There is some money advice that sounds good on the surface, very responsible, but you give it the smallest scratch and it's actually terrible for you.

These big generic rules of thumb.

Things like, you should buy a house as soon as possible, or never buy coffee or beers out, or never sell an investment, or you've always got to be maximizing the return on your money.

These things can sound sensible, but if you follow them blindly, you will not only make your life smaller, you could end up hurting your financial life.

Besides, the point of being good with money is not to build up a pile of cash that you just never spend to be hoarding it, like Smaug sitting on a pile of gold.

The point of being good with money is that you use it to build a life that you love, whatever that looks like to you.

And that's exactly why some decisions that on paper are bad.

Financial decisions can actually be the best thing.

So welcome to Making Sense.

It's the podcast People who Want Financial Freedom Without Giving Up Their Coffee.

And I'm Frances Cook, a financial journalist and fellow financial freedom seeker who makes money simple for you.

These have been driving me crazy.

So it is time to myth bust these seven common myths about bad financial decisions that can actually be really smart if you understand why you're making them and how to balance them out.

So myth one.

You should never spend money on socializing.

Beers after work, terrible.

Coffee out, financially reckless.

Except actually not at all, because this is how social ties are built, and social ties are actually how we get ahead in life, including financially.

Yes, sometimes you can actually mentally categorize the spending as a fairly cheap investment, especially in your earning power.

Look, there are lots of different numbers around, but the lowest percentage I've seen is that 70% of jobs are never advertised.

And I've seen other studies saying that actually might be as much as 80% of jobs never being advertised.

It's called the hidden job market.

And those jobs go to internal promotions or other employees who recommend someone, or people found through networking.

Employers love it because it's faster for them.

And a personal recommendation holds a lot of weight.

And it might not really be fair, but it is reality.

And it's often what's called your weak ties, not close friends, that get you those referrals.

This means people that you bump into now and then, you're friendly with them, you kind of know them, but you're not telling them your deep, dark secrets.

You can have a pretty wide network of these people, and it's almost always those people who end up recommending you like, oh, hang on, I think I know a guy that could be good for that.

Let me send them a message.

There is decades of research behind this one.

We've got a sociologist, Mark granovetta, in the 1970s, all the way up to a 2022 nature study that used LinkedIn data.

And all of these other studies done in between the two of those masses of research, all showing that these weak ties built through casual work, drinks, the old uni friend, the person you chatted to at a conference, it gives you so many more job opportunities and therefore ways to build your income.

These are the relationships that you build by just being out and about, bumping into people, being friendly.

This hidden job market has existed forever and it's not going anywhere anytime soon.

It's just human nature.

And that doesn't even count that a lot of opportunities are never even listed as jobs at all, even hidden ones.

Some opportunities are created by you being out and about, having conversations, sparks fly, ideas are battered back and forth, and an opportunity is created out of thin air force because you had the conversation and the idea together.

Seeing people, talking to them, being friendly and building ties is not just good for our souls, and don't get me wrong, because it's also really good for our souls, and that's worth a lot in itself.

But if you need an excuse for why it's good for you to socialize and why you can justify a reasonable amount of money on it, go buck wild or anything, but within reason, you can have this one.

Being sociable and having conversations is also how you stay on top of what's happening in your industry, share ideas, learn new things, and hear about opportunities before they're official.

This is what people really cringily call networking, and I hate that word, but let's rebrand it.

It doesn't have to be official networking events.

It can be just seeing people sharing a lunch break together, going to Friday drinks, and it's fun.

So, you know, enjoy life a little and drop the guilt about it.

Myth 2 Renting a house instead of buying is just wasting money.

Or maybe we flip this one, you're buying flexibility.

Look, buying a house can be really important to financial stability, but not if it comes at the wrong time in your life.

Buying a house means putting down roots, staying in one place and committing to that mortgage.

Again, great stuff if it's the right time in your life.

But sometimes that is simply not the case.

Sometimes it is not the right time in your life.

And buying can actually be a bad idea.

For instance, younger People who are in the early years of building their career may need more flexibility to move where the opportunities are to build skills rapidly and climb the ladder fast.

Move once, move twice, keep building.

And New Zealanders sure do love to move.

Between 2018 and 2023, Stats NZ tracked 2.2 million of us changing our address.

A big driver of that is younger people moving to where they see more opportunity for building those crucial early wins.

They're not wrong to make that a priority.

Investing in your earning power can be a more powerful first step than paying off a giant mortgage.

I often say your first investment isn't actually things like shares or property or anything like that.

It's investing into your knowledge, then investing into your earning power.

And that will make it so much easier to make those next more traditional investments that people think of.

Buying and selling a house can be expensive.

It takes months and you will be stopped from making those all important moves on the income side of things or a different side of this issue.

Maybe you're in an expensive area and buying a house puts you right to the limits of what you can afford.

