I’ve received so much good financial advice I barely know where to begin. I’m much more sure of the worst financial advice I ever received, however.
The year was 2008, and I was a struggling Realtor/mortgage broker. When I got into the business, I decided I was going to wear both hats as a value proposition to my customers. I’d use mortgage marketing to get them in the door, pre-qualify them, and then go show them houses in their price range.
It was a fine theory that didn’t quite work out, for a couple of reasons.
First, I was a really terrible marketer. To be successful at something like that, you need to spend thousands of dollars per month in marketing to bring in a steady stream of interested folks. I was barely spending $100 a month on a crummy little ad in the newspaper, which generated about four phone calls a year.
Second, people would only phone me when they had exhausted their options with their bank. Sometimes I’d be able to help them (usually by taking the mortgage myself), but most of the time these people had no money and a terrible credit score. I was just wasting my time even talking to them.
Related: living life with a terrible credit score is easier than you think
I was having a little more success actually selling houses, but not a whole lot. I went from working at a grocery store to selling real estate, and the first year I made about 75% of what I made at the store. That wasn’t really what I had in mind, but it wasn’t a bad result. It takes time to get established in the business.
This wasn’t fast enough for my broker, however, which lead to all sorts of innovative motivational techniques.
The worst financial advice ever
One night he took me out for dinner to try and teach me how to drum up more business.
He suggested a number of ideas to get my name out there, including walking around to every business in the downtown core to introduce myself and hand out candy canes, since it was close to Christman. He also recommended I spend an hour each day walking around and ringing doorbells in nice neighborhoods.
I would have none of this. The last thing I wanted was to, and I quote “act like a used car salesman.” I viewed a lot of that kind of stuff as despicable. Talking to randoms all day long was (and still is) my own personal version of hell.
Looking back on it, it’s easy to see why I was a terrible salesperson. I like talking to you guys through a screen. I would hate doing it on a person-to-person basis all day, every day. When I type, I can proofread and change stuff I don’t like. It’s hard to take back misspoken words.
In his haste to help me — and to help himself, since he got a portion of my commissions — my broker suggested the worst financial advice I’ve ever gotten. He said my problem was I had low expenses, and therefore had no motivation. If I created a bunch of new expenses, I’d have no choice but to hustle to meet my obligations.
His main suggestion? Replace my perfectly reasonable used car with a brand new, bigger vehicle, that came with a substantial car payment. Yes, this was said with a straight face.
It’s been a decade since I received that advice, and it still makes my head hurt. It is, by far, the worst financial advice I’ve ever received.
Minimize expenses, don’t create them
Us here at Financial Uproar (me and 46 pet rats) are big fans of maximizing our incomes. It’s the whole reason why I advocate investing in everything from trailer parks to blogs.
But in order to have capital to invest in these things, you have to create a huge savings rate. Earning more is a big part of that equation, but it also helps to minimize expenses. Do both and you’re laughing.
That’s exactly what I intended back in 2008. I took steps to spend as little as possible so I could focus on investing the biggest percentage of my income as possible. The only problem was the income didn’t come. Primarily because I was terrible at my job.
The solution to this wasn’t to add more expenses. Are you kidding me? The solution was something I figured out a couple of years later, when I became a potato chip salesman. I needed to find something I was good at.
I can think of very few personal finance problems that can be solved with increasing expenses.
What is the worst financial advice you’ve ever received? Comment away, yo.
I’ve heard this advice before and had the same reaction – TERRIBLE! I would have thought you were on the path to establish yourself as a Realtor if you replaced 75% of your income in the first year. My understanding is it’s very much a “compounding” business. You might have been more successful than you think if you’d stuck with it.
Probably the worst financial advice I can think of off the top of my head came when I was interested in a property in the early days of investing. The mother of a friend of mine said “offer them HALF their asking price!” I asked her if she’d done this before and what the reaction was and, of course, she’d never done it. I didn’t bother – I can’t imagine anything useful coming from going around offering people half their asking price on properties.
