Everyone can benefit from sound financial advice. However, you shouldn’t just blindly follow what the experts say. It is important to always trust your judgment and do your homework before you act.
The guidance you receive depends on which age group you fall into since milestones and goals change as you progress in life. In addition, we all come from various backgrounds and have unique experiences that shape our spending and saving behavior. This subconsciously affects how you will accept or filter any financial information you receive.
For instance, a Gen Z recent college graduate shouldn’t probably be advised to open multiple credit cards if they are burdened with student loans. But someone who has already entered the workforce should usually have at least one card to help build their credit history.
Anyone who experienced or witnessed how the pandemic forced people to max out their credit cards will probably tread with caution. It’s understandable if some of them turn a deaf ear to anyone who recommends credit cards to help improve their finances. Regardless of which generation you belong to, it’s important to understand the value of speaking with a financial advisor – especially if you lack financial literacy.
Unfortunately, many people overlook the importance of having a financial planner—or advisor. Bill Keen, the founder, and CEO of Keen Wealth Advisors, encourages potential clients to view a professional fee as an investment rather than an expense.
6 questions that can validate a financial suggestion
Keep this in mind if you doubt the value of a financial expert: many highly successful Americans have sought professional help before investing their money.
In fact, a Morgan Stanley survey revealed that nearly 60% of high-net-worth investors work with a professional for help with financial planning and investment decisions.
While you are encouraged to listen to the financial advice of experts when needed, you should still exert caution before following it. When you receive information – regardless of who gave it to you, be sure to ask yourself the following questions before committing to anything.
1. Is the advice clear or confusing?
Before you make a move, it is important to fully understand the suggestion. You should be well informed about what is required and the potential effect(s) on your finances.
If anything is unclear, ask questions. Don’t be afraid to request clarity or double-check with your advisor before taking action. It’s your money and your future, so speak up.
2. Does the person giving the advice have anything to gain?
If someone is being vague with their explanations, ask yourself if the advisor is only helping you for their personal gain. Are they saying anything just to get you to agree? If they are rushing to explain or can’t provide straight answers, you should question their sincerity.
A fiduciary means the advisor is legally required to put your best interests ahead of their own. Working with someone who is labeled as such is usually confirmation that the information you receive should be honest and solid.
3. Does it seem like this is my only option?
This question is also in relation to how the financial advice is being delivered to you. If it is being presented as the only option when you know there are alternatives, you might want to question the validity of what you are being told.
4. Will this advice bring me closer to my financial goals?
The first step in becoming a smart money manager is setting financial goals. This could help provide direction when it comes to deciding the best investment strategy.
It may also help you know if certain financial tips will be beneficial to you. If the advice can bring you closer to your goals, you should consider following it. If not, don’t be afraid to disregard it.
5. What are the short-term and long-term results of this advice?
When analyzing the benefits, it might be a good idea to consider both the short and long term. You might think it will have a bad result in the beginning but once you consider the future, things might be advantageous after all—and vice versa.
For instance, let’s say you are struggling with debt and are considering withdrawing money from your 401(k) to help pay it off. While this could lessen your burden at the moment, your long-term goal of retiring might be delayed.
6. Does it sound too good to be true?
Finally, you need to ask yourself if the financial advice sounds too good to be true. If you find your inner voice questioning what is being said, it may not be truthful.
When the advice seems unrealistic, there is almost always a catch. Make sure you don’t let desperation or fear cloud your judgment.
The information above can help you determine whether specific financial tips have a good chance of helping you. In case you have doubts, these questions can help you analyze the sincerity and effectiveness of the advice being offered.
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Common money advice that isn’t always true
A survey from Intelliflo, a technology platform for financial advisors, found that nearly 60% of Americans want financial advice but are unsure of where to find it. While expert guidance can be highly beneficial, there are certain tips that may not apply to your particular situation.
Credit cards are bad
Let us clarify one thing: credit cards are not bad – it’s the way we use them that can lead to negative consequences. If you know how to handle them wisely, you can actually typically benefit from owning one or more. But if not, they can cause you to fall into credit card debt.
Buying a house will improve your finances
This is probably true – at some point. A house can increase your net worth – as long as its value remains higher than the amount you paid for it. If you buy a house while prices are skyrocketing, it might not be a good investment in the end if prices go back down. Make sure you time the market as much as you can so that it can truly benefit your personal wealth.
Getting life insurance
Life insurance is a great way to secure your financial standing. However, the type of insurance you purchase should depend on your status in life. Remember that this type of insurance will benefit those you leave behind –your beneficiaries. If you are single, health insurance may be a more practical option.
Being frugal with your entertainment expenses
This is true – but don’t deprive yourself. Be sure to allot some money in your budget for entertainment-related expenses such as hobbies or special events.
Sacrificing the things you enjoy can negatively impact your mental health, which can make it more difficult to stay on top of your money.
Using your home equity to pay off debt
Finally, most people should think twice before using the equity in their homes to help pay off debts. Unless you have a concrete plan to pay it back, you could be asking for trouble. You might end up compromising your home if you can’t pay it back.
Before you take someone’s advice, use your best judgment, do your homework, and make sure you fully understand the consequences of your actions.