What financial 'truths' or 'rules' have you found to be false in your journey?

[BigBangWeary]

What financial 'truths' or 'rules' given to you by good meaning family members, the financial press, or even sages from previous times, have you found to be false in your experience? Obviously some of this is going to be regional and time specific.

I'll start I think many of my Canadian, Australian, and even Kiwi friends would agree that the age-old advice of not spending more that 2.5-3 times your household income on a home has proven somewhat false. At least in these times. Those who have used leverage to get on the property ladder well beyond this range continue to be handsomely rewarded in these regions.

Another might be getting a degree ... any degree! Something my baby boomer parents, teachers, and guidance councilors proclaimed many times. Obviously that hasn't worked out for Gen Y/X in the same way it did for them.

Don't get me wrong, there is a lot of advice that stands the test of time, and there is a lot going for those of us seeking a MMM life, but I was curious to know what well-meaning and even researched financial advice has not proven to be true in your experience.

[Dicey]

What financial 'truths' or 'rules' given to you by good meaning family members, the financial press, or even sages from previous times, have you found to be false in your experience? Obviously some of this is going to be regional and time specific.

I'll start I think many of my Canadian, Australian, and even Kiwi friends would agree that the age-old advice of not spending more that 2.5-3 times your household income on a home has proven somewhat false. At least in these times. Those who have used leverage to get on the property ladder well beyond this range continue to be handsomely rewarded in these regions.

Another might be getting a degree ... any degree! Something my baby boomer parents, teachers, and guidance councilors proclaimed many times. Obviously that hasn't worked out for Gen Y/X in the same way it did for them.

Don't get me wrong, there is a lot of advice that stands the test of time, and there is a lot going for those of us seeking a MMM life, but I was curious to know what well-meaning and even researched financial advice has not proven to be true in your experience.

One common maxim is that one should save 10% for retirement. Nope, not enough.

[appleblossom]

Definitely the 3x income max for a home.

18 months ago we managed to buy our first home, and paid just under 4x income, which brought us a 900sq ft house 8km from work. We think we did very well as now we would need to spend close to 5.5x income for the same house.
The market here is going nuts.

[SuperMex]

Children are expensive, I just found this to not be true.

My son could have actually even went to college for free but we decided to go to a more prestigious school.

[MayDay]

Probably the biggest one is that I don't need to replace 80% of current inocme in retirement.

This is very obvious when you consider that we are saving ~half our current income, so why would we need to spend 30% more in retirement? But still, it's pretty ingrained for H, and he regularly forgets that we don't really need that much. His company does a good job of having retirement seminars to try to get people to save more, but of course they use all the standard metrics.

[MrsPete]

A degree is just a piece of paper. 
If you wait 'til you can afford to have kids, you'll never have them.
Your kids deserve ____. 
It's time for you to move up to a nicer house (or car). 
____ is good debt.
Splurge! You're only young once. 

[daverobev]

I'll start I think many of my Canadian, Australian, and even Kiwi friends would agree that the age-old advice of not spending more that 2.5-3 times your household income on a home has proven somewhat false. At least in these times. Those who have used leverage to get on the property ladder well beyond this range continue to be handsomely rewarded in these regions.

That's called 'luck'. Interest rates are low; when they go back up to 8, 10%, people over-leveraged will likely be fucked. Those that stuck to 3x will likely be fine.

Saying otherwise is like saying "Gambling? I put it all on red and won a million! And I know someone that won the lottery!". The *rule* of 3x gross income is good; that doesn't mean SOME people won't do well if they buy at 5x with mortgage insurance and sell 4 years later for 60% profit on the leveraged amount.

[Fishindude]

The need to go to college and get a degree is way over-sold.
Many would be much better served to just get into the workforce right out of high school and start working their way up the ladder.   

[khangaroo]

Myth: There is "good" debt and "bad" debt.

My conclusion: There is debt and then there is "bad" debt.

Say what you want about leveraging your mortgage at historical low interest rates but you're still putting a large chunk of your assets/investment in an illiquid asset. I'm all for buying real estate as an investment but I prefer to do it with cash - it takes a while longer but the cash flow is tremendous. I've been debt-free for a year now and I still get blown away by how much money I have when I don't have payments to that b*tch Sallie Mae or a mortgage payment. We can choose to agree to disagree but I believe that being debt-free should be the 1st or 2nd step you take on your FIRE journey.

