Financial decisions can carry a scary amount of weight. The wrong financial choices can negatively impact your credit score, your interest rate when borrowing money—and even determine if you’ll get approved for a loan. Other financial mistakes can determine the size of your nest egg and when you’ll be able to retire. But, treating your finances with too much caution can also cause you to miss out on new financial opportunities. It's a tricky conundrum that makes it hard to know which choice is the right one.
If you don't feel secure in your own financial knowledge it can be tempting to just follow along with what someone else with a larger platform is confidently saying online. And we all know the internet is overflowing with people giving financial advice—but some of it is neither sound nor applicable. So, we asked finance experts to clear up some of the biggest misconceptions and falsehoods about money on the internet.
"You need a 20 percent down payment and great credit to purchase a house."
The idea that you need a 20 percent down payment on a house has been passed on and on—but many experts say it's time to retire that belief. “People are often shocked when I tell them that yes, they can buy a house with 3 percent down,” says Jennifer Beeston, SVP of mortgage lending at Guaranteed Rate in San Francisco, California. “You do not need 20 percent down; I repeat you do not need 20 percent down.” She recommends chatting with a mortgage expert to discover the various low down payment options that can help you purchase a home.
Do You Really Need That 20% Down Payment on a House?
Candice Williams, realtor at Coldwell Banker in Houston, Texas, agrees, and adds, “People believe that they need to come up with 20 percent of the purchase price, and they think they need a high credit score to purchase a home.” And as a result, she says that many would-be homeowners are missing out on this experience due to incorrect information.
“There are a variety of loan options—for example, the FHA, Federal Housing Administration, will accept a 3.5 percent minimum down payment and a credit score in the 500 range,” Williams says. “There are also many homebuyer grants to help buyers on the national, state, and local level, and this money doesn’t have to be repaid.”
In addition, Beeston says she often hears from potential buyers who think they need a car loan to qualify for a mortgage. “Generally, these people have seen a credit ‘expert’ video in which that individual has said in order to buy a house you have to show multiple tradelines and an auto loan is one tradeline you need,” she says. But this is “100 percent incorrect,” Beeston says, and you don’t need to have an auto loan on your credit to qualify for a mortgage.
"You need to buy a house to get ahead."
Homeownership may be the American Dream for some people, but according to Jay Zigmont, PhD, CFP, founder of Childfree Wealth in Water Valley, Mississippi, you shouldn’t let the internet make you feel like you’re losing out if you don’t own a home. “Buying a house is one way to get exposure to real estate, but it does not fit everyone,” he says. In fact, if you tend to move around frequently, he says it’s more than okay to rent. “It is even okay to rent in the long term if you don't enjoy homeownership or it isn't right for you.” So, instead of doing what everyone else recommends, Zigmont recommends thinking long and hard about the decision to own a house.
Is It Better to Rent or Buy a House? How to Know Which Is Best for You
"You need to have X amount of money by the age of Y."
While there are plenty of articles declaring that you need to have a certain amount of money by age 40, 50, etc., Zigmont warns these rules of thumb may not fit you. “For example, most of these benchmarks or general rules assume you will have kids, but if you are part of the nearly 1 in 5 Americans who are living a childfree life, these benchmarks won't fit.” Instead, he recommends measuring your own progress, financial plans and goals. “Make progress each year, and don't worry about how you compare to others.”
"You need to be wealthy to start investing."
A lot of investing advice on the internet is geared toward high income earners. But you don’t have to be wealthy to start investing, according to Dr. Kortney Ziegler, founder and CEO of Well-Money.com, and a Stanford University Humanities Fellow. “The truth is that anyone can start investing, regardless of their income level—and you don’t need a lot of money either.” Ziegler says you can start investing as little as $5 to $10 per week. “From small acorns do mighty oaks grow, and regularly investing small fixed sums of money delivers impressive results over time.”
Why You Should Start Investing Right Now
"Married couples should combine finances."
You may have read articles advising couples to keep their financial accounts separate and other articles advising them to combine their money. According to Ziegler, there is no right or wrong answer. “Some couples prefer to keep their finances separate, while others choose to combine everything into one joint account,” they say. “What works for one couple may not work for another couple.”
"Cutting expenses is the only way to save money and create a nest egg."
The ability to save money is probably the most important tool you can have in your financial toolbox. However, it shouldn’t be the only one. Sometimes, the question is not solely what else can you cut out, but also how you can increase the amount of money coming in, explains Cicely Jones, CEO of MPA Financials in Pleasant Grove, AL. For example, she says it may be time to go to your employer and ask for a raise if you haven’t had one in a while, or if your job performance warrants it.
Or, it may be time to seek new employment if a salary increase isn’t possible at your current job. “Complacency can keep you from moving on, but needing an increase should be an incentive, so amp up your resume, add skills, get certified, etc., so you can stand out to employers.” Another alternative: Jones also recommends getting a side hustle or part-time job as a short-term way to boost income. “Dive into a talent or craft you might have, something that you are passionate about, and see how it can earn you some extra money.”
"You don’t need a bank account—just get a prepaid card."
Those prepaid cards advertised on the internet may seem like a convenient way to handle your finances, but don’t be fooled by those free-living lifestyle videos, warns Birmingham, Alabama-based financial expert Tae Lee, who created "Game of Fortune: Win in Wealth or Lose in Debt," a financial literacy game. “Everyone needs a bank account for many reasons such as storing money, saving money, securing money, and having a safe place to store it.” In addition, she says that prepaid cards tend to come with activation and reloading fees—and the cards don’t help you build credit.
"Your friend’s Medicare coverage is a good plan for you."
It’s not uncommon to get advice from people in your social media circles. However, this may not be the best source for information as it relates to Medicare, warns Ari Parker, author of, It's Not That Complicated: The Three Medicare Decisions to Protect Your Health and Money.” He says there’s no single health insurance plan that’s best for everyone. “Do you see the same doctors and take the same prescriptions as your friends? Probably not, so you probably need different plans to meet each of your unique needs,” he says.
With over 300 health insurance companies offering over 24,000 Medicare insurance plans, Parker recommends the 3P method to finding a plan for you:
Providers: “Make sure you note the doctors, pharmacies, and hospitals you plan to access,” Parker says, adding that some plans have limited networks that restrict your choices.
Prescriptions: “Jot down the medicines you take to stay healthy," he says. "Prescription drugs are often a considerable household expense, but you may be able to save upwards of $1,100 by matching your prescription needs to the right plan and nearby drug store.”
Priorities: “Your health care and lifestyle are probably different than your neighbor’s,” he says. "So make sure you’re making decisions based on your personal savings goals and lifestyle choices."
One overarching theme from all of this: Your finances are personal. So, as helpful as it can be to get advice, just make sure you're following the path that makes the most sense for you.
