Please note that just like most things in life, the opinions on this page generally all have caveats that advice can change depending on the circumstances. As such, take it as general advice but not scripture.
- X is better than Y. If both X and Y exist, chances are either one is better depending on the circumstances (e.g. renting vs buying). In general, avoid advice that blindly suggests one and only one way.
- I should avoid credit cards. NO. Unless you have problems controlling your spending, you should absolutely be using credit cards for as much of your spending as possible. Just remember to spend like you’re using cash and pay it off in full every month (or pay down aggressively if you’ve already got a balance). There’s absolutely no reason for you to lose out on making 2-4+% back from purchases you are already making.
- I have to sacrifice spending in order to be able to save enough. It can be very empowering to create a budget and figure out how to get it as low as possible. It can also be incredibly debilitating if you go too extreme. As with all things in life: balance. Make sure you’re hitting your savings target, but remember that in addition to saving for your future life, you need to life your current life. Do what’s best for both of those lives (and for those lives around you).
- Renting is throwing away money. There are plenty of scenarios that can make renting be better than buying. Buying a home typically gives benefits in these scenarios; 1) Large increases in value compared to investment growth (this is purely speculative – nothing is guaranteed) 2) Potential side income and 3) leveraging mortgage costs against rising rental prices with fixed payments and 4) working towards paying off the mortgage to increase future cash flow. In contrast, renting can also provide certain benefits: 1) leverage cash that would be equity in a different asset, like the stock market, where returns can potentially be higher than the housing market 2) give yourself the flexibility to be able to move due to job market or family changes – reducing the risk of needing to sell a home before you’ve built up enough equity to offset the costs of selling the home 3) improve cash flow if rental pricing is lower than owning in your area (taking into account potential mortgage insurance, property tax, maintenance, etc.)
- It’s too late to start saving. It’s never too late. One of my favorite quotes is “The best time to plant a tree is 20 years ago. The second best time is today.”
- I don’t make enough money to save. I’m not going to pretend it’s not possible that your scenario precludes you from saving. However, there are plenty of scenarios where you can look at your priorities and spending levels and adjust things to be able to save. Whether it’s finding ways to increase your income, spend less on frivolous things like new cars, etc. Falling back to an old saying: “Where there’s a will, there’s a way.” Don’t let excuses or poor planning hold you back.
- My savings target is a multiple of my income. NO. Your target savings have absolutely NOTHING to do with your current income. The only thing that matters when you stop working, is how much you spend. Your target savings is going to be a multiple of how much you spend when you have to rely on the savings. Tying savings targets to income implies that as you make more money you should spend more money. You may (and that’s okay), but you should do so thoughtfully and realize that with such jumps, you’ll have to have a comparably larger savings amount to continue that spending. Lifestyle creep is a thing.
- I’m doing enough by contributing my retirement accounts. Maybe, depending on your goals. But we’re all about FI here, so you need to think long and hard about your financial goals and when you want to be able to access it. There are also often goals along the way that can temporarily change where you focus to contribute (e.g. are you planning on buying a house soon?). Problems can also occur if you don’t save enough (do you know how much you’ll need?) or if you don’t invest along the way and grow it large enough.
- Putting extra money into my savings account is better than a checking account. Sadly, many banks’ savings accounts have almost non-existant interest rates. Unless you know that your savings accounts have high interest (2+%), you’re losing money.
- All debt is bad debt and you shouldn’t have any. While the underlying principle of “don’t have debt” is fantastic, many of us do acquire debt at some point in our lives (credit cards balances carried over, auto loans, mortgages, student loans, etc.). Now, all debt isn’t created equal (I’m looking at you credit card balances) and high interest debt like credit cards should be your highest priority. Outside of that though, remember that debt is leverage. It allows you to buy a home that you wouldn’t be able to afford otherwise. It gives you skills that, ideally, gives you higher income (that’s a topic for another day – if you’re pre-university, please, PLEASE realize what you’re getting yourself into if you are going to take on debt and work towards a career that allows that leverage to work towards your benefit). Some debt can have very low interest rates, which can allow you to put the money that you would have used to better use where it can make more money than the interest is.
- Financial Independence, early retirement, etc. is only for high-income families. Income by itself has nothing to do with financial independence (see the above misconception). There are high earners that have a hard time hitting financial independence due to their spending habits and low earners who retire early thanks to curbing spending and saving a large percentage of their income. Remember. To be able to stop working means you have a portfolio available that can sustain you based on how much you spend.
- Retirement is at age 65 (or change to be whenever you can access traditional retirement funds). Retirement can be whenever you are financially independent.
- I’ll project how much I need in retirement based on my current spending. Plenty changes when you retire, and you should plan for those spending changes. For example, what are your plans for healthcare? Especially if you plan to retire early, you are going to have to pay for that yourself.