When it comes to money, there is no one “right” way. Since beginning my $$$ journey years ago, I’ve been surprised by the differing opinions. More controversial topics exist than you would think. This past week, I met with some of the best financial educators in the country. It reminded me how different others’ perspectives can be.

I’ve compiled a list of ten of the most controversial topics in personal finance. Hopefully, you’ll learn the arguments and form your own opinion about what is best for you. In each scenario, the math says which one is better, but someone may pick the other option because of how they feel about it psychologically. Math vs. behavior. 

Let’s begin with the first big one.

Is personal finance more about numbers or behavior? 

Watching the news and listening to expert economists talk about money would suggest personal finance is only numbers. Behavior doesn’t play a role. Many financial planners that are paid to manage other peoples money don’t discuss the topic of financial behavior such as budgeting and saving money.

Nearly all financial educators and bloggers will focus more on the behavioral side of money than the numbers. Anthony O’Neal from the Dave Ramsey team, who I met recently agrees that “personal finance is similar to the Pareto Principle. It’s 80% behavior and 20% numbers.” 

Pete the Planner, who I heard from during the summer of 2017 said, “If you believe the reports, this country has a financial literacy problem. I don’t believe the reports. We have a financial behavior problem.”

My take: It’s more behavior than numbers. 

What do you think? Is personal finance more about the math or the behavior?

Should I save before my expenses or after?

You know it’s important to save money. Who doesn’t? So, what’s the most effective way to save? Paying yourself first or last? Many ultra-disciplined and frugal people pay their rent/mortgage, bills, buy food and spend as little as possible and put every last cent in savings. They save a huge savings rate because they have clear financial goals.

On the other hand, almost every book about personal finance has the famous phrase, “pay yourself first.” Before you pay anything, set aside a percentage, at least 10% of your income for savings. For many, this way is easier to be consistent with saving every month. If paying yourself first is the best strategy, why do nearly 90% of people I meet with pay themselves last? 

My take: Pay yourself first. 

What do you think? Pay yourself first or last?

Should I use a credit card or avoid them?

I get asked this all the time. I don’t know if there’s a more controversial topic. Most college students arrive at college with such conflicting views of credit cards and no idea what to do. Some parents say avoid them and others walk their kids into the bank as soon as they’re 18 to help them open their first one, as my mom did. Dave Ramsey is famous for saying credit cards are the devil and if you’re ever spotted by him using one you will be annihilated. This is what Anthony O’Neal talked about last week and it was a heated debate.

They believe the average American isn’t responsible enough to own a credit card and it’s a sure way to get into debt. You don’t need a credit score and you can buy everything with a debit card.

On the other end, websites like Travel Miles 101 teaches how to travel for free by hacking credit card sign-on bonuses. Spend a certain amount in the first 3-4 months, say $4,000 and use the points to travel the world. They’ve learned how to get the most out of credit cards. Imagine if you could completely cut out the expense of travel? 

My take: Use credit cards responsibly by paying it off in full every two weeks. Use them to build your credit score and earn rewards. 

What do you think? Better to use them or avoid them?

Should I start my own business or work for someone else?

This is more of a personal life decision than a personal finance decision. But, it relates to every area of your finances. 87% of the US population has by choice or by chance, decided to work for someone else. Many wish they could start their own business. They know the benefits but find themselves comfortably in the rat race. Only 13% started and successfully run a business. The biggest reasons someone would venture out on their own is having no ceiling on how much they can make, tax advantages and the freedom to set their schedule

By working for someone else, your time and how much you can make will always be limited. But, there are many benefits; matched retirement contributions, health insurance, and a consistent paycheck, etc. You won’t have those if you’re the boss. 

My take: Find a way to make money doing what you love. 

What do you think? Is it better to work for someone else or have a business?

Should I invest in index funds or individual stocks?

The idea of index fund investing has been around for 40 years. Buying individual stock in one company has been around for hundreds of years. The main argument is, should I put all my money in a few companies or an entire economy in thousands of companies? Warren Buffet is famous for selecting 7 to 10 individual stocks at one time and has significantly outperformed the market for years. There’s no doubt that a few experts can beat the market. Phil Town, the author of “Rule #1 Investing” said last week, “with some experience and education, anyone can considerably outperform the market by applying my principles.” His purpose is to help people achieve financial freedom by investing like the best investors in the world. 

