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5 Most Overrated Concepts in Personal Finance

Author Greg Davis

In the world of personal finance, we are constantly bombarded with messages about things that could significantly improve our financial lives. Whether it be a particular kind of investment, a novel mindset, or the latest money-saving techniques, there are plenty of ideas on how to get ahead financially.

Unfortunately, while many of these ideas are great in theory, they tend not to measure up in practice. These are the “most overrated concepts in personal finance.” This article shares my thoughts on concepts or things that no longer seem relevant.


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1. Paying off a mortgage early (is a bad idea)


I certainly see the appeal of paying off your house free and clear, with the benefits of more flexibility, freed-up cash flow, and freedom from mortgage debt. I also get it from a psychological perspective. But it still makes no sense to me, especially if you are lucky enough to be locked in a 3-4% mortgage rate.

I know some people who can’t manage debt responsibly. But tax-advantaged low-cost debt on the best inflation hedge available sounds like a wonderful deal to me. That is good enough for me as long as it is paid off by the time you retire. I can invest my money and earn more significantly than 3-4% over an extended period. 

The annualized return for the stock market over the past 50 years is 9-10%. While I know there will be some short-term pain in the markets, I am certain I can make more money over the long term than paying off a low-cost mortgage.


2. Frugality (can be overrated). 


I certainly subscribe to living below your means. How else will you build wealth if you don’t spend less than you earn and save the difference? But most personal finance experts take this to the extreme. 

They make you feel bad about spending any money. They want you to live a pitiful existence now to save money for your future self. Once you become your future self, you can’t force yourself to spend the money because you have been in the saving mindset for so long.


I am moving beyond that line of thinking. Yes, you need to delay some gratification to get ahead in life. But I do not see the point in delaying all gratification to live like a cheapskate. Being frugal can only take you so far. 

Recently, my wife’s car, which was 15 years old, started burning oil in addition to having several other mechanical issues. In my “cheap accountant” days, we would have kept this car running for as long as possible. But in one of our recent monthly “money dates,” we jointly decided it was time to replace her car with a newer vehicle, which we did in February. While she misses her old car, she loves the new vehicle, and I can stop worrying about her breaking down on the busy roads around Philadelphia.


3. Buying stuff (is OK). 


Many personal finance books exist about getting out of debt, saving money, and investing. But have you ever noticed that people need to talk about how to spend money? Spending is always frowned upon. As a cheap accountant, I used to adhere to this line of thinking, but I don’t anymore.

Don’t get me wrong — I still don’t like wasting money on fancy items. There are certain things I refuse to spend a lot of money on: luxury clothing, fancy cars, high-end furniture, expensive watches…, and stuff like that. But there is stuff on which I genuinely enjoy spending money. Experiences (e.g., monthly massages) still have a bigger bang for the buck, but some material possessions (e.g., comfortable shoes) make me happy.

Speaking of happiness, my key takeaway from Wendy De La Rosa’s TEDx Talk called “10 Steps to Boost Your Financial Health” was when Wendy suggested, “We should increase our spending on happiness.” Focus on experiences, spending time with others, and things that save you time (e.g., cleaning your house, mowing your lawn) and increase your happiness. Some of our past expenditures were a bit frivolous. If the spending was reasonable and increased our happiness as a couple, this was money well spent and easy decisions for my wife and me. 

For example, we love spending money on travel. Some of our favorite vacations have been attending college basketball games during “March Madness” in various cities for over twenty-five years. Also, we have shared amazing retirement experiences in Hawaii and Canada and numerous trips to the beautiful, serene beaches of the Outer Banks (OBX) of North Carolina.


4. No one knows when “enough is enough” (and that’s OK). 


The people who say they have enough are probably lying to you. No one ever completely figures that magic number out. That is why even retirees who amass a healthy nest egg need help spending their money in retirement. In a 2022 T. Rowe Price article, their survey reveals that 70 percent of retirees identified as “savers,” while only 30 percent classified themselves as “spenders.” From the survey of over 3,400 401(k) participants, almost 60 percent of retirees said they want to maintain and grow their assets. 

The key to your financial retirement success depends on how well you understand your saving and spending habits. No one is ever happy with their station in life, either. The Wall Street Journal recently shared research on how much money people need to make to be happy:

In the survey, most people said delivering contentment would take a significant pay bump. The respondents, who had a median salary of $65,000 a year, said a median of $95,000 would make them happy and less stressed. The highest earners, with a median income of $250,000, gave a median response of $350,000.


It’s tragic because it shows contentment is basically impossible to find. Regardless of how much we make, we always want more. Sadly, the goalposts keep moving.

While it is individually tragic, it makes me bullish on our species. No one is ever happy, so we keep striving to do better. We keep innovating, making progress, producing profits, spending more, and doing our damnedest to earn more money. The fact that no one is ever comfortable with their income or wealth is long-term bullish for humanity.


5. A house is your best investment (or not!). 


Owning real estate can be a wonderful investment. There is the inherent leverage involved, potential tax breaks, and the long-term nature of the asset. But for most people, owning a home is just a place to live that more or less keeps up with inflation after accounting for all the costs involved. Housing is as much a form of consumption as a financial asset.

Zillow recently released a new report on the hidden costs of homeownership. The report estimates that the average ancillary homeownership costs, such as utilities, insurance, maintenance, property taxes, etc., are more than $14,100 yearly.  

For the math-oriented readers, that’s an additional $1,100 a month on top of your mortgage. When you add in things like lawn care, furniture, and all the other stuff you must buy to fill up your house, these numbers are on the low side.

After several years of mulling over the purchase of a vacation home, my wife and I decided in 2005 to take the plunge. After finding our dream vacation home in a quiet, gated golfing community in Corolla, North Carolina, we moved forward with the financing and other buying costs required to buy this large 4,500-square-foot home. In 2017, we sold this house for much less than we had bought it at its peak twelve years earlier, which resulted in a sizable capital loss on our tax returns. While we loved owning a beach house in OBX, this was probably the worst financial decision of our lives.

My point here is not that you should avoid buying a house. A house is still a worthwhile investment for most people. However, the most significant return you get from owning a home comes from the comfort you receive from choosing your neighborhood and making a house your own. Owning a home is not an excellent investment because most people have yet to learn their actual rate of return since no one really keeps track of all the costs involved in the process.

While you may not fully support my assessment of what financial ideas are overrated, we can all agree that some financial trends become overhyped periodically. When this happens, your best defense is to stick to your plan and focus on what truly matters to you. 


Final Thoughts


How you earn money, manage risk, and react to markets will be far more critical than whatever “new thing” pops up in your financial lives. Let go of overrated notions, embrace financial realities, and build a money management plan that stands the test of time.

What personal finance concepts or ideas need to be more overrated?


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3 thoughts on “5 Most Overrated Concepts in Personal Finance”

  1. I was happy to see the first one about paying off your mortgage. I agree, why wouldn’t you use 2.6% to 3.5% cost of money (tax deductible up $750,000). The concept of “other people’s money.”

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  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. How well tax advantaged is mortgage debt? According to Bob Sharpe via the Tax Policy Center, 90% of homeowners receive no tax advantage.
    Or is there a misinterpretation somewhere?


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