10 Outdated Money Rules That Just Aren’t True

#1 – Don’t Talk About Money

Financial losers don’t like talking about money, which means most people don’t like talking about money – making it a taboo. You can’t talk about money with your colleagues, with your friends, or even your loved ones. But this relationship and attitude with money keeps you broke.

Your employer may even actively discourage you from talking about salaries and bonuses with your co-workers. Why would they do that? They know knowledge is power and putting you in the dark about how little they’re paying you compared with others makes you less likely to kick up a stink and demand more readies.

Winners talk about money all the time with anyone and everyone that is willing. They love it! They talk about salaries, income, expenditure, tax, investments, pensions, stocks, property, gold, crypto, budgeting, business ideas, money making schemes, the economy, and everything in between.

The fact is, money flows from those who value it least to those who value it most, so the new rule is: Don’t stop talking about money!

#2 – Rent Is A Waste Of Money

This might be the rule that we hear most frequently. Young people often refuse to rent because – in their words – “rent is just throwing money away.” Of course, this is total nonsense, but we reckon the majority of people believe this.

Renting gives you somewhere to live, independence, flexibility to move at a whim and hence opportunity, and saves you the hassle (and costs) of buying and maintaining a property.

Long-term home ownership is likely to be better financially than renting. However, young(ish) people who are likely to want to move home every so often – due to say moving from a city to a more rural area, or the need for a bigger home due to becoming a family – are likely to be better off renting for a short time.

Moving costs like surveyors, solicitors, mortgage arrangement fees, and stamp duty, can make short-term home ownership a financial disaster. Most people aren’t aware of this because they’ve been saved by increasing house prices, which is not guaranteed to continue every year.

The new rule should be: Buying for a short timeframe is likely to be a waste of money.

#3 – Pay In Cash

Now, this rule has two meanings. The first is you should pay in cash because you’ll be able to knock the purchase price down, saving you money.

The second meaning is that physically paying in cash has a psychological effect on you. Those who pay by card statistically spend more money – probably because it’s so effortless. Actually digging into your wallet and handing over those crispy notes is more noticeable and more likely to be resisted.

Let’s first address point one. In some situations, cash might get you a cheaper price. If you’re selling your home a cash buyer is more attractive because there is no chain and risk of mortgage decline. However, in most other circumstances credit is better than cash. It used to be believed that a car salesman would prefer cash and be willing to mark the price down, but this isn’t true today. They make a good chunk of their money selling you the car on expensive credit.

On point two about the physical handing over of cash – there are more downsides than advantages. Card payments offer payment protection, an audit trail of transactions, make budgeting far easier, and is much safer – you’re less likely to be mugged for a useless card that will be blocked within the hour.

We think reckless spenders are skewing the figures. Those that live to an intentional budget – which we all should – are unlikely to spend more. In fact, we actively avoid places that don’t accept card, so not carrying cash saves us money.

The new rule should be: If you’re good with money – pay on credit card, if not – pay by debit card.

#4 – Don’t Pay Someone Else When You Can Do It Yourself

Poor people think they must do everything themselves. They mow the lawn, do the cleaning, do the ironing, cook meals, decorate their house, and some even install their own new kitchen and bathrooms.

Whereas if it doesn’t bring them joy, rich people pay someone else to do it. You might think this is because rich people can afford to pay and poor people can’t, but this isn’t true.

Doing everything yourself can only save you so much money – but saving the time that would have been spent on these boring, and in some cases difficult and high-skill chores, has potentially an unlimited upside. Rich people outsource all low value tasks, so they can work on higher valued income generating tasks.

You might be thinking that your spare time isn’t worth anything because you can’t bring in extra money during that time. This might be true now, but it will always be true unless you make the decision to start working on income generating tasks.

Not that long ago most people would have had very limited opportunities to bring home extra bacon outside of a day job. Thankfully, the internet has revolutionised how we can all make money. The world doesn’t sleep, so you can make money at anytime from anywhere.

From now on the rule should be: Outsource all low value tasks.

#5 – Overpay The Mortgage

This was probably a very good rule back in the day when interest rates were much higher.

Back in the 70s and 80s the Bank of England interest rates were in the double digits, so you can expect the rates by the mortgage lenders to be slightly higher. Even in the 90s and 00s they hovered around 6%.

Rates like this would have meant paying down the mortgage was a good idea because it would have been far more difficult to get a return greater than this elsewhere – at the very least it wouldn’t haven’t been worth the risk.

This is not the world we find ourselves in today – with interest rates being almost zero for a decade.

