June 3, 2010

Personal Finance Advice and Opinions That I Dislike

There is a lot of advice given in the realm of personal finance.  Most of the advice I hear is pretty good stuff that I agree with.  You can't go wrong by spending less than you earn, avoiding credit card debt and saving towards your retirement.   But there is also a lot of advice out there that I disagree with or think is simply wrong.      There are many opinions shared by personal finance authors that basically annoy me.    Of course my personal opinion isn't any better than another persons.  They are 'opinions' of course.  But for whatever its worth here are some of the opinions and pieces of advice in the personal finance realm that I personally dislike: 

Blind Love of Roth IRAs

It seems that many (if not most) people in the personal finance realm are hopelessly in love with Roth IRAs.   These people frequently give blanket advice in favor of a Roth IRA no matter what the circumstances are.   Don't get me wrong, I think Roth IRAs are good with many great benefits.  But Roths are not automatically the best choice.  The tax free withdrawals of Roth IRAs / 401k's are often  viewed as better than tax free deposits for traditional IRA/ 401k's.   In many situations a Roth IRA is perfect.  If you have no tax liability then there is no reason to use anything but a Roth IRA.   On the other hand there are many situations where Roth IRAs aren't the best choice.   Generally people in the highest tax brackets don't benefit from Roth IRAs.   IF you are currently in a relatively high tax bracket and will retire with a much lower tax rate then a Roth is not a good choice. You should not forgoe a 401k matching fund to invest in a Roth IRA instead. The benefits of employer matching contributions in 401k far outweigh the benefits of a Roth IRA over 401k.

Follow your Passion

Another common piece of advice is that you should follow your passion when choosing a career and then the money will follow.  If everyone followed this advice then I think the world would be filled with unemployed aspiring fashion designers, soccer players, television critics and beer tasters.   While I think its a great idea to try and fit your job with your interests as much as possible I think that blindly following your passion and assuming a decent job will fall into your lap can lead you to the poor house.

Everyone Should Go to College

It seems nowadays that its simply a given that everyone 'should' go to college.   Its well known that the average college graduate makes more pay than an average high school grad.   That stat alone is used to justify the advice that anyone and everyone should go to college.   I know some people disagree with me on this but I honestly think that some people should not go to college.    The people who start college then drop out shouldn't have gone to college.  People who have very little interest in school and have high interest and aptitude for careers that don't require college should not go to college.   Don't get me wrong, I think college is a nice place to learn and grow as a person.   

Credit Cards Are Evil and MAKE You Spend Money

Dave Ramsey hates credit cards.    He and other like minded people will argue that credit cards make you spend more.  Credit cards are viewed by Ramsey as inherently evil.   I think credit cards are basically a tool that is often abused.   I don't think credit cards are forcing anyone to spend money any more than any other form of credit.   So don't blame the piece of plastic, instead blame the person who pulls it out of their purse or wallet and uses it when they shouldn't.

Cancel Cable Because TV is Bad

Canceling cable is a favorite money saving suggestion in the personal finance realm.   I personally think its a good way to save money assuming you don't watch much TV or can find suitable free replacements.   So I don't think the idea of canceling cable is bad advice.   What I don't like is when people suggest you cancel cable because TV is an evil thing that rots your brain and the commercials brainwash you into mindless consumerism.   Go ahead and cancel cable if you want to save some money.  But don't stop watching TV cause someone else hates it.

You Must Have a Living Trust

Suze Orman is the source of this one. Suze preaches that everyone must have a living trust.   I don't think that a living trust is mandatory for everyone.   Having a living trust is a great idea for many people.   But its not necessary for many people.   Living trusts are primarily designed to avoid probate.  Probate can be pretty expensive.  Probate can cost a significant amount with legal fees up to $10,000 level and rates up to 3-5% of the estate value.   It can also take many months to complete.   But the impact of probate will depend on the state laws and the amount of the estate.  Some states have lower probate fees and quicker resolution times.  Many states exempt "small" estates from needing probate.   And the definition of "small" could be $100,000 to $200,000 of value.   There are also some alternative ways to avoid probate for certain assets.   I don't think a living will is a mandatory requirement for everyone.

Worrying Too Much About Estate Taxes

It seems that some people think everyone is going to pay estate taxes.   They then structure advice around avoiding estate taxes.   Yet the overwhelming majority of us will not pay any estate taxes.   Over 2.3 million adults passed away in 2004 and less than 20k households paid estate taxes. Less than 1% of American households paid estate tax.   Estate taxes are exempt or estates valued under $1M to $3.5M level.  (The exact exemption has been a moving target changed year to year by legislation changes).   Simply put if you aren't a millionaire then estate taxes don't impact you.  So I don't think that estate taxes warrant as much attention from personal finance experts.

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