[RetiredAt63]

Myth "You should have your mortgage paid off before retirement".

True if your retirement income will not carry your mortgage, or if retirement income is variable and unpredictable.
False if you have a reliable pension that easily covers living expenses including a mortgage.

Irrelevant if you are renting and plan to continue to rent.  Bad example because it implies you should own a house.

[ketchup]

Myth: A college degree is always required and always worth it.

This is a pervasive one seemingly across class divides. I grew up in white upper middle class suburbia and my GF grew up in "ghetto" inner city Phoenix and both had this hammered into our heads growing up.

Now neither of us have degrees and are doing just fine on the income side of things.

Myth: You need to be working full time to buy a house.

I was 19 working part time making $12.50/hr when i bought my first house.

Myth:Old cars are inherently unreliable.

Nope, not if you're smart about it.

Myth: Show dogs are crazy expensive. Feeding raw food to dogs is crazy expensive.

Well maybe, if you're stupid.

Myth: real estate investing is for rich people.

Nope, I was a landlord at 21. Was working two jobs at $10-14/hr.

Myth: It always makes sense for a couple to have two cars.

Myth: Eating healthy is expensive.

Myth: You will die without 1000 cable channels.

Myth: The bigger and more expensive your car is, the larger the size of your penis.

[little_brown_dog]

If you wait 'til you can afford to have kids, you'll never have them.

And the related one "there is no perfect time to have kids..."

Fundamentally true of course, but often used to justify or explain away questionable reproductive choices of people in far from healthy circumstances (very young, dysfunctional relationship, financial instability).

This statement should probably be amended to "there is no perfect time to have kids...but some times are certainly better than others"

[aceyou]

Truth: "You get what you pay for."

Reality: The price and the value of things are often completely unrelated.

[dpfromva]

"Never borrow from your retirement account."
If the alternative is taking cash out of a retirement account at a huge tax hit, due to your/SO income, age and employment situation.
Not talking about buying a Maserati, but for sensible reasons -- investment opportunity, unexpected medical stuff, beef up your down payment to get lower overall interest costs.

[Saskatchewstachian]

Myth:Always replace a car before it costs more to fix than what it's worth.

This is one I fell for a couple times where a car would be at ~200,000km (125,000miles) and things would start to go wrong(i.e. $200-$300 dollar fixes on a car worth 6k). Obviously that meant it was time to upgrade cars..... and obviously I replaced them with new. Good thing the MMM community showed me the error of my ways!

[Ryland]

I've found a common misconception is: "You have to work your 9-5 job till you hit your FI number."

I see so many people persuing FI get lost in having to reach that number before ever giving to themselves. MadFIentists, respectfully so, has been sharing this as his biggest mistake during his path to FI. You can also see Mr. 1500 struggle with improving his lifestyle from a job he doesn't enjoy, even though he has $1.5MM in the bank. (Mr.  1500 is amazing, and we all should read his blog. He story has just been a relentless example of this to me over the past year.)

Jim Collins talks about how you have financial independence as soon as you have enough money to give you the confidence to leave a situation that doesn't benefit you for a situation that does.

I think bringing this "winning in increments" process to the path to FI is the way to achieve financial independence. Balance the lifestyle with the numbers.

[sw1tch]

Myth: Buy a house that you can "grow" into.

I ended up buying a 4 bedroom, 2.5 bath (~2200 sqft) house for just my wife and I in 2010.  Needless to say we sold it a couple years ago (2015) and have been renting a 1 bed, 1 bath duplex w ~900 sqft.  Plenty for us and still don't have kids.

Myth: To go with the above, you need to buy a house to get the first time homebuyer's credit!

Yeah, lost a lot more than the tax credit due to being a total noob to everything as well as being overall pretty dumb with money (see below).

Myth: You can pay your way to others' love & respect.  Or better yet, you owe them for your choices and success.

Well, Duh! I wish I had known that this was a myth A LOT sooner.