Unfortunately, there are influencers and self-proclaimed experts in the media still preaching this rubbish and telling everyone to pay down their mortgage as fast as possible. On YouTube, we’ve seen these misguided souls foolishly telling their audience that by overpaying their mortgage you can shave a few years off its life and save thousands in interest.

While that is true, this money has an opportunity cost. You would have been much better to have invested the overpayments instead.

With interest rates looking like they will remain low for a very long time the new rule is: Pay as little as you can on the mortgage and invest the surplus.

#6 – Buy Low, Sell High

Buy low, sell high could well be the most overused phrase in investing. If it’s not obvious it means buy investments when they’re cheap and sell when the price is higher.

The problem with this rule is that it’s notoriously difficult to do. So difficult in fact, that barely anyone on the planet can do it. Buying and selling incurs fees and taxes, and theory says that markets are mostly efficient, and so already factor in all known information into the prices.

Moreover, the long-term trend of the stock market is that it’s always climbing ever higher. Waiting for lower prices is likely to result in you sitting on the sidelines and missing out on years of stock market gains.

We analysed the S&P 500 going back to 1988 and we discovered some fascinating insights. See that post here.

One interesting nugget that we found was that in 99.3% of cases, an all-time high was followed by another in less than 6 months.

The rule should be: Buy whenever and hold forever.

#7 – Money Is There To Be Spent

People see money and they spend money. Consider any gameshow. The host always asks what the contestant will spend the money on if they win. Every time, without exception the answer is a holiday, new car, or a house extension.

We’ve never heard any contestant ever respond with “investing in income generating assets”

Likewise what people refer to as savings is really just ‘delayed spendings’. They call it saving but the reality is they are just putting money aside for an expensive infrequent purchase like Christmas or a new TV.

Money that is invested or saved for your long-term future gives you options, opportunities, and freedom.

A healthy pile of cash gives you the freedom to tell your boss to do one if you don’t like the way he talks to you, or perhaps you need the financial breathing space to start a business but can’t because you squandered that money on a new conservatory.

Some people argue that you don’t want to be the richest guy in the graveyard, but we’d counter this with it’s not a waste to die with some money if it provided liberty while you were alive.

The new rule should be: Money kept gives you options, opportunities, and freedom.

#8 – Investing Is Risky

We blame the terrible education system (including the financial regulators) on why this rule is so pervasive. People believe that investments are risky because they can lose money.

The reality is cash stored in a bank loses value. The figure you see – known as the nominal value – might be the same or even slightly more than what you deposited due to interest, but the real value has declined. This explains why your grandad could buy a house for under £10,000. The average person doesn’t understand this.

Real returns are calculated after inflation and is the only thing that matters. The formula is dead simple. Real return = nominal return – inflation. As the interest rate your bank pays is likely zero, and the target inflation rate is 2%, your bank savings fall in value in real terms by 2% every year.

Investing doesn’t guarantee real growth but at least it gives your money a fighting chance.

The new rule should be: Not investing is risky.

#9 – Buy The Most Expensive House You Can Afford

Another rule that is total nonsense and potentially very damaging. This is perhaps built on the belief that house prices always go up, so the mortgage leverage will make you rich.

Long-term we do think house prices will continue to rise but if you want exposure to property, it should be through a proper cash generating buy-to-let investment.

Owning the most expensive house you can afford will cripple your cashflow and limit the opportunities that you can seize as your mortgage payments will always be overbearing – you become a mortgage slave.

A buy-to-let investment on the other hand will get you same market exposure but you’ll also receive cashflow in the form of rent.

The new rule should be: Buy the house you need, and invest the rest.

#10 – Reduce Investment Risk As You Age By Buying Bonds

Bonds have their uses – such as being great at stabilising portfolio returns. Back in the day you could quite happily switch from stocks to bonds as you age to reduce investment risk without sacrificing too much return.

This strategy worked well because you were forced to buy an annuity with your pension pot, so you wouldn’t want the value of your investments to tank right before buying the annuity. An annuity is an insurance product that pays a guaranteed income until you die.

Today though you are no longer obliged to buy an annuity, which is handy because their rates are woeful in today’s low interest environment. The alternative is to leave your investments more heavily allocated to stocks.

This is necessary as the return on bonds is likely to be low, causing your retirement pot to run down to zero before you die and leaving you broke in old age.

The new rule should be: Maintain risk as your portfolio needs to out survive you.

What other money rules do you think are outdated? Join the conversation in the comments below.

Written by Andy

Featured image credit: Andrew Rybalko/Shutterstock.com