Whether it is a friend with a hot investment tip, a relative spouting off outdated directives about the way it “should” be done or a social media influencer touting a trendy financial product, money advice can be hit or miss.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 titbits and leave the rest, but to do that, you have to know how to evaluate which pieces of advice you can trust.
Consider the source
Certified financial planners or financial coaches can supply you with advice that is 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 are receiving unbiased guidance.
As an added bonus, you will also receive a solid 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 is why it is so important for individuals like myself to have education as a large part of what we do,” says Durriya Pierce, a certified financial planner and financial advice expert at Albert, a US 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 towards your own goal.
There may even be some nuggets of wisdom in outdated advice that previous generations relied on. The next time you are treated to a lecture about how cars cost a nickel back in the day, instead of scoffing in disbelief, 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 up 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,” says Phuong Luong, a certified financial planner and founder of Just Wealth.
Think about how feasible the advice is for you
Money advice is similar to clothing. It is 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 is really harmful when you don’t,” Ms Luong says.
“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” (such as housing, utilities and transport), 30 per cent to “wants” (such as hobbies and travel) and 20 per cent to savings and debt payments — as an example.
In high-cost areas, she says, 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.
Ms Pierce, who lives in an expensive area of New Jersey and has no plans to leave, says that this advice disregards the non-monetary benefits of staying put — such as being close to an established community of family and friends.
Be wary of advice that is 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 will make you a millionaire.
High school acquaintances send you direct messages out of the blue, asking if you want to “be your own boss” by joining a multilevel marketing programme. 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,” Ms Luong says.
She recommends taking a hard look at these offers by finding out as much as you can about them — including looking up reviews — before you fork out any money.
Trustworthy money guidance is not going to make empty vows about guaranteed wealth. Look for advice that fits you, but offers you realistic expectations and a few alternative courses of action.
“Be wary of any financial advice that seems like it is black and white,” Ms Pierce says. “Because it is very much a grey practice.”