A few Ridiculous Financial Tips, Part 3

In not time flat, your scalp will smell horrible.

In not time flat, your scalp will smell horrible.

Personal finance is a world filled with ideas and opinions that are in conflict with one another.  Like the U.N, except without those silly Spaniards.  While all sides to all personal finance issues generally have their merit, even those encouraging people to spend freely and take on as much debt as they like.  After all, that is why we have personal bankruptcy laws in the country, right?

Idiocy aside, sometimes well-meaning advice (at least in my opinion) gets pushed to the outer limits of rationality. When I come across such advice I generally take note and list add it to my “A Few Ridiculous Financial Tips” series.  All of the advice to follow is not my own.  I present the advice and basic rational, and then my feelings on it.  Please note that all of the advice below would benefit you financially; this is indisputable.  What the authors of such advice are missing is how alienating, cheap (not thrifty), ignorant and time consuming some of the advice and rational can at times be[1].  Put bluntly: the authors of these tips are overly prescriptive, general, and specific.  On to the ridiculous!

FICO scores don’t really matter. Whenever someone believes this piece of financial advice, an angel gets cancer.  The rational is that FICO scores don’t matter for people who do primarily two things: 1) pay for everything in cash (houses not withstanding), and 2) find a mortgage lender who will manually underwrite.  Paying for everything in cash makes sense; if you don’t use a credit card and pay for all non-house purchases in cash you don’t need a FICO.  It is in regards to finding a mortgage lender who will manually underwrite—meaning they will manually determine how much to lend you—that I take issue with.

Anyone who has tried and failed to attain a mortgage in the current tight-credit environment will tell you that banks are not making a habit these days of offering to do any extra work, or look at people with tarnished credit scores.  Although it is certainly possible to find a lender willing to manual underwrite, it does reduce your already reduced options. The best strategy is still to have a stellar credit score when it comes to buying a house.  With rates as low as they are, why wouldn’t you want as many options as possible to use other people’s money to increase your wealth?

Carry a credit card balance to improve your credit score.   The logic is that by carrying a balance improves your credit score is akin to Todd Akin stating that the female body can reject unwanted foreign rape sperm.  This piece of logic is a misinterpretation of the advice to make a payment to your credit card every month, with people taking this sound advice as an excuse to make minimum payments on their credit cards.  In fact, your credit score would benefit the same if you entirely paid off your balance every month, which you should.  By not carrying a balance you would be saving on interest, as well as lowering your risk of bankruptcy should any catastrophe occur.   Don’t be a financial Todd Akin.

All consumer debt is bad.  Some of the financial blogs and advice out there is so tightly focused on “financial freedom” the tone is closer to demagoguery than dialogue.  The reasoning behind advice to make your own laundry detergent, remove the light bulb in your oven to save on electricity costs, and to “learn to sweat” in the summer is all geared towards a completely debt free existence, otherwise known as financial freedom.  Look, financial freedom needs to be a loosely defined term in personal finance, because this type of finance is personal.   Individual; not one-size-fits-all.  There needs to be room for defining your own enoughness.  Thusly, anyone stating all consumer debt is bad is as open minded as a Grand Wizard.  Consumer debt can be leverage, and so sometimes for the right people consumer debt can be part of a larger wealth-building plan, rather than a detriment to it.  For example, the $3,000 mattress I sleep wonderfully on could have been purchased in cash, but for $1,000 down I could float the rest on a store-specific card over three years with no interest (about $55/month), on an auto-payment plan.  I put the remaining $2,000 in a mutual fund and came out ahead.

What do you think about this advice?

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[1] Of course, we are all responsible for defining our own version of Enoughness.  Should you agree with any of the listed “ridiculous” tips then have at it.

11 responses to “A few Ridiculous Financial Tips, Part 3

  1. Amen, amen, amen. I think people try to get too creative or polarized with their writing on PF sometimes, and it can lead to really bad advice for your normal, everyday person.

    • Great comment. I think “playing the FICO score game” might be another example of ridiculous financial advice. It is not a hard game to play, just pay you debts off on time and you are good. I wouldn’t worry (and it sounds like you don’t either) about carrying a small balance, charging small amounts to a credit card monthly, or whatever else just to pop a FICO score up 10 pts. Besides, having no missed payments and sufficient income are the key requirements for a loan, anyway.

      Everyone, Holly is smart. Listen to her.

  2. Your article makes sense if you have responsible spenders. Where so many people fall down is in controlling the spending, credit card use and making long term spending decisions. We have a zero credit score and a paid for home. We are teaching our children to live the same, but we do have a light bulb in our oven and store purchased detergent.

    • While I admit that this article falls into the pseudo ironic trap of criticizing overly general financial advice at a fairly high level, and would agree that seemingly ridiculous advice like freezing a credit card may be applicable to some people, it still doesn’t mean that it is ridiculous when applied to the masses. And while credit card debt is ridiculous for the average household at a whopping $16K, and while one could make the argument that a crazy amount of debt requires a crazy solution, all that still doesn’t mean that the solutions given and outlined in this series still aren’t fairly hair-brained. Congratulations on having a light bulb in your stove and store bought detergent?

    • It is pretty easy to go off the deep end with “frugalism fundamentalism” (copyright to me) and not realize that although overspending is a bad thing, some spending truly does improve your life – like buying laundry detergent saves you hours of making it yourself. Also, home made laundry detergent doesn’t work as well, so you smell.

  3. Pingback: The Difference between “Wants” and “Needs” |·

  4. Pingback: A few Ridiculous Financial Tips, Part 4 |·

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