T H E W O R S TF I N A N C I A L

A D V I C E W E ' V EH E A R D

( A N D S O M E G O O D A L T E R N A T I V E S )

"Carry acredit

cardbalance"

The idea here behind th i s s tatement i s thatyou ' l l improve your credi t card rat ing i f youkeep a balance of some k ind on your credi tcard month after month.

Why i t 's wrong: F i rs t of a l l , the actual ba lance on your credi tcard makes up on ly a t iny f ract ion of yourcredi t score.In fact , most credi t scores prefer that youremain be low 30% of your credi t ut i l i sat ion. Inother words , they want you to have a balanceequal to 30% of your credi t l imi t at theabso lute maximum. Carry ing more than thatactual l y hur ts your credi t score.

Better advice:I f you want to use a credi t card , a much betters t rategy i s to use a credi t card wi th agood rewards program and pay off the balancein fu l l each and every month. By doing th i s youget a l l of the credi t benef i t s of hav ing a credi tcard. You a lso avo id hav ing f inance charges ,you run no r i sk of late fees , and you reap thebenef i t s of your rewards program.

"Thereis gooddebtand baddebt"

By def in i t ion , debt i s s imply the process ofone party bor rowing money f rom anotherparty . In th i s sense , a l l debt i s the same: Wetake now and we g ive back in the future .

Why i t 's wrong:There i s no such th ing as good debt . There areoccas ional l y good reasons to bor row money; I fyou ’ re bor rowing money for the purpose ofd i rect ly increas ing your earn ings over the longrun ( i .e . a s tudent loan) . However once thatexchange i s made the debt becomessometh ing that drags you down.

Better advice:I ns tead, decide that i t ’ s okay to bor row moneythat d i rect ly increases your income ordecreases your expenses over the long hau l ,but focus on gett ing r id of the resu l tant debtas fast as poss ib le . There may be goodreasons to bor row on occas ion , but there i s nogood debt .

"It 's tooearly foryou toworryaboutretiring"

There are a couple of reasons that ret i rementp lann ing i s important , part icu lar l y for youngpeople.

Why i t 's wrong: Pens ions aren ' t as re l iab le as they used to beand the cost of the ageing of the populat ionwi l l overwhelm our ex is t ing tax base. Inanother 15 years , near ly a quarter of Aust ra l ia ’ spopulat ion wi l l be aged 60 and over - that ’ s alot of people expect ing the pens ion to be amajor part of the i r income. The rea l i ty i s youngpeople wi l l have to save more than the i rgrandparents and parents d id .

Better advice:Get to gr ips wi th the fundamenta l facts aboutret i rement , the range of investment opt ionsavai lab le , and create a p lan to securef inancia l independence later in l i fe . Jo in ing asuperannuat ion scheme or set t ing up aret i rement account when you get your very f i r s tjob i s the f i r s t s tep on the road to f inancia lsecur i ty .

"Rentingis justthrowingmoneyaway"

The money you pay for rent goes d i rect ly in to thepocket of the landlord. So i s that a waste ofmoney? Whi le i t ’ s t rue that you ’ re buy ing an assetwhen you purchase a house , there are a lot ofaddi t ional costs invo lved.

Why i t 's wrong:"Rent ing i s jus t th rowing away money" i s acommon misconcept ion , as home ownersh ip i s notthe best decis ion for everyone. Many factors needto be cons idered when buy ing a home, such as :How long wi l l you l i ve there? What are youra l ternat ive investment opt ions? What aboutmaintenance, insurance, property tax and capi ta lexpense costs?

Better advice:Genera l l y , un less you ' re going to be l i v ing in thesame p lace for f i ve years or your month lymortgage payment i s at least 25% less than whatyour rent would be, you shou ld s t rongly cons iderrent ing , not buy ing. There are def in i te ly s i tuat ionswhere buy ing makes sense , but i t depends on yourpersonal s i tuat ion.

FinalThoughts...Many of the f inancia l adv ice that gets passedaround i s t rue , but some can be mis leading orout r ight fa lse . Other adv ice depends on theperson or s i tuat ion. Other p ieces of adv iceare very debatable .

The s ing le message that you shou ld take homehere i s that , you ' l l of ten f ind that the l i t t lep ieces of adv ice you receive are not s impleru les that you can eas i l y fo l low.Try to gain good understanding of yours i tuat ion , and your knowledge of yourpersonal f inance as a whole wi l l g row. Th iswi l l g ive you more cont ro l of your s i tuat ionand make better decis ions wi th your f inances .

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