How to know when money advice is bad | Smart Switch: 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 a few know what they are talking about.

Whether it’s a friend with sound investment advice, a relative spouting outdated directives on how it “should” be done, or a social media influencer touting a trendy financial product, financial advice can be unpredictable. You can filter out the useful tidbits and leave the rest, but to do so, you have to know how to assess what advice you can trust.

CONSIDER THE SOURCE

Certified financial planners, financial counselors, or nonprofit credit counseling agencies can provide advice tailored to your unique circumstances. Look for professionals who do not earn a commission when you agree to follow their advice using the recommended solutions. That way, you know you’re getting unbiased guidance.

As a bonus, you’ll also get a solid explanation of how different financial products work, which is knowledge that can serve you for years to come.

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“Financial matters tend to be complex, and I think that’s why it’s so important for people like me to have education as a big part of what we do,” says Durriya Pierce, certified financial planner and financial advice expert at Albert , a financial firm. service company

A friend or relative who achieved a similar financial goal might also have practical advice to share. She may be able to lean on them as a source of emotional support as she works toward her own goal.

There may even be some nuggets of wisdom in outdated advice relied upon by previous generations. The next time you’re invited to a lecture about how cars used to cost a nickel in the past, instead of scoffing in disbelief, ask open-ended questions. How much did his grandfather get paid at his first job out of school? How much did your parents’ first house cost? That can open up a conversation about how wages, housing costs, and other money topics have changed over time, so you can both understand where the other person is coming from.

“At some point, it’s less about them sharing advice and more about them sharing their story,” says Phuong Luong, a Massachusetts-based certified financial planner and founder of Just Wealth.






FILE – Commuters walk through a corridor at the World Trade Center Transportation Hub on June 21, 2019 in New York. Whether it’s a friend with sound investment advice, a relative spouting outdated directives on how it “should” be done, or a social media influencer touting a trendy financial product, money advice they can be unpredictable. (AP Photo/Mark Lennihan, File)


Mark Lennihan


THINK HOW FEASIBLE ADVICE IS FOR YOU

Money advice is like clothing. It is designed to fit one person, but that person may not be you. Certain money best practices don’t work for everyone’s situation.

“Very often we ignore the context that people are going through. Financial advisors don’t provide the context and it’s really damaging when you don’t,” says Luong. “It perpetuates the myth that we can do this on our own and we can’t.”

She cites the oft-talked-about 50/30/20 budget, in which you apply 50% of your take-home pay to “needs” (like housing, utilities, and transportation), 30% to “wants” (like hobbies and travel) and 20% for savings and debt payments, for example. In high-cost areas, she points out, rent alone could eat up half of your take-home pay.

Bad money advice can also oversimplify a complex decision. With more people working remotely, for example, a friend may suggest that he simply 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, such as being close to an established community of family and friends.

BEWARE OF ADVICE THAT IS TOO GOOD TO BE TRUE

The internet and social media are riddled with money-related clickbait that promise almost instant success. Influencers sell access to expensive courses that they claim will make you a millionaire. Acquaintances from high school send you direct messages out of the blue, asking if you want to “be your own boss” by joining a network marketing program. Many of these get-rich-quick schemes are a waste of time and money.

“If it requires me to put money up front first, that would be a red flag for me,” says Luong. She recommends taking a hard look at these deals by finding out as much as she can about them, including looking for reviews, before shelling out any money.

Reliable monetary guidance is not going to make empty vows about guaranteed wealth. Look for advice that suits you, but gives you realistic expectations and some alternative courses of action.

“Beware of any financial advice that seems black and white,” says Pierce. “Because it’s very much a gray practice.”


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This column was provided to The Associated Press by the personal finance website NerdWallet. Sara Rathner is a writer at NerdWallet. Email: srathner@nerdwallet.com. Twitter: @SaraKRathner.

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