There are a lot of people out there who want to tell you what to do with your money. The problem is only some of them know what they're talking about.
Whether it's a friend with a hot investment tip, or a family member pitching outdated directives about the way it “should” be done or a social media influencer touting a trendy financial product, money advice can be hit or miss. You can filter out the useful bits and leave the rest, but to do that, you must know how to evaluate which pieces of advice you can trust.
Step #1: Consider the source
Certified financial planners, financial coaches or credit counsellors can all supply you with advice that's tailored to your unique circumstances. Look for professionals who don't earn a commission when you agree to follow their advice by using recommended solutions. That way, you know you're getting unbiased guidance.
As a bonus, you'll also get an explanation of how different financial products work, which is knowledge that can serve you for years.
“Financial matters tend to be complex, and I think that's why it's so important for individuals like myself to have education as a large part of what we do,” said Durriya Pierce, a certified financial planner and financial advice expert at Albert, a US-based financial services company.
A friend or relative who accomplished a similar financial goal could also have actionable tips to share. You might be able to lean on them as a source of emotional support while you work toward your own goal.
There may even be some nuggets of wisdom in outdated advice that previous generations relied on. The next time you're treated to a lecture about how cars cost less back in the day, ask open-ended questions. How much was your grandfather paid at his first job out of school? How much did your parents' first house cost?
That can open a conversation about how salaries, housing costs and other money issues have changed over time, so you can both understand where the other person is coming from.
“At some point, it becomes less about them sharing advice and more about them sharing their story,” said Phuong Luong, a US-based certified financial planner and founder of Canada's online portfolio management platform Just Wealth.
Step #2: Think about how feasible the advice is for you
Money advice is like clothing. It's designed to fit a person, but that person might not be you. Certain money best practices don't work for everyone's situation.
“So often we ignore the context of what people are going through. Financial advice-givers don't bring in the context and it's harmful when you don't,” Luong said. “It perpetuates the myth that we can do this on our own and we cannot.”
She cites the oft-discussed 50/30/20 budget – where you apply 50 per cent of your take-home pay to ‘needs’ (like housing, utilities, and transportation), 30 per cent to ‘wants’ (like hobbies and travel) and 20 per cent to savings and debt payments – as an example. In high-cost areas, she notes, rent alone might eat up half of your take-home pay.
Bad money advice can also oversimplify a complex decision. With more people working remotely, for instance, a friend may suggest you simply move to a lower-cost city to save money. Pierce said that this advice disregards the non-monetary benefits of staying put – such as being close to an established community of family and friends.
Step #3: Be wary of advice that's too good to be true
The internet and social media are rife with money-related clickbait that promises near-instant success. Influencers sell access to expensive courses that claim they'll make you a millionaire. You may often get direct messages asking if you want to “be your own boss” by joining a multilevel marketing program. Many of these get-rich-quick schemes are a waste of time and money.
“If it requires you to put money upfront first, that would be a red flag for me,” Luong added. She recommended taking a hard look at these offers by finding out as much as you can about them – including looking up reviews – before you fork over any money.
Trustworthy money guidance isn't going to make empty vows about guaranteed wealth. Look for advice that fits you but gives you realistic expectations and a few alternative courses of action.
“Be wary of any financial advice that seems like it's black and white,” Pierce said. “Because it's very much a gray practice.”
Verdict: Seeking the help of a financial advisor to help vet financial advice
Financial advisors help people manage their money and reach their financial goals. They can provide a range of financial planning services, from investment management to budgeting guidance to estate planning.
Picking the right financial advisor for your situation is key — doing so means you won't end up paying for services you don't need or working with an advisor who isn't a good fit for your financial goals.
• Do you want help investing?
• Do you want help investing?
• Would you like to create a financial plan?
• Do you need to get your estate plan in order or create a trust?
Your answers to these questions will help determine what kind of financial advisor you'll need. If you just want assistance investing, a robo-advisor can invest for you for a minimal fee. If you have a complex financial life you may want to work with an online or traditional financial advisor.
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