Did you know that general financial advice you get online or from your favorite financial “guru” can be wrong for you just as often as it is right? Read that again. There is a 50/50 chance that the guidance you get online, from a financial personality, or from a random person on the street could be detrimental rather than helpful. I personally don’t like those odds.
You can find a plethora of tips or opinions about getting out of debt, retirement planning, or investing, but are they right for you in your unique situation? Here are some questions you should ask yourself before applying any advice you receive, no matter the source.
What are the advisor’s qualifications?
How much experience does this person have? What is their area of expertise? Instead of consulting a professional, are you taking advice from a friend, co-worker, or relative about how to save, invest, handle money, or get out of debt? Are these advisors in a good place financially themselves?
Does the advice work in my specific situation?
Getting out of debt is generally great advice, but making that your primary focus may not be appropriate for you. Do you have an emergency fund? What kind of financial situation would you be in if you lost your job with no cash on hand? I often hear people advocate maxing out your 401k. It sounds good, but is that the right choice for you? Selecting an alternative option for contributions above what your employer matches may be the wiser option. How do you decide?
Do you believe taxes are going up or down?
Your belief about taxes will help form the basis for your financial planning and investment strategy. Do you know how the tax rate impacts your current 401k and your future retirement income? Should you consider a ROTH option within your 401k?
What are the affiliations or biases of the person advising you?
What is that person’s track record? Can he or she offer you a full range of options, or is there bias toward a particular strategy based on sponsorships or affiliations? Beware of taking advice from social media influencers who are often paid for catchy videos advertising a product or service they don’t even use. Investigate any online personalities you follow for financial advice, as you may find that they are not a licensed financial advisor at all. Many times, the information they provide is only their opinion. What is the basis for their opinion? What is the basis you use to determine which “opinion” is best for you?
Does the person advising you have values or recommend strategies that align with yours?
Are there certain businesses or strategies in which you want to avoid investing your money? What is your advisor’s position on those investments? Can you ask your advisor specific questions? How does he or she respond to your queries? Is your advisor willing to listen to your specific needs and desires, or does that person apply a one-size-fits-all strategy to everyone?
What will this cost me?
The cost is always more than the money you invest and the fees charged. Are the recommended investments something that will cause you to lose sleep, increase your stress levels, or cause a conflict with your spouse?
Do you know, like, and trust the person advising you?
Developing a financial strategy can be a stressful and intimidating process. Meeting your potential advisor will help you determine if you are interested in working with them. Ask around; has anyone you know worked with them before?
I encourage you to use caution before implementing any financial plan. Do your homework. Ask lots of questions. A good advisor will not shy away from questions but rather will welcome them.
A solid financial plan includes a long-term strategy with built-in flexibility. After all, things happen, and life changes quickly.