One move on interest rates and the bank could end up selling it out from under you.

It is better to get financially stable and make sure it's the right time to buy than it is to buy at the wrong time, get overstretched, and then be absolutely miserable trying to stay ahead of things, or worst case, losing the house because you couldn't make the payments anymore.

Now, whatever reason that buying a house may not be for you right now, I do hope that you still continue to build financial stability in other ways.

In either of those scenarios that I just laid out, putting money towards investments such as shares while you continue to rent can actually mean you still get ahead even without buying that first home.

Just make sure you stay tactical.

Don't necessarily use it as an excuse to do nothing with your money.

But yeah, renting can absolutely be a smart financial decision depending on where you're at in life.

Myth 3 Save money by DIYing everything or you're lazy.

Getting a cleaner in outsourcing your laundry?

Terrible.

It only takes a couple of hours.

Just save a few bucks and have some pride.

Except if you can afford it.

I don't think you should ever feel bad about making your life easier and there might be a better use of your time.

Are you trying to build skills so that you can get a pay rise or promotion?

Are you someone with a high hourly rate?

Or you're trying to build a business which could increase your income if you can spend more time on that and have someone else take the chores off your hands while you're focused on building your earning power.

Why wouldn't you?

The cost of having someone help you out with some of your chores in life might actually be lower than than the opportunity cost of those other things that you could be doing instead.

If you're able to use your time to invest in yourself or say you could earn $45, hiring someone for an hour of help at $40 an hour could be a brilliant use of your money.

If you're a lawyer billing $250 an hour and you spend Saturday scrubbing bathrooms for three hours to save $120, you haven't actually saved money.

You've just swapped high value time for low value time.

Or even if you can simply afford it and just want a little life boost, I just think, why not?

Let me give you some science to back this up if you really want.

There is a lovely recent study, a 2017 one called Buying Time Promotes Happiness, which does exactly what it says on the tin.

The biggest finding was that people who spend money to buy time, like outsourcing chores, report higher life satisfaction and lower stress.

Now obviously everything takes balance.

You don't necessarily want lifestyle creep, blah blah blah.

We know that, but also trust yourself to know the difference.

Sometimes getting the chores out of the way is actually the better financial move.

Myth 4 you need to keep climbing that career ladder and chasing every pay rise that you can.

Now, there has been a bit of a theme so far on earning more.

And yes, of course your money life can be easier if you have more of that money coming in.

But there is also the times when I've talked to people who are considering a drop in salary in order to make a career change and they are just terrified to talk to me about it, thinking I'm about to judge them.

Let me tell you right now, I will not be judging you because there are times that that is absolutely the right move to make.

Now caveat on this because I don't think you always have to have a drop in salary if you're wanting to make a career change.

I've known plenty of people who changed industry exactly because that would earn them more money.

Or even people who wanted to change career paths and they took a few months to lay out a strategy and network, get a couple of extra skills, and then they jumped ship in a way that meant they didn't have to lose any pay.

So first, do your research.

See if there's a way you can do this without the drop in income.

But if it is genuinely the case that you want to make a career switch in order to improve your quality of life and that's going to mean a drop in salary, yet you've done the numbers and you can still make it work, do it.

We spend more time at work than with our spouse or other loved ones.

Let's make sure this is a life that you enjoy.

And honestly, it still usually works out financially anyway.

There's some 2020 research from the New Zealand Productivity Commission found that people who stayed loyal to a job had average wage growth of 3% per year.

Those who switched job average wage growth 4.6% per year.

Now as always, right?

This is like when we look at investing.

Don't be fooled by what could look like a small percentage difference if you start your career at minimum wage.

Currently that's $48,880 per year in New Zealand, right?

We look at a 45 year career.

If you stay loyal, clock in at that 3% average pay rise per year.

That loyal person has a lifetime earning $4.5 million.

Not bad.

But the person who job switches gets that average wage growth of 4.6% per year.

They build lifetime earnings of 7 million.

That's a difference of 2.5 million.

So, looking for opportunities, changing, being strategic, really smart.

And maybe sometimes you have to go backwards to go forwards again.

Just be strategic, have clear eyes, know what you're doing, then go for it.

Look at the various options to make it work.

If this is purely a lifestyle move, then have you built up investments and kiwisaver in order to give you a solid financial base still to work from?

Or is it a move where you accept a small salary drop now in the hope of big gains in a booming industry later?

Get planning and get moving.

It's not worth going back to work if you're paying just as much for childcare.

Now, let me head off any parenting debate first by saying whether you choose to go back to work after having kids or become a full time parent, I don't care.

As in, I do care about you building the best life that you want.

I don't care how you choose to do it.

That one is up to you.

Whatever one is important to you, go for it.

And I think you can only know which one you'll really want after Bub arrives.

However, I have heard some people weighing the debate by saying it's not worth going back to work because it costs the same as daycare costs.

