By Phillip Christenson, CFA
Learn more about Phillip on NerdWallet’s Ask an Advisor
The financial blogging community is afire with clever ways to save money, retire early and pay off debt in as little time as possible. There are also a lot of “tips” that are just plain dumb. Here are pass/fail ratings for six of the most popular.
I’m all for saving money, but this one is a bit much. We’ve all seen the stories about the stay-at-home mom or dad going to the store to buy $200 worth of groceries and only having to pay $5.34 because of all the deals, coupons and other promotions they’ve found.
The problem I have is that you spend all day searching online, clipping coupons and creating your shopping strategy. This time could have been spent earning money elsewhere—at a job, for example. And with many of these “deals,” you have to buy a lot of the same product. “Look, kids! Mommy has enough toothpaste to last until you die.”
Ride a Bike—PASS
OK, I’ll let this one pass, but I wouldn’t get rid of your car just yet. And don’t think this is going to solve all of your financial issues, either. There are some great benefits to biking; exercise, cheap form of transportation, relatively low cost.
However, there is a reason we own cars, and it’s not just to show off to our friends. They are extremely useful tools. You can go almost anywhere in the country in a matter of days, and they are safer than riding your bike downtown every day to get to work. I know legally bikes are allowed to use the road just like a car, but personally, I don’t want to be five feet away from 2,000-pound metal boxes traveling at speeds that could kill me if they make contact. This is even more dangerous nowadays with everyone distracted by cell phones. I don’t care that you wear a helmet every time.
Pay for Everything With a Credit Card—PASS
This one I like because it’s free money! Almost all credit cards will pay you at least 1% cash back on all purchases. Some go as high as 5%. Just be absolutely certain you can pay off your credit card every month, or the interest will eat up your savings rather quickly.
This doesn’t require a lot of work (none at all, really), and the savings can be significant over time. This one is a no-brainer.
I’ll admit a lot of things get thrown out that still have a useful purpose, but once they’re in the Dumpster the line gets drawn. Not only is it disgusting, but it doesn’t sound very safe. Who knows what kind of germs, broken glass, metal and all sorts of other terrible things you might find in a Dumpster? Stay away and save your money elsewhere.
Index Fund Investing—PASS
Think you’re missing out by not hiring the Wall Street professional to manage your money? Think again. Study after study shows that on average, index funds beat their actively managed counterparts. This is largely because of fees. Those hotshot fund managers need to charge extra to pay their Harvard-educated analysts and to create the marketing to persuade you buy these funds. Focus your energies on asset allocation, tax strategies and financial planning rather than picking the best fund managers.
A Garden is Your Path to Riches—FAIL
Gardening is good for the soul, but not a surefire way to wealth. I have read about people starting a garden to not only feed themselves but to sell vegetables to their neighbors to earn some extra cash. While this sounds like a worthwhile hobby (and will probably earn you some new friends), making money from a tiny backyard garden is not the financial windfall you’ve been waiting for. It’s hard work, and there is a lot of time involved. And not just from the actual gardening—you need to learn how to garden if you are going to do it well. There are other costs associated with gardening too: tools, fencing, fertilizers. These costs, along with your time, add up. Again, you are probably just better off getting a second job.
The Internet is full of advice. Be careful or you could find yourself in a Dumpster.
If you know of any other clever or stupid personal finance tips, share them in the comments below.