Financial advice is everywhere.
You see it all over Twitter and all kinds of Facebook groups eventually get into the realm of “financial advice” regardless of the group’s main topic.
You’ll hear money-saving tips and other stuff like:
- Pokemon cards or ______ is the next big thing
- Things like a grocery delivery service or Amazon Prime is/isn’t worth the money
- What brokerages you should use for your investing
- The only financial institutions you should use are credit unions or local banks
What do you think blogs like this are for–although I try to stay away from financial advice and lean toward “financial education” more than “advice”.
The truth is, you’re going to have it tossed at you even if you didn’t even ask for anyone’s input.
And if you do hit the net in search of specific financial advice, how do you know:
- If you can trust the writer (especially if they don’t give their name?)
- What you will find actually pertains to you?
- If the advice even legit (ie: legal or even feasible)?
There are just so many questions that come to mind when I read what’s written on some sites.
If I have questions, then I’m sure you have even more!
So let’s get down to business.
Here are 5 steps you should take before acting on any financial advice–both sought-after and unsolicited alike.
Step 1: Do Nothing Immediately After Receiving Financial Advice
That sounds counterintuitive, doesn’t it?
The whole point of financial advice is to act on it after all.
But not randomly or without vetting it first.
What should you do?
Well, first you should bookmark the site so you don’t forget where you saw that piece of financial advice in the first place.
Leave it alone for a day–sleep on it so the impulse passes and you can come back with a fresh view.
It’s the same thing people advise to do in order to curb impulse shopping.
Step 2: Put Financial Advice In Context
After you’ve had your cool-down period, you can revisit the site.
Now, you’re going to start putting in the work.
First, put yourself in the scenario:
- Does the person giving the financial advice sound like you?
- Are your situations similar?
- Do you have the same financial needs?
- Are your financial sensibilities in line?
Basically, you want to make sure that you are the intended audience.
If the presenter is married but you aren’t is it really a good fit?
Are they religious and donate to charity aligning with those beliefs and suggest you do as well if you aren’t?
If the presenter lives in a major city but you’re located in a suburban or rural area, does that financial advice fit your needs?
If the presenter has 5 children but you are childless does that raise a red flag about compatibility?
Are you scared of losing money by investing but a big part of the advice getting into the stock market?
This step is to make sure that you aren’t trying to fit a square peg into a round financial hole so to speak.
Step 3: Do Your Due Diligence
If you took the first two steps and are ready to move forward, the next thing to do is to vet the person dispensing the financial advice.
You want to know what qualifies them to give this advice.
Is the person a tax preparer with educational and practical tax knowledge?
Are they a CFP speaking about retirement planning?
Perhaps it’s a business attorney giving advice about setting up a limited liability company for small businesses.
Or maybe it’s a celebrity being paid to hawk a product like tax apps or crypto investment platforms.
Even people who seem to have educational and professional credentials shouldn’t always be taken at face value.
They may not be an expert or very knowledgeable in the area they are advising on.
Here are some examples:
- You wouldn’t go to a divorce attorney to get an employment contract drawn up
- You wouldn’t go to an OBGYN for a neurological issue
- You wouldn’t go to an auditor for bookkeeping advice
- You wouldn’t take parenting advice from someone (a non-medical professional) who has never been a parent
I think you see where I’m going here.
You need to make sure the person has the appropriate background and footing before following any advice.
Step 4: Devise A Plan: Customize Financial Advice To Your Situation
You’ve verified that the “advisor” is qualified and knowledgeable.
You’re flying through the steps now!
You still can’t blindly follow that advice, though.
You need to tailor the advice to your specific needs and situation.
Let’s say you want to follow the advice, but your monthly budget isn’t the same as that person’s.
Or perhaps your inner rent vs. buy debate just ended in a decision to buy a home so that is a priority.
Maybe you have a child on the way.
Whatever the situation, you have to make sure to tailor the advice to you.
Make a plan.
List the similarities and differences between your situation and the person you got the advice from.
Figure out where you can follow and where you need to deviate.
Be prepared for the possibility that it may take you time to get the advice aligned with your personal situation.
Keep in mind: nothing is immediate when it comes to managing money and patience is truly a virtue.
Step 5: Implement Your Customized Plan Using Financial Advice
The last step!!!
Now is the time to take everything and put it into action.
Be careful, though, you want to take things at a measured pace.
Change is difficult for most people, but it’s especially difficult when changing your money habits.
Don’t try to do ten things at once.
Do one thing at a time, from start to finish.
Then you can move on to the next step in the implementation process.
Multitasking isn’t always a positive thing, as it distracts you from giving 100% of your attention to each task you need to complete.
Don’t worry if you are taking longer to see results than others, this isn’t a race.
It’s not a competition either.
Remember, this is your life and your money, so you need to at your own pace.
A Word On Taxes
One of the biggest things that get overlooked is taxes.
Not that everyone has to be an expert, but many people ignore mentioning them altogether:
- Federal income tax return
- State income tax return
- Potentially self-employment tax depending on the advice
At the very least there should be some consideration given to how any financial advice you follow will impact your tax situation.
It’s never a bad idea to consult with a qualified tax preparer if just hearing the word “taxes” is like someone speaking a foreign language.
Financial advice–heck advice of all kinds–is widely available on the internet.
Not to mention from talk radio, cable television, family, friends, etc.
I firmly believe that there is only one universal piece of advice when it comes to most issues:
You only need to worry about your own situation…if something works for you and your situation/family, that’s all that matters, not what others think you should be doing.
What is your approach to advice–financial or otherwise? Do you ever blindly jump in with both feet or do you take a more measured approach like what I outline? Have you ever followed any advice that ended up backfiring horribly (that you are comfortable discussing)?