5 Money Myths That Financial Gurus Perpetuate

by Corey Philip //  May 26, 2023

Some of the information that financial gurus are pushing, just isn’t practical in the real word.

Here are some ‘money myths’ that I think financial gurus harp on that just aren’t accurate.

// Your emergency fund needs to be in cash.

The Dave Ramsey’s of the world commonly advise individuals to keep their emergency fund in cash, emphasizing liquidity and easy access. While it’s important to have quick access to funds in case of emergencies, holding your entire emergency fund in cash may limit your potential for growth.

Consider investing your emergency fund into a low risk asset allocation.  This strategy can help preserve the value of your emergency fund over time, offsetting the impact of inflation.

I know… I know… investing your emergency fund puts it at risk of market declines AND it’s not immediately accessible.  But think of this, how much could it go up while you are busy not having emergencies?

Now also consider how often you need to tap into your emergency fund, and how much of the fund you’ve needed at ONCE.  Most emergency expenses don’t exploit the whole fund, and they can almost always be put on a credit card, giving you a few days at least to transfer funds from your brokerage account to your bank account.

Personally I find people (myself included) tend to over estimate how much they need for emergencies and keep too much cash on sideline.  Betterment’s guidance on the topic is an allocation 30% stock, 70% bonds.  Historically speaking that would’ve only had a max downside of about 20%.  Most people could weather that drawdown.

// Buy Quality Low Cost Used Cars & Only Pay Cash For It

Personal finance gurus love to hate on people that buy new cars and finance them (or even pay cash).  This is usually rebutted with a statement about buying a nice quality used car like a Honda Civic or Toyota Corolla because new cars just lose their value too quickly.

I think this mindset has carried on from the boomer generation, but times are different today.

Have you checked the price of used car recently?  Surprise boomer, they’re not much of relative bargain to new.  in 2023 the market for used cars is much more efficient and transparent than it was 20 years ago, so cars are holding more value.

And as cars get holder things do break down or at the very least require more maintenance — even on Toyotas and Honda.

In reality, I think most people would be best served buying a new vehicle with a high residual value (alas a Toyota).  Then they have reliable transportation, basically no maintenance, and get the enjoyment of nice vehicle they’re proud of.

The key to this is buying a vehicle with a high residual value.  Fortunately those can be found with a quick Google.  Also interest rates need to be considered.  If you’re getting stuck with a high interest rate, it’s probably best to buy something cash and avoid interest altogether.

// Build Passive Income With Real Estate Investing

I love real estate, and I love to hate.  The issue is that you are constantly shoved success stories of real estate investing that are based on fudged numbers, not properly accounting for all expenses.  These results are often from healthy and growing markets.  At the very least, you’ll never have 100% occupancy.  And real estate is far from passive.  And with just one ‘door’ you’re not going to get the kind of operating efficiency that large landlords do.

If you want to become a full time property manager and deal maker, sure real estate is not bad, but otherwise it usually ain’t that good.

// Debt Is Bad

Yes, debt is bad when you’re using it to buy TV’s and clothes, but when used to acquire assets and cashflow streams it’s a very good tool.  For example you might buy some rental property that generates cashflow beyond the amount of debt you have.   Or you could use an sba 7a loan to acquire a small business and your cost of debt is only about 50% of the business cash flow.  Personally I use margin loans to fund operating cashflow and acquisitions for my business.

// Don’t Use Credit Cards

I literally live on credit cards.  There’s no interest charged as long you don’t carry a balance.  This effectively gives you 30-60 days of ‘free’ money.

I swear the credit card companies must hate me.  I put millions of dollars a year of business expenses and all my personal expenses on credit cards and I get 2% cash back for it.

Get a  goods rewards credit card and enjoy.

About the author

Corey Philip

Corey Philip is a small business owner / investor with a focus on home service businesses.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}