind blows.
Is 10% still sufficient? Hard to tell because of so many variables comes to pay POST-RETIREMENT, but those of us who hope to retire earlier than most of our peers, we sure doubt this.
Let’s look at the numbers. A family making an average of $60,000 who saves only 10% of that income for 30 years would have only $734,075 for retirement if they made an annualied average of 8% on their investments. If they could manage to put away 20% instead, they would have close to $1.5 million.
The idea of saving only 10% for our nest egg died right along with the idea that you could spend your entire life working for one organization. With retrenchment and organizational restructuring becoming more common nowadays, if you want to retire early – if you want to have options – you need to save+invest much more than that. The best time to start is yesterday; the next best time is NOW.
4. Overseas education? Confirm a good investment!
Here’s the biggest whopper of them all – the lie of all lies – the one financial mistake that can alter your life.
It’s true that overseas education is the best investment that many people have ever made or will ever make. But is it a good investment for everyone?
While a tertiary qualification by itself may be a requirement for some careers, it isn’t required at all for others. Nurses, doctors, lawyers, and teachers need that plaque on the wall and the appropriate certifications, but do carpenters, artists, and tech workers? The answer: Not always. Some of these professions are self-learnt. Then again, even AFTER graduating, it is still a lifelong learning process.
The rising costs of overseas education also play a part in this equation. When overseas education rise faster than the wages of degree-holders and due to weakening ringgit, the return-on-investment, or ROI, drops like a brick. This is especially true when your overseas-graduate child comes back to work in Malaysia.
And perhaps the biggest red flag is this: Most of students nowadays went into student loan debt before start working. Think PTPTN. And an equal amount of parents went into huge debt just to fund for their children overseas education. To the extend of taking out their insurance policies cash value – I am NOT kidding as I’ve encountered such cases before!
The truth: Overseas education isn’t for everyone, nor should it be. Think long and hard before you push your kids into something that will cost them so much, yet possibly return so little, especially overseas education. Certain jobs may require that four-year degree, but others need only an associate’s degree, a few local certifications, or some applicable experience. It’s up to you to know the difference.
In a nutshell:
When we’re young and still figuring things out, it’s easy to hear financial advice like the above and think that’s just the way things are. But when we’ve been around for a while, we start to realize that bad financial advice is everywhere– and it’s up to you to avoid it.
So instead of relying on what others say, learn to think things through on our own. It might be wise to consult an independent financial professional such as…ahem…myself, in certain cases. If a $14,000 engagement ring sounds like the most absurd thing you have ever heard, it’s probably because it is. Who cares what DeBeers has to say about it?
The bottom line is this:
Only you know what you can afford. Only you know if certain advice makes sense for your situation. And for heaven’s sake, only you know how much you should spend on renovations. And at the end of the day, only your opinion matters.
So do yourself and everyone else a favor – forsake the misleading financial advice, or at least stop repeating it. Some bad financial advice needs to die – once and for all.