5 Pieces of Money Advice No One Ever Wants to Hear From Me

Our experts answer readers’ investing questions and write unbiased product reviews (here’s how we assess investing products). Paid non-client promotion: In some cases, we receive a commission from our partners. Our opinions are always our own.You know how adults always told you to “eat your veggies” and greens when you were a kid? Well, that nagging advice doesn’t necessarily stop in adulthood. As a financial advisor, I’m constantly giving people good advice they don’t want.I know no one wants to hear this kind of money advice. But those who do listen — and more importantly, implement these ideas — tend to have better control over their cash flow, higher savings rates, and more financial power.You might not like it, but much like eating broccoli and kale, taking it in is often for your own good.Buying a home is rarely a data-driven decision. It’s an emotional one, and for good reason. For many people, homeownership represents stability, security, and even status.These are not unimportant things, but too many people use their emotions as excuses to throw financial reality out the window when it comes to house hunting.Set a budget and stick to it. We often recommend keeping your total annual housing costs, including your mortgage payments, to no more than 20% of your gross annual household income.This helps ensure you retain flexibility in other areas of your cash flow so that you can own your home and keep pursuing other important goals or have money available for your other priorities.I often caution people against thinking of their home as an investment. Again, that doesn’t mean buying is a bad idea or your house isn’t worth as much as you think it is. But an investment should provide a return.A single-family home that serves as your primary residence (and does not provide rental income) may be an excellent utility. It is not, however, what I would consider a good investment.Home values do tend to rise over time, but the cost of ownership, maintenance, and upkeep often erode most of the “gains” you might see when just looking at the transaction of buying and then selling your home on paper.A reasonable, real return on single-family homes runs about 2%. That’s not nothing, but it’s also not something you can assume will fund your full retirement, either (especially when you have to live somewhere, retired or not, and most people put the equity from a home sale into their next purchase).It’s really important to me that I help my clients strike a balance between enjoying their lives in the present while also building assets and future financial security. This would be much easier to do if we had a crystal ball and could accurately predict what life would be like in 10, 20, even 30 years.We’d know your budget. We’d know what kinds of emergencies you’d have to deal with, and prepare accordingly. And we’d understand what your life would look like (including how long it would be).With that clarity, it would be possible to say, “You need exactly this many dollars. Save just that and feel free to spend the rest.” That is, obviously, not how life works.The solution? Save more than you think you need to, because then you give yourself a margin of safety. By saving more than you necessarily must save to “be OK,” you can better:Saving more than you think you need today also buys you more choice and freedom in the future. The usual guideline I give to clients to help them achieve this is to save 25% of annual gross income.Get Exclusive Savings with Raisin: Open one of the best savings accounts with a no-fee Raisin account in minutes and spread your savings across an exclusive network of over 30 FDIC-insured banks and NCUA-insured credit unions. Earn top savings rates and manage it all with a single secure login. Read our Raisin review for more details.It might sound like a doom-and-gloom approach to finances, but I preach about always having a backup plan — or those margins of safety, or wiggle room, or contingencies.No one wants to imagine a worst-case scenario, but if something actually went sideways in your financial life, you’ll be glad you had multiple levels of safety net built into your overall plan.You can do this in a number of ways, including some we’ve already talked about, like saving more than you think you need to save.Other ways of building in backups include maintaining an emergency fund, using conservative assumptions around income, overestimating your expenses when you do any kind of long-term financial projection, and not counting on any kind of windfall (from bonuses and commissions to inheritances) to make your plan work.It is so tempting to think we can successfully time the market. Why? Because drops and spikes in the stock market look stupidly obvious with hindsight.It’s very easy to look back at something like 2008 (or maybe even the spring of 2020 at this point) and feel like you know when the best times to buy and sell would have been … because they already happened.Guessing what comes next without the benefit of knowing how things played out is not the same thing. Data shows us that even professionals fail to time the market repeatedly. You may get lucky once, but repeating that performance over and over again for the next few decades is virtually impossible.Build a strategic investing plan — and then stick to it, regardless of current events.It’s probably not as fun and may not be as sexy as bragging about your stock picks, but it works a whole lot better in the long run.Start Investing with a Robo-AdvisorSoFi Invest is one of the best robo-advisor investing options for low-cost automated or self-managed portfolios. Read our SoFi investing review.This article was originally published in May 2021.

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