And that is one consideration that I think should be taken off the table.

For starters, it only ever seems to be Mum's salary that is compared to childcare costs.

For some reason we never say that it's not worth dad going back to work because it cancels out his pay, which I just that's interesting.

Besides that factor though, time out of the workforce can mean it's harder to progress later, such as by getting a promotion that comes with a pay rise to so it's not just the earning power right now that you need to factor in.

Even if your salary ends up being the exact same cost as any childcare, it's only a few years and you need to think about the future factor too.

Like I say, if you want to parent full time for other reasons, absolutely, go for it.

But childcare doesn't have to be a bad financial decision that weighs on that choice myth 6 never sell your investments Even if it's stressing you out, you just need to toughen up.

In investing, we often talk about knowing your risk tolerance because even if the numbers look good, if a normal share market dip means you're laying awake at 3am panicking that you're getting it wrong, it simply might not be worth it to you.

The Financial Markets Authority, that's our money police, they put out some interesting research back in 2023.

One in four of us, that's a lot struggle to not change our investments.

When the market goes down, we feel confident until that moment that we can handle it and then something happens and then it's human nature to feel a bit nervous and panicky.

This is why I'm a big fan of having some guardrails in place with your investing from the beginning to protect against these very natural impulses.

Starting small with your investments, such as just 20 bucks a week, you can learn by doing, but you also get the chance to experience investments going up and down in value while you have less money on the line.

You see how it all works.

You toughen up and by the time you build up to investing more, it truly doesn't bother you anymore.

And another tactic is to put it into something like an index fund where you've got hundreds of companies in there.

If it goes down, it's not likely to be because one company is having a really bad time and could be about to go under.

That is a situation that really is a worry for your investments.

If a fund goes down in value, it's often because the economy itself isn't doing great.

And that's something where you can just wait.

It out, wait for it to recover.

No need to lose sleep.

And if you've started small into a fund, built that muscle, built that resilience, then you're likely not to be losing sleep.

If that happens because you got yourself used to it a bit at a time.

Until then, if you've made a big investment, maybe into one company, maybe it's not going how you expected and it's weighing on you, then maybe it's time to start over, start smaller, give yourself a mental break.

None of us are perfect in any area of our life.

Our money is the same.

So if you give it a try, it's not working and you want to start over, then that's fine.

Just make sure that you're learning from it and not giving up entirely.

The next mistake that isn't is actually the flip side of this myth 7.

Your money should be getting maximum growth at all times now.

I love investing.

I'm a huge believer in it.

I think more of us need to be investing, especially into things like the share market, and it would make our lives so much easier.

But should every dollar be growing in the share market?

No.

That's not balance either.

You need a certain amount of your money in cash in order to give you the confidence to make aggressive money moves elsewhere.

There will always be times when your car suddenly needs a repair or the cat has to go to the vet.

God forbid you lose your job.

You need cash ready to pay bills while you scramble to sort something else out.

Cash is your safety net.

It is the money that you have there ready to go when life happens.

We all know that life happens.

Do not kid yourself that it won't happen to you.

It can always happen to you.

And you don't want to be suddenly selling investments to pay for things the market might have just gone down.

Or you might just be selling at the wrong time.

We do not want to sell investments because life happened.

We want to sell them because it's the right time.

Having cash savings means that you can be aggressive in your career, in your other investments because you know that you have that safety net there.

The rule of thumb is about three months of your living expenses if you have a salary job, maybe six months of your living expenses in a savings account if you're a bit more nervous.

Or maybe your income can fluctuate a bit, such as you're self employed, something like that.

That money doesn't have to be earning the maximum.

It is your safety money.

The price of that safety is that you don't earn the maximum on it.

But that safety net means you can be aggressive everywhere else and earning high elsewhere.

So really it is earning for you.

It's just not directly look so many of these financial myths and the flip side of them it really boils down to just stay in the game and build a life while building your money.

It's all too easy to cling to hard and fast money rules like buying a house is always good or never sell your investments or pursue the pay rise at any cost.

But sometimes a bad financial decision is the best way to preserve your cash.

If you try to force something that simply isn't working for your life, you run the risk of burnout or making a reactive decision later that's even worse.

Or if something like an investment is stressing you out, trying to grit through it at all costs might mean that you just eventually quit investing entirely, when instead you could have switched to a more moderate strategy that works better for you.

Very few decisions are truly fatal for your finances.

A bankruptcy level mistake is rare, but burnout, resentment and quitting entirely are actually rather common and a more realistic danger to your money life.

So it's really worth thinking it through, deciding on what's best for your long term goals and then having the courage to take the path less traveled if that is what is right for you.

So send this episode to a friend if it was useful to you.

Make sure that we all level up our money together.

Until next time, have a great day.

This podcast can only give you general information about how things work in most situations.

It's not individual financial advice.

If you're after that, a financial advisor is always the best bet.