[galliver]

Yesterday argued with a friend of a friend who was trying to make the point that "buying a house, even for $1M+, is always better than renting because you build up equity." (Of course I did the math for him that you'd be paying close to 2/3 of your payment in interest and if you can rent for that, or a little more due to taxes/insurance/repairs, and bank the difference between rent and a house payment, you'd end up with more $$. And pointed out the likelihood of losing $$ on house sales if you move often.) Basically: rent vs buy is a decision and you need to logically consider your options when making it.

Same guy seemed to conflate quality of life with square-footage (or #rooms...). When in fact, there's an optimum between "squished" and "cleaning all the time" and most middle-class Americans probably aspire to the "cleaning" side of that.

Also, this was never directed at me, but the idea that credit is inherently dangerous/risky and should just blanket be avoided, rather than treated with caution and discipline. I realize this *is* in fact true for some people, but it's when parents teach their teenage/college kids "don't get a credit card" rather than "pay off your credit card every. single. month." that it bothers me. Because in today's world it's easier to play the credit score game (well) than to have extremely limited history.

[Cowardly Toaster]

Have fun while you're in you 20s.

Only good advice if you can keep your eye on a career and keep some dollars in your pocket while you have fun. Certainly not fun to hit 30 with no prospects for a real job, from what I have seen.

[little_brown_dog]

Have fun while you're in you 20s.

Only good advice if you can keep your eye on a career and keep some dollars in your pocket while you have fun. Certainly not fun to hit 30 with no prospects for a real job, from what I have seen.

Yes - there is this weird idea floating around that 30 is the new 20, and that you don't have to start real "adulting" or trying until 30.
https://www.ted.com/talks/meg_jay_why_30_is_not_the_new_20

[chucklesmcgee]

Myth: Buy a house that you can "grow" into.

Most supposed maxims about housing are a load of horseshit put out by realtors trying to get people to drop as much money on a house as possible. It's a nice expense that could offset the cost of rent. Buy a house bigger than what you would have rented and by the time you pony up the extra insurance, property taxes, closing costs, maintenance, cost to fill it up with a bunch of crap and cost of selling the damn thing I doubt you're much more than breaking even. Compared to other investments you're probably doing worse.

[Mezzie]

You can rely on your pension for retirement.

Man... I believed that one way too long.

[SwordGuy]

This statement should probably be amended to "there is no perfect time to have kids...but some times are certainly better than others"

"There is not perfect time to have kids, but there are a number of absolutely horrible times."

[SwordGuy]

There is "bad" debt and "good" debt.   Student loans are an example of "good" debt.

Nope.   There is bad debt, debt, and good debt.

Bad debt is for consumption.   Debt is for investment that might, or might not, make money.  Good debt is a guaranteed profit from having the debt.   Example of good debt:  Student loans for 5% and federally insured CDs for 10%.


There is a tax deduction for mortgage interest.   Yeah, there is.  Just like there really are super models.   

It's just that almost no one gets to enjoy one.

[aspiringnomad]

Probably the biggest one is that I don't need to replace 80% of current inocme in retirement.

This is very obvious when you consider that we are saving ~half our current income, so why would we need to spend 30% more in retirement? But still, it's pretty ingrained for H, and he regularly forgets that we don't really need that much. His company does a good job of having retirement seminars to try to get people to save more, but of course they use all the standard metrics.

This was always the biggest, strangest myth to me. It may be based on some shoddy research somewhere, but logically it makes no sense whatsoever. And it was such a revelation to learn I really only needed 25x my annual spend to be FI.

[Zikoris]

Despite having "you must get a university degree if you want to do anything other than dig ditches" drilled into my head from an early age, I have yet to run into any problems as a result of not having one. I'm actually in better financial shape than most friends who went that route - a lot of them have a ton of student loans, and don't make exceptional salaries.

I also think the "pay yourself first" sacred cow of personal finance is bullshit. I think it encourages overspending with the remaining funds. People should be think about all their purchases pretty hard, not just call it a day after setting aside some arbitrary amount.

[Adventine]

I've found a common misconception is: "You have to work your 9-5 job till you hit your FI number."