My dad likes to give the same advice for buying real estate. He’s had a lot of success buying distressed property over the years, offering anywhere from 50% to 66% of the listed price. Most deals ended up being done for pretty much the same price. Meaning he “got a deal” despite really only paying market value. Most of the houses were overpriced to begin with, in other words.
If I would have bought real estate like he recommends, there’s no way I would be living where I am now. It was a multiple offer situation and I still think I got a deal.
I’ve heard that renting is throwing your money away and only benefits the landlord more times than I can shake a stick at. Why pay your landlord’s mortgage when you could be paying your own? Even if it costs 3x as much to do so.
That’s a fun one. I’m going to be reading The Wealthy Renter next so I can see the arguments from the other side of the fence.
Renting can be the better route to wealth creation depending upon your disposition and market conditions. What many people fail to consider in their house equity calculations is a house as an asset is expensive. Not only due to such carrying costs such as property tax and utilities, and mortgage interest, but in terms of keeping it in good repair and retaining it’s market appeal. That capital gain on equity is eroded away over the years due to inflation, and major upgrades (read new kitchen, furnace etc.). Anyone who has hired out a major home renovation can tell you it generally costs way more than expected and it takes a talented “do-it-yourself” owner to get it right (and meet building codes). Finally if the local real estate market is in a deflationary trend, then even if your house is up-to-date in its market and in good repair you will make less of a capital gain, and sometimes in real terms, lose on the investment. Renting has none of these risks; you pay monthly and when the space is no longer pleasing – you move.
So I’ve read The Wealthy Renter (review upcoming!) and it really didn’t change anything for me. I still think the ol’ buy vs rent argument is a pretty simple one. Rent if it costs significantly less than buying or you don’t plan to stay somewhere for long. Buy if you intend on living somewhere for a decade or longer, but only if it’s a reasonable valuation. I paid 2x income for my house and have zero regrets.
“Hurry up and buy a house as soon as possible in Toronto, because the prices will just keep going up and you’ll miss out”
Agreed, but in their defense it has been a pretty successful strategy over the last decade.
Being ordered to spend gift money ostentatiously because the gifter is afraid I’ll save it and therefore not enjoy it. I then either feel guilty for saving it against their wishes or feel bad about spending it on penny whistles and moon pies
Meanwhile, you’ll just reallocate different money towards saving, rendering the whole exercise pointless. Nice, I like that one.
Funny that, my story is also related to cars. So buddy at work buys a new car, my supervisor at the time actually. So everyone congratulates him, myself included. Although in my mind he had a good car (about five years old I think), so in my mind he should have stuck with it for another decade and traded in later, and should have bought a used one as his next one, you still stay “Congrats” out of common courtesy. But then he started talking about how the move saves him money, and we should try it too.
So basically his logic was that he negotiated so well that they took in his old car loan, combined it with his new car loan, and gave him a smaller monthly payment. For reference I think his old payment was $330 a month and the new one was $310. So I had to ask “But doesn’t that extend the life of your loan?” “Well yeah, but you’ve always got a car payment to make anyway. It’s like a mortgage, it’s always there. So you may as well have a new car while you’re doing it, and if you can make the payment smaller it’s a nice bonus too.”
Outstanding! I run into situations like this at least once a week. The average person is so dumb with money it’s not even funny.
The worst advice I ever got was to sell all my stocks and pay off my mortgage. Capital gains….loss of dividend income…RRSP penalties… I mean my investments make 4-7% yield on cost and my mortgage is 2.4%. My math calculations show that guy to be an idiot.
Also can you send me a Christman candy cane? Never had one. Please send it in the form of a $50 bill.
Nice work, love the blog
That is the best typo in the history of the world. It stays forever. How do I even do that? The N and S keys aren’t even close to each other.
That is some dumb advice. I hope you didn’t do it.