These Personal Finance Strategies Often Given as Advice Fail in Practice

• Author: Chris Remington
• Posted: 2024-08-02

We've all seen advertisements for "personal finance gurus" who seem to know it all and have it all. While most of the time, these people are simply trying to sell you a product to earn money themselves, there is some reliable personal finance advice out there. However, it's usually not in the form of a guy on YouTube with a rented mansion and luxury car convincing you to buy an expensive eBook. Here are some Personal Finance trends that you should avoid, unless losing money is a hobby.

The Reverse Mortgage

This is often touted as a solution for people at least 62 years old who are struggling with making payments on anything. The concept is simple: you take out a loan on the equity of your own home, then make monthly payments back. It sounds harmless and is endorsed by many financial gurus.

In reality, these "reverse mortgages" can wreak havoc in lives. However, these loans always have a hefty interest rate, making their value questionable. Since many older people rely on home equity as a source of funding for retirement, it's important to understand that it can take away funds for necessary medical care. The only case where these should be used is if a house is at risk of foreclosure. Though the bank may end up owning the house when the owner passes away, rather than his or her heirs, at least the owner won't end up homeless.

Equity-Indexed Annuities

If you haven't heard of this, that's a good sign. Be on the lookout for these, and avoid them at all costs. These have picked up pace with the fluctuations in stock markets with Coronovirus hysteria. However, buyers often don't get what they believe they signed up for.

In short, it is sort of like an insured version of investing in stocks. Typically with a high minimum buy-in, these plans often guarantee you won't lose more than a certain percentage of your initial investment. However, what's in the finer print is that your profits are usually capped at a low number. Sadly, many rely on these for retirement funds, just to learn that because of these caps, they still just have roughly the same amount they put in.

Cash-Value Life Insurance

This is a newer form of life insurance that many high earners tend to use. Essentially, you have investments within your life insurance policy that your beneficiaries can cash out once you pass away. However, even higher earners usually don't profit off of this. First, premiums for these policies are not tax-deductible, unlike payment for standard life insurance.

These are usually much more expensive than standard life insurance, and the coverage is often less than ideal. To compensate, many people simply lower their benefits, making it questionable whether enrolling in such a plan was beneficial to begin with. Another downside of this type of life insurance is that it's marketed to all high earners. While workplaces may cover basic life insurance, many feel the need to purchase additional life insurance, even if they have no dependents who need it.

Predicting These Trends to Avoid

It can be difficult to predict which personal finance trends are a hit and which are a miss. At any rate, you should not rely on advertising and take everything with a grain of salt. Any upside for you is typically countered by a downside for you that functions as a money-maker for the organization offering it.

However, there are a few ways to avoid the vast majority of these. First, thoroughly research these online. Using non-biased sources, it's usually very easy to figure out which types of plans are a good idea and which are not. If you're solicited by phone for a certain insurance plan, do not get sucked in by the telemarketer. Remember, if their services were as great as they claim, they wouldn't need to be calling random numbers to get people to purchase what they offer!

Key Takeaways

First, it's important to remember that this is not an exhaustive list of trends out there that can be financially ruinous. However, these are some of the most common trends that are bad for your finances. Remember, some novel trends can be great for money, but proceed with caution!