I see so many people persuing FI get lost in having to reach that number before ever giving to themselves. MadFIentists, respectfully so, has been sharing this as his biggest mistake during his path to FI. You can also see Mr. 1500 struggle with improving his lifestyle from a job he doesn't enjoy, even though he has $1.5MM in the bank. (Mr.  1500 is amazing, and we all should read his blog. He story has just been a relentless example of this to me over the past year.)

Jim Collins talks about how you have financial independence as soon as you have enough money to give you the confidence to leave a situation that doesn't benefit you for a situation that does.

I think bringing this "winning in increments" process to the path to FI is the way to achieve financial independence. Balance the lifestyle with the numbers.

"Winning in increments." I like that. I like that a lot.

[des999]

Probably the biggest one is that I don't need to replace 80% of current inocme in retirement.

I gotta agree here, I see older people at work that have so much money saved but won't retire b/c it'll be less than they are earning while working.  Once I figured out that your costs in retirement can be way lower (esp if you save a lot, pay off your home, etc..) it really opened my eyes as to how I could retire much sooner than most.

Also, that owning a home is a great investment. 

[No Name Guy]

Also, this was never directed at me, but the idea that credit is inherently dangerous/risky and should just blanket be avoided, rather than treated with caution and discipline. I realize this *is* in fact true for some people, but it's when parents teach their teenage/college kids "don't get a credit card" rather than "pay off your credit card every. single. month." that it bothers me. Because in today's world it's easier to play the credit score game (well) than to have extremely limited history.

Credit is like a chainsaw.....or a bunch of explosives.  A very powerful tool that if used correctly can magnify ones efforts enormously.   And if misused, can take your leg off in the blink of an eye or splatter meaty chunks that used to be you all over the place. 

Credit / leverage is the same thing - Used well and working with you, fantastic.  Get on the wrong side though and it'll wipe your ass out in the blink of an eye.

[GuitarStv]

I'll start I think many of my Canadian, Australian, and even Kiwi friends would agree that the age-old advice of not spending more that 2.5-3 times your household income on a home has proven somewhat false. At least in these times. Those who have used leverage to get on the property ladder well beyond this range continue to be handsomely rewarded in these regions.

That's called 'luck'. Interest rates are low; when they go back up to 8, 10%, people over-leveraged will likely be fucked. Those that stuck to 3x will likely be fine.

Saying otherwise is like saying "Gambling? I put it all on red and won a million! And I know someone that won the lottery!". The *rule* of 3x gross income is good; that doesn't mean SOME people won't do well if they buy at 5x with mortgage insurance and sell 4 years later for 60% profit on the leveraged amount.

Gambling doesn't necessarily have to come into play at all.

The purchase price for our home was a little over four times our gross income when we bought.  We put down about 50% from savings when we purchased it, and paid it off in less than five years.  A spike in interest rates might have added another year or two to the mortgage.

[Cowardly Toaster]

Credit is like a chainsaw.....or a bunch of explosives.  A very powerful tool that if used correctly can magnify ones efforts enormously.   And if misused, can take your leg off in the blink of an eye or splatter meaty chunks that used to be you all over the place. 

Vivid AF. AND TRUE

[Snow White]

Myth: A diamond ring is an "investment". Nope...at least not the kind of diamond ring most of us would buy. 
Myth: It is normal to always have a car payment.  My first husband patiently explained this "fact" to me when we were first married. Not so...cars are bought for cash in my household.
Myth: Renting is throwing money away. It depends on a number of factors but my experience has been that many people seriously underestimate the costs of home ownership.

[BigBangWeary]

Thanks everyone, these are great!

[Dicey]

It's okay to borrow from your 401k, because you're paying the interest to yourself.

Facepunch!!!!

[Nickels Dimes Quarters]

Get a degree, any degree.
It's just a piece of paper (re: degree and marriage)
Go to college, get a degree and get a job.
A job = security
Save 10% of everything you earn (but no follow up on what to do with this $)
A penny saved is a penny earned

There are likely more. Many more.

