The generations that pre-ceded the millennials typically have a different way of thinking when it comes to money. Does this mean that we shouldn’t take their advice and follow in their footsteps? Not exactly, but take the advice with a grain of salt. The financial world is ever changing and the one that previous generations grew up in is vastly different than the world we live in today. Here are a few of the topics that advice is commonly given on:
1. We hear “Don’t get a credit card.” – You should actually get a credit card to build up your credit. Just because your parents or grandparents paid for everything in cash, doesn’t mean that you can’t use this tool to help grow your credit score. A prompt and consistent record of credit card payments can have a significant impact on curving this score. There are also some significant rewards associated with certain credit card providers that can provide for numerous rewards such as cash back, airline vouchers, and hotel stays.
2. We are encouraged to “Buy a house.” - We have commonly heard the logic of “you got your first job, it’s now time to buy a home”. Our Parents and Grandparents have always said that buying a house is the best investment you can make and that there is nothing better than owning a home. Home ownership may be a right fit for some people and some situations but it is most certainly not a one size fits all answer. You may be fresh out of college with a new job. What happens if you get promoted or transferred to another region. It would complicate the situation if you were tied down with a mortgage. By renting through your first few years of your new job, you also will not have to worry about maintenance and upkeep expenses. This is not only limited to monetary expenses, but also a time expense as well.
3. Be sure to “Invest all your cash.” – It is important to invest your money, but it is equally as important to have an emergency fund. Unexpected life events happen and typically when they do, we need to have quick access to cash. It is crucial to make savings an expense. Get in the habit of systematic saving, not only in investment accounts, but in your bank accounts as well. I encourage my clients to set a threshold of the amount of cash they want to have in their emergency fund. Once we exceed that limit, we will look at investing the surplus.
There should be a disconnect between family and friends when it comes to advice with your money. You should work with an advisor that will be able to give their unbiased opinion and assessment for your unique situation. Investing is such an emotional event that affects each and every one of us. It is important to have that unbiased opinion come in to make the determination of when to take action or whether or not to stay the same course.