Statistically speaking, 98% of funds don’t beat the market. JL Collins, author of “The Simple Path to Wealth” says, “avoid the stress of trying to time the market, why not align yourself with the market?” The key is to invest in low-cost broad-based index funds such as the Vanguard VTSAX total stock market fund that has an expense ratio of 0.04%. 

My take: Align yourself with the market and lower your fees. Play around with a small amount of money in individual stocks.  

What do you think? Is it better to buy index funds or buy individual stocks?

Should I buy a new or used car?

Do we need to discuss this? Buying a new car

and driving off the lot is dumb. It just lost a third of its value. Same with leasing, it’s dumb financially. Some say, “I’m buying a new car because I plan to be the only owner for the next 30 years.” In that case, you’re good. The chances of that happening? Low. You’ll probably hate it after a few years. 

My take: pay cash for a gently used car. 

What do you think? Is it better to buy new or used?

Should I buy a home or rent?

In America, we love homes. It’s the status symbol of choice to show our success. But, is owning a home always the best financially? 75% believe that it makes more sense financially to own a home. When you own a house, your payment each month goes to paying off the principle. But, how much does it actually costs to get into a house and maintain it? Closing costs, realtor fees, interest, unexpected repairs and being tied down to one place are all things to consider. Actual costs vary depending on the area. It typically costs 4-5% of the purchase price to sell the thing. So, when someone says, “my area is growing and I’m building up so much equity,” understand most people don’t walk away with very much after all of the costs.

When renting, you’re paying one flat payment and you never have to worry about paying more. Renting can bring a lot of peace of mind and the freedom to move anywhere without being tied down. The biggest problem is every time you write that rent check you might as well be sending it down the river because you are never going to see that money again. Most people believe that owning a home is better but sometimes it truly is better to rent if you are honest with yourself. 

My take: Own an affordable home. 

What do you think? Is it better to own or rent?

Should I take out a 15 or a 30-year mortgage?

The word mortgage comes from the old French language and literally means, “death pledge.” Many people sign away their lives and lock themselves down for 30 years to pay off a home. That’s a long time! The 30-year mortgage is the most popular. Many people take out a 30-year mortgage because of the lower monthly payments and will most likely sell the house anyway in 7 – 10 years on average. They end up paying more than double the amount of interest than a 15- year mortgage and plan to always have a house payment. This allows them to save more money in their bank account and put more towards investing.

The other end of the spectrum are the people who are trying to pay off their house as soon as possible. I was at the doctor’s last week for my son’s appointment. The intern mentioned that he knows a family that paid off their house by depriving their kids of vacations and clothes. This is the perception many have of others who are super determined to get out of debt. The doctor said, “it doesn’t make sense to pay off my home, I can get a better return in the stock market.” The math says you will be more successful investing in the stock market but psychologically people love the feeling of not having a house payment. 

My take: Take out a 30-year mortgage and invest as much as you can. Unless you plan to live in it until it’s paid off, then take out a 15-year mortgage and try to pay it off within 7-10 years. 

What do you think? 15 or 30-year mortgage?

Should I invest in whole life insurance or term insurance?

This is a heated debate. Many people have whole life insurance policies because financial advisors love to sell them. Putting your money in these allows you to build up cash that’s invested to use later if you make it to retirement before you die. You could completely avoid having to pay taxes on any of the money going in and coming out which is a huge benefit.

Term insurance is simply renting a policy that pays out cash to a loved one ($500,000 for example), in the event you die. Authors and bloggers teach to buy term and invest the difference because the premiums are so much lower and you’re buying it to use as LIFE insurance. The math says you will be better off financially if you buy term and invest the difference in low-cost index funds simply because of the fees. All of the different types of insurance out there are like mini coopers, it makes sense for some people to drive them. 

My take: Buy term and invest the difference. 

What do you think? Whole or term?

Should I pay off my student loans first or last?

The math says it’s better to pay off your student loans last and invest the difference. But as with the paid-off house, people love the feeling of being debt-free. 

My take: Pay your student loans off last unless you can’t stand having debt.

What do you think? Pay them off first or last? 

There you have it, ten of the most common controversies in personal finance. Economists say, human beings are rational and will always pick the most reasonable option. But, human beings are also emotional and will pick what they feel is the best option for them.

If I missed anything please let me know in the comments below. I would love to hear your thoughts.

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