NDQ

[tomatops]

- Buying and holding is dangerous because the market can take a setback any moment.
- Buying a new car is safer than buying a used car.
- You're stupid if you're not entering the housing market

[Slow&Steady]

- Buying a new car is never a good plan.
- A car with 100k miles is likely to die or need a lot of work soon. Never by a car with over 100k miles OR Sale your car before 100k miles.

We bought a brand new car 10+ years ago and it now has 300k miles on it.  We don't drive it very much right now but it is still running great.  We had several people asking us when we were going to sale it right around 100k miles.


- You can afford a house that is 2-3x your salary.

We bought a house for 1.5x one of our salaries 5 years ago, which made it possible for DH to be a SAHD and to start his own business.  Why do these suggestions always start with 2x salary?  Along those lines I have never understood why people give a lower limit when they are looking for homes, "we are looking in for a home that is $X-$Z."  Why not "we are looking for a home that is as inexpensive as possible but still meets our requirements of___."

[Retire-Canada]

One common maxim is that one should save 10% for retirement. Nope, not enough.

For normal people retiring at 65 it's probably lots - especially with Gov't benefits in the mix.

Saving $5K/yr for 40yrs at 7% = $1.1M

$1.1M = $44K/yr in retirement at 4% + Gov't benefits on top of that.

[Playing with Fire UK]

Probably the biggest one is that I don't need to replace 80% of current inocme in retirement.

I gotta agree here, I see older people at work that have so much money saved but won't retire b/c it'll be less than they are earning while working.  Once I figured out that your costs in retirement can be way lower (esp if you save a lot, pay off your home, etc..) it really opened my eyes as to how I could retire much sooner than most.

Also, that owning a home is a great investment.

Interesting, the 'truth' that I've seen suggest two-thirds of income in retirement. I guess this is a better rule of thumb than 'you need to be able to pay for your current spending less costs that will reduce plus costs that will increase'. But you wouldn't put that in a call out bubble.

The thing that gets me the most is anyone offering a single example of something going well or badly as proof that this is a good or bad thing for every person in every scenario at every point in time. I've seen it applied to mortgage vs investing, interest rate vs loan size debt payment, and choosing when to have children. It smells like bullshit to me.

[Retire-Canada]

The thing that gets me the most is anyone offering a single example of something going well or badly as proof that this is a good or bad thing for every person in every scenario at every point in time. I've seen it applied to mortgage vs investing, interest rate vs loan size debt payment, and choosing when to have children. It smells like bullshit to me.

Yup. The plural of anecdote is not data.

[ysette9]

I have been advised on more than one occasion by a smart person at work I admire a lot to "buy as much house as you can afford". Yes, in our area housing does always go up over time, and with returns better than the stock market, but I still need to be able to sleep well at night.

[Retire-Canada]

Yes, in our area housing does always go has gone up over time, and with returns better than the stock market, but I still need to be able to sleep well at night.

Corrected that ^^^.

[ysette9]

Haha, right! Past performance is not indicative of future returns.

I did a quick search and couldn't find it now, but I remember reading an article a few months back that looked at housing prices in San Francisco going back something like 120 years. Apparently housing increased something like 7-8% yearly over that timeframe. I don't remember the specifics because it was a while ago, but the point was that people keep thinking the prices must be a bubble and can't possibly continue to go up, but so far that hasn't happened. I don't see that as an argument to buy or to not buy, but I found it interesting. We will buy only when we find something that suits our wants and budget and not before. :)

[Dicey]

Yes, in our area housing does always go has gone up over time, and with returns better than the stock market, but I still need to be able to sleep well at night.

Corrected that ^^^.

I have purchased two homes in the Bay Area on short sales. One in 1996 and one in 2013. Housing does go up over time, yes, but not in a straight line. Another property, purchased at market value during a market upswing languished most of the fifteen years I owned it. Then I put it on the market in 2013 at the beginning of the upswing and got 10% over what we thought was a fair asking price. Go figure.

This is not data, just personal experience as a Bay Area homeowner. To those who think prices never go down here, I have three words: Loma Prieta Earthquake.

[Retire-Canada]

Haha, right! Past performance is not indicative of future returns.

