How to Tell When Financial Advice Is Bad | Smart Change: Personal Finance

There are a lot of people out there who want to tell you what to do with your money. The problem is that only some of them know what they are talking about.

Whether it’s a friend with hot investment advice, a relative spitting out outdated directives on “how to” or a social media influencer promoting a trendy financial product, financial advice can get lost. You can filter out useful anecdotes and leave the rest, but to do that, you need to know how to evaluate tips that you can trust.

Consider the source

Certified financial planners, financial coaches, or nonprofit credit counseling agencies can all provide you with advice tailored to your unique circumstances. Find professionals who don’t earn a commission when you agree to follow their advice with recommended solutions. This way, you know you’re getting unbiased guidance.

As an added bonus, you will also get a solid explanation of how different financial products work, knowledge that can serve you for years.

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“Finance tends to get complicated, and I think that’s why it’s so important for people like me to have an education as a big part of what we do,” says Doria Pierce, certified financial planner and financial advisor at Albert, a financial expert.

A friend or relative who’s achieved a similar financial goal can also have actionable tips to share. You may be able to count on them as a source of emotional support as you work toward your goal.

There may be some wisdom in the outdated advice that previous generations relied on. Next time you’re dealing with a lecture on how cars cost a nickel per day, instead of sniping in disbelief, ask open-ended questions. How much was your grandfather’s wages for his first job outside of school? How much did your parents’ first house cost? This can open a conversation about how salaries, housing costs, and other financial issues have changed over time, so you can understand where the other person is coming from.

“At some point, it’s less about sharing advice and more about sharing their story,” says Fong Long, a Massachusetts-based certified financial planner and founder of JustWealth.

FILE – Passengers walk down an aisle at the World Trade Center Transportation Center, June 21, 2019 in New York. Whether it’s a friend with hot investment advice, a relative spitting out outdated directives on “how to” or a social media influencer promoting a trendy financial product, financial advice can get lost. (AP Photo/Mark Lennihan, file)

Mark Lenihan

Think about how useful the advice is to you

Financial advice is like clothes. It’s designed to suit someone, but that person might not be you. Some financial best practices do not suit everyone’s situation.

“Often we ignore the context of what people are going through,” Long says. “Financial advice providers don’t provide that context and it’s really harmful when you don’t.” “It perpetuates the myth that we can and can’t do it on our own.”

You cite the much-discussed 50/30/20 budget – where you apply 50% of your home pay to “needs” (such as housing, utilities, and transportation), 30% to “desires” (such as hobbies and travel) and 20% to savings and debt payments – as an example. . She points out that in high-cost areas, rent alone may eat up half the house rent.

Bad financial advice can oversimplify a complex decision. With more people working remotely, for example, a friend might suggest you move to a lower-cost city to save money. Pierce, who lives in a high-cost area of ​​New Jersey and has no plans to leave, says this advice ignores the non-monetary benefits of staying put — such as being closer to an established community of family and friends.

Beware of advice that is too good to be true

The internet and social media are rife with money-related click-baits that promise near-instant success. Influencers sell access to expensive courses that claim to make you a millionaire. High school acquaintances send you messages straight out of the blue, asking if you want to “be your own boss” by joining a multi-level marketing program. Many of these get-rich-quick schemes are a waste of time and money.

“If it required you to put money up front first, that would be a red flag for me,” Long says. She recommends taking a close look at these offers by learning as much about them as possible — including looking for reviews — before you buy any money.

Trustworthy money guidelines will not make empty vows about guaranteed wealth. Find advice that works for you, but gives you realistic expectations and some alternative courses of action.

“Be wary of any financial advice that looks like it’s white or black,” Pierce says. “Because it’s pretty much a gray exercise.”

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This column was provided to the Associated Press by personal finance site NerdWallet. Sarah Ratner is a writer for NerdWallet. Email: Twitter: @SaraKRathner.

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