Financial Advice You Should Ignore

by Emily Guy Birken

By now, we’ve all heard about the Latte Factor—how cutting little expenses that you make on a daily basis can add up to relatively painless and big savings over the year. The only problem with this kind of advice is that it’s worthless. The sorts of people who really do need to save $1250 per year aren’t buying themselves a $5 latte five days a week. So the Latte Factor advice only makes the generally frugal feel bad on the occasions when they do treat themselves to a coffee (or a manicure, or a meal out, or any other small indulgence), and it does nothing to help the bottom line.

Unfortunately, that’s not the only less-than-useful advice out there. There are plenty of articles that claim to give you information to help your finances, but all they do is play with math and ignore the real life circumstances behind the story. So when you see one of these articles, remember to take the advice with a grain of salt—or possibly even a salt lick:

Financial Advice You Should Ignore

Value of College Degree1. “These Degrees Aren’t Worth the Money.” I will often see articles enumerating which college degrees are costly without a corresponding high base salary. While it is certainly good to recognize that a BA in Underwater Basketweaving is unlikely to land you a $100K job, I also can’t imagine who the readers of these articles are supposed to be. No one makes a decision on what to study and what career to pursue solely because of money. Most people do not choose their majors in college based upon what it will definitively get them in the future. If everyone followed a life plan based on money, we would never again see writers, teachers, poets, philosophers, actors, musicians, etc, etc. And we would all be the poorer for it.

2. “Never Pay Retail.” This is one of many all-or-nothing pronouncements that gets under my skin. While you can certainly save money by shopping around, by looking at the product locally and then buying online, by buying used, by waiting for a sale, by haggling, by making it yourself, and so on, what other costs have you incurred? It sometimes feels as though people forget that their time is worth money, that quality is worth the price, and that keeping the economy strong means supporting local businesses. I love a deal as much as the next bargain-hunter, but I am happy to pay full price to get a great product, save myself time and aggravation, and foster a relationship with good businesses.

3. “Your House [or any other purchase] Is an Excellent Investment.” Since the housing crisis hit, you’re much less likely to see this bit of advice about homes, but you will still hear pundits telling you that purchasing any number of things—from artwork to jewelry to collectibles to antiques—is worth the purchase price because the objects will appreciate in value. While it is certainly true that all of these things may end up being worth more than you paid for them, that is no reason to buy a house, a painting, a necklace, or any other object. Make a purchase because you love or need what you are buying. Spending money on things in the hopes that those things will take care of you financially later is a recipe for disaster. You’ll be unhappy while you own it, since it’s not what you really want, and you’ll likely be unhappy when you try to sell it, since there’s no guarantee that it will be worth more money.

While it can be very helpful to read the advice of financial gurus, remember that not every pronouncement will be true for every person—and a dash of common sense can sometimes be more helpful than a mathematical equation that shows how much you can save.

photo credit: ercwttmn.

Published or updated July 15, 2011.
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{ 6 comments… read them below or add one }

1 Eric J. Nisall

I love the first paragraph, and find that the “frugal” people are sometimes some of the meanest, judgmental people on the internet the way they bash other for doing things that they don’t agree with.

The thing I think that should be ignored that others toss around as “advice” is to play psychological games with the money. Something like rounding up your purchases in the checkbook, or hiding money when you get it. Not only does it emphasize improper money-handling technique but it does nothing to help. If someone isn’t good at handling money, making it impossible to balance a checkbook properly doesn’t help them. Plus, by “hiding” the money from yourself, all you are doing is preventing it from being used for productive means such as paying down debt or adding to savings.


2 K.C.

Little savings do add up. The point of the Latte Factor, and I’ve never used this example because I’ve, personally, never had a latte, is to be conscious of spending. We can’t prioritize spending until we know how much we are spending and what we are spending it on. Once we are conscious of spending, we may decide that $5 a day for lattes is a high priority and worth the expense. We may decide to cancel the cable subscription or brown bag lunch instead.

My wife and I set aside money for personal indulgences in our budget. That way we take the guilt out of these expenditures. We know we can indulge occasionally without jeopardizing our financial goals as long as we stick to the budget. It is all a matter of deciding what is important for us, but we can’t do that until we are aware of our spending be it on lattes, beer, or whatever.

I agree with you about the intangible benefits of a college degree. I obtained a very general liberal arts degree which qualified me for absolutely nothing except to continue to pursue my education. But it has enriched my life and contributed to my success in business. However, if a person pursues a liberal arts or fine arts degree and racks up tens of thousands of dollars in student loan debt, please spare me the sob story about not being able to find a job to re-pay those student loans.


3 Paul Puckett

Well done!

The latte factor is a classic example of considering only money, not your life. Those latte’s may provide ongoing satisfaction far beyond the value of sacrificing your latte for money thirty years from now.

Save -yes! Invest – yes! But don’t forget to enjoy your life, after all, what’s the money for if not your quality of life?


4 Bruce

I tend to agree with your article, and at the same time have caution with it. Degrees can cost a lot of money and if the income you are goin to receive will take 20 years to pay off then one should think if the degree is worth the time. If paying cash for the degree, than there is nothing to think about. I’m with you on retail but caution o spend on what you need vs. Want. Real estate should be affordable, paying cash if possible. But then again you don’t talk aout any of these things and sound like a brat.


5 Jon -- Free Money Wisdom

Every little bit does count. But I do think you have to treat yourself every once and awhile so as not to go insane. Great article!


6 isomorphismes

Re: lattes. It’s easier to spend money than to make money.

My great grandfather used to say this: “It’s not what you make, it’s what you save.” Plenty of people with high incomes don’t save anything because it’s so easy for them to make more…until it isn’t. Who out there is saving 30%/year of their post-tax earnings for retirement? But if you work from 25-70 and retire from 70-85 that’s exactly what you’d need to do for the ratios to work out.

You’re right of course about treating the house you live in as an investment. What, are you going to liquidate to pay some bills? Not a comfortable cash in. The only thing you could hope to do it borrow against the equity, that’s the opposite of an investment.


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