I did a quick search and couldn't find it now, but I remember reading an article a few months back that looked at housing prices in San Francisco going back something like 120 years. Apparently housing increased something like 7-8% yearly over that timeframe. I don't remember the specifics because it was a while ago, but the point was that people keep thinking the prices must be a bubble and can't possibly continue to go up, but so far that hasn't happened. I don't see that as an argument to buy or to not buy, but I found it interesting. We will buy only when we find something that suits our wants and budget and not before. :)

I'm not a RE expert, but we do live in a HCOL area and the issue with these rates of house price increases is that you have to find people who have the money to buy houses. That becomes harder and harder each year. There will come a point where the people living in these cities can't live there any longer and have to move elsewhere. Not sure what will happen then, but I suspect house prices would at least have to stagnate.

With other assets that are not geographically tied you can find a buyer in some other part of the world who is getting paid big $$, but that doesn't work so well for single family homes in a city.

But who knows....maybe something totally new will happen that allows RE to keep climbing in these HCOl areas. Since I have a home in one and would be okay to sell and move elsewhere in ~9yrs that would be just fine with me. :)

[Travis]

Further qualifying the "you absolutely have to have a degree" and "student loans are 'good' debt so it's okay" myths - there's such a thing as ROI.  I have friends with Associates or trade school degrees making almost $100k.  I also have friends (and I'm sure we all do) who racked up student debt for degrees that will never earn it back for them, but they thought they had to have a degree at all costs.

"You're not really an adult unless you own a home."
"Manliness is measured by the size of your truck or the cost of your car."
"The stock market isn't worth the trouble because you might lose it all."
"The stock market is controlled by 'fat cats' and 'Wall Street' and they're all evil."
"Having the slightest concern for budgets and saving money means you're poor or a cheapskate."
"You can't possibly be smart enough to be successful investing without paying a fortune for someone to do it for you."
"An engagement ring must cost two months salary."

[Playing with Fire UK]

The thing that gets me the most is anyone offering a single example of something going well or badly as proof that this is a good or bad thing for every person in every scenario at every point in time. I've seen it applied to mortgage vs investing, interest rate vs loan size debt payment, and choosing when to have children. It smells like bullshit to me.

Yup. The plural of anecdote is not data.

That is one beautiful comic RC, it is going on my wall. Thanks.

[Jakejake]

MYTH: "You're a loser if you live with your parents after you graduate high school"

My husband did that, while going to college, then working - and was able to save up 50k in his 20's which covered our down payment on a house. Comparing that to people who lived paycheck to paycheck in order to pay rent so they could show they were appropriately independent - I'm thinking he was the winner out of the two groups. (This might be specific to American culture.)

MYTH: "When you graduate high school, you can either get a full time job or you can take out loans and go to college full time."

Nobody ever suggests getting a job and paying for part-time classes as you go. That's how I got my Masters, and I didn't have to take out any loans for it.

MYTH: "You have to work until you are old enough to collect Social Security."

:)

MYTH: "Have fun while you're in your 20s."

This - so much this, especially when it's interpreted to mean "you may as well spend all your money in your 20s because you only live once and you can only enjoy it while you're young." Statistically, most of my life will be lived when I'm over the age of 40. Why would I want to spend most of that time slaving away at a job to pay for stuff I did decades ago??? And who told young people that people in their 40s, 50s, etc are too old to enjoy not working???

[Zero Degrees]

Myth:  Buying a home is ALWAYS a good investment.

Especially if it is your primary residence. My house is worth almost 40k less than what I paid for it 10 years ago.

The house prior to this one, I sold for $100 more than I paid for it, years before. That owner sold it this summer for 2/3 what she paid 10 years ago.

I'm not sure why I bought again this last time. The first two homes I bought, I did make money on. Maybe I was being hopeful.

For now, I can't wait to sell my house, downsize and RENT!

[Frugalman19]

I also think the "pay yourself first" sacred cow of personal finance is bullshit. I think it encourages overspending with the remaining funds. People should be think about all their purchases pretty hard, not just call it a day after setting aside some arbitrary amount.

This is one that I still have to view as a sacred cow. Simply because, for most people, early retirement is not a goal. Also, dont forget about the behavioral side of the equation, out of sight out of mind, most people aren't savers, its truly hard for them to save, this makes it easier.