The internet is a place where people can easily share their opinions with people from all around the worlds. It’s a wonderful way to increase our connections and communicate with each other.
However, that also means that we are exposed to a lot of misinformed opinions and “bad takes” on a daily basis. It can be difficult to know what advice is worth listening to. As we kick-off a new year and a new decade, here are 3 pieces of financial advice to ignore in 2020.
1. 2020 will be the year the stock market crashes
Google and Facebook know I love reading articles about the stock market, the economy, and personal finance. That means every time I go on the internet, I am presented with a number of articles related to these topics.
One of the most common headlines I saw in 2019 was some variation of "2019 will be the year the stock market crashes". Some of these articles made compelling economic cases as to why the stock market might crash. Other articles were purely speculative and had no substance to back up their claim that the market was about to crash. Of course, this did not make them any less certain about the impending market meltdown.
It seemed everyone was predicting that 2019 was the year the market would crash. Instead, the S&P 500 was up nearly 30% for the year.
2019 was hardly unique in this regard. Go back and look at the financial headlines from most mainstream media outlets in any year and you are likely to find doom and gloom predictions about some impending stock market disaster. Yet, none of these predictions have been accurate.
The simple truth is that sensational and negative headlines grab our attention and drive clicks. Media outlets and financial publications have a financial incentive to tell you about all of the terrible things that are about to happen to your investments.
Conveniently, they often have "tips" on how to handle the market crash which is just around the corner. That way they not only have your attention but can influence your behavior. This, of course, is to their benefit (not yours).
I want to be clear, I'm not saying there will not be a market crash in 2020. I have no idea what the stock market will do in 2020 and beyond. The point is, neither do the people who are "sure" that 2020 will be the year the market crashes.
If you predict a stock market crash every year, eventually you will be right. That does not mean that the doomsayers have any special wisdom. What's that saying about broken clocks?
2. It's rude or inappropriate to talk about money
The worst financial advice I’ve ever been given is that it’s rude to talk about money. As someone who spends much of his free time discussing money, I couldn’t disagree with this idea and stronger.
It’s rude to gloat about money. If you have $1 million in your bank account, you shouldn’t gloat about it in Infront of your friends that are struggling to pay their bills. That makes you an a*s hole.
It’s necessary to have meaningful conversations about money and finances. There are two benefits of talking about money.
It will bring you closer to people.
You and the other person might learn something.
Money is a deeply emotional issue, so people’s natural inclination is to not talk about it. Our deepest fears and hopes, insecurities and goals are all wrapped up and intertwined with money. But once you get over the initial hurdle of discussing such a personal issue, you can really get to know someone.
Some of the most powerful conversations I’ve had with close friends is when we “get real” and honestly talk about money. It helps to know you are not the only one struggling with money problems.
When you talk about your money problems with people who care about you, they may also give you some fantastic ideas about how to fix them.
For married couples or people in committed relationships, it’s critical to talk about money.
Money is the number one source of tension and stress in relationships and one of the primary causes of divorce.
If you want to succeed financially and in marriage, you need to lay all your cards on the table.
The best advice I’ve heard about money and relationships is to 10 minute weekly “money meeting” with your significant other. During the meeting, you can discuss anything that is on your mind.
What you spent your money on last week
What big purchases you have coming up what money issues are causing you anxiety
Getting on the same page about a debt repayment strategy
Getting on the same page about an investment strategy
Just make sure you keep your money meetings short and frequent. If the meetings are too long, they will feel like a chore and you are likely to stop having them. If you don’t hold them frequently enough, it’s hard to turn it into a habit.
Not only do I disagree with the idea that it's rude to talk about money, I believe it's necessary to talk about money
3. Save 10% of your income
One of the most common financial tips is that you should aim to save 10% of your income for retirement. This was perfectly fine advice when everybody had a pension at work, and you could comfortably afford a house on an average salary.
If you don’t have a pension plan, you’re going to need to save a LOT more than 10% of your income if you ever hope to retire. Mr. Money Mustache worked out the direct relationship between your savings rate and when you can retire.
If you are only saving 10% of your income each year, you won’t be able to retire for 51 years. Meaning if you start saving at 25 and maintain a 10% savings rate, you’ll be working until you are 76.
If you want to avoid working into your 70’s or 80’s, you’ll need to embrace the concepts of the Financial Independence, Retire Early (FIRE) movement. It’s all about your savings rate. The more of your income you can save and invest, the sooner you will reach financial independence.
If you are 25 and you want to retire at 55, the above chart makes it clear that you will need to save 28% of your income for retirement.
In 2020, when you think about how much you should save for retirement don't pick an arbitrary number like 10%. Set a goal of what age you want to retire and adjust your savings to meet that goal.
What other financial advice do you think needs to be ignored in 2020? Let me know in the comments below.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions