Are Financial Gurus Worth Listening To? Part 2

In the previous post I talked about the problems I have with some of the advice given by the big financial freedom gurus. So, what’s the bottom line to getting out of debt and staying out of debt? The number one way to stay out of financial trouble is to live within your means. Clearly, if you don’t spend more than you make, you’ll be able to keep debt problems from taking over your life.

This also means that you shouldn’t buy things on credit if you can help it. Don’t purchase anything with a credit card that you aren’t fully intending to pay off by the end of the month. I’ve heard from some that say it’s okay to make a purchase as long as you can pay it off in 3 months or some other finite time span, but that could be getting you into dangerous territory if something unexpected happens. If you need to pay for medical bills or an emergency car repair during that time, you could have trouble paying for it.

Of course, people have to have a place to live and few can afford to buy a house with cash, so a mortgage is most often a necessity if you want to own a home. The conventional wisdom used to be to buy as much house as you could afford. In this day and age of easy credit, this is insane. With the easy credit often comes terms that will eat you alive financially if you are late or miss a payment. Beware of stretching to buy a house that you really can’t afford.

If you’re going to make a budget, make it realistic. Many people start with the rather rosy budgets you can find in the gurus’ books. You have to look at your own finances, though, and decide right away what kind of lifestyle you’re willing to live. If you can’t afford that car payment, sell the car and buy a beater (as Dave Ramsey says). If you can’t afford that house, downsize.

Don’t assume you’ll be making more money in the future. This is a huge mistake that many people make. When you start off with this assumption, it’s possible to make all kinds of terrible financial decisions. When you make your choices, assume that at best, everything will stay the same or cost more. That’s the safest way to ensure that you don’t get your rear end handed to you a year or two after buying that big fancy house in the suburbs.

When the mortgage broker puts a contract in front of you for that interest-only or ARM note that’s so popular these days, think twice. Better still, walk away and think about it. Distance yourself from the idea of having big, nice things and think about what your daily life is really going to be like under the stress of paying for all those great things. Won’t life be better if you have at least a few hundred dollars extra each month?

While these tips may not be for everyone, many can benefit by starting with the golden rule of personal finance: Live Within Your Means. If you’re in a serious financial situation, think hard before getting into new commitments. It’s still possible to live a pretty good life even if you’re willing to accept a little lower quality home and car rather than the best that the bank’s money can buy.

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9 Responses to Are Financial Gurus Worth Listening To? Part 2

  1. ETF Guy says:

    A while back I wrote a post about the myth that buying a house is always right.

    http://www.etftopics.com/the-buying-a-house-is-always-right-myth/

    Basically, I take exception to the belief that you must buy a house just because everyone else is. Instead, I suggest that you look at your situation and really consider renting. Sometimes renting can be much cheaper than buying especially when your area has high property taxes and when you’re inclined to buy a place much bigger than what you’d be willing to rent. In addition, renting allows you to be flexible should the need arise. Which isn’t to say that I think no one should buy a house, just that it isn’t the no-brainer that many people make it out to be.

  2. Marc Chase says:

    Excellent sound advice, congrats!

    I would like to further back your comments in regard to home buying. The amount of people who walk in our doors everyday now because an Option Arm is eating them alive
    And there is no answer in site…(only hind site) is amazing.

    People need to be educated and use common sense. Most of us have made these mistakes so I’m not knocking anybody, but too many times have I seen a client with a 4000 mortgage and a 4100 salary.

    When I ask what they were thinking, they were banking on the housing market going up forever, or an anticipated pay raise.

  3. ray says:

    Another great comment, ETF Guy. Your article also brings up some great points (I’m leaving a comment there, too). The buying a house is always right myth is right up there with the buy as much house as you can myth. With the subprime lending that’s been going on for the last few years, a lot of people are finding that the house their mortgage broker told them they can afford is way more than they can handle. Thanks for joining the discussion!

  4. ray says:

    Thanks, Marc. I have to say I’m not surprised by that at all. Financial problems like this are epidemic in the United States today. I often wonder why we fall for this kind of stuff when the most basic common sense should steer us away from it. I think much of it has to do with the sheer volume of information we take in that tells us we can have it all and have it right now. That and the fact that credit is way to easy to get right now.

    I wonder if anyone remembers that old saying, “A bird in the hand is worth two in the bush.” The idea that things are always going to be much better in the future is so dangerous. The mere fact that people believe this makes it much LESS likely to come true. It makes people far too comfortable in making risky financial decisions. Thanks for visiting and commenting!

  5. Marc Chase says:

    Hey Ray,

    You’re welcome and thank you. Being in the industry I’m in, it’s so refreshing to see a post/blog with substance rather then just a bunch of keyword spam.

    You’re doing a great job and will shoot your link to some of our clients who are blog fanatics

  6. Ray says:

    Marc, thanks! I appreciate it! I really try to get to the most basic substance of the issue rather than getting stuck in a bunch of technical details. I’m all about the dummies versions!

  7. Pingback: Are Financial Gurus Worth Listening To? Part 1 at FreshBlogger

  8. Tom Allen says:

    Nice post, it’s good to see somebody putting some good info out there. Buying a house is a massive undertaking for most people but there are many potential problems. This is never helped by the fact it can be such a profitable business for those involved in it so good solid information can be difficult to come by.

    I run a mortgage information site myself and it amazes me sometimes how some people don’t arm themselves with good information before diving in.

  9. ray says:

    Hi Tom. Thanks! Money education seems to be sorely lacking in our society today. Or maybe the education that’s out there isn’t combined with good common sense. The conventional wisdom of the day is that having debt is a fact of life and that it can’t be avoided. Thanks for commenting!

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