Why you must avoid one-size-fits-all financial advice

Investors should consider the nuances of their individual situation when planning their finances

Any financial advice that makes complicated money moves seem like an easy path to profit is downright dangerous. Getty Images

When I hear financial tips that are unrealistic or shame-inducing, I cringe. Any advice that makes complicated money moves seem like an easy path to profit is downright dangerous.

Questionable guidance is all around, oversimplifying important decisions or claiming a one-size-fits-all approach will work. Amid the black-and-white world of giving advice, there’s a lot of grey. Don’t ignore your unique needs and circumstances when plotting out your finances.

Lack of wealth does not mean you lack discipline

There’s a subset of social media dedicated to what I call “hustle worship”. These posts will have you believe that if only you’d work harder, wake up earlier and eat the exact same breakfast as Elon Musk does, you’d be a billionaire.

This advice glosses over larger issues that prevent millions of hardworking, disciplined people from attaining financial security – such as crushing student loan debt, job uncertainty and budget-busting child care costs. Discipline is good, but it’s also okay to recognise your limitations and obligations.

Start by writing down all your expenses for a month so you can get a picture of where your money goes. Then, create a budget that leaves room for needs and wants, like the 50/30/20 budget: 50 per cent of your take-home pay covers needs such as housing and groceries; 30 per cent covers wants such as dining and travel; 20 per cent covers savings and debt repayment. This way, you don’t stress if you have a moment of weakness. You’ve built a budget that allows for fun.

Austerity is not always a virtue

As your income grows through the years, it’s wise to funnel the extra cash into savings and investments without otherwise changing your spending habits. But it’s okay to spend money on luxuries or conveniences that will make your life better or easier.

Jonathan Howard, a financial adviser, experienced his own spend-or-save decision when he and his family relocated from Los Angeles to Lexington, Kentucky. Mr Howard’s salary decreased. But his wife rejoined the workforce, the cost of living was lower in Lexington, and they sold their LA home for a profit. His initial impulse was to save the entire profit from the sale, but their new home’s kitchen didn’t function well, and that’s the room where his family spends much of their time.

They opted to spend around 25 per cent of the proceeds from their old home on a kitchen renovation. “It was a sum that, when I looked at it on paper, made me nauseous,” he says. “But several months later, we could not be happier with the results.”

Some investments are often set-it-and-forget-it. But other investments, such as real estate, require not only regular effort, but also significant investments of money and time

Not all investments are ‘passive’

Some investments are often set-it-and-forget-it. You can automate contributions and select target-date funds that will adjust your asset allocation for you. But other investments, such as real estate, require not only regular effort, but also significant investments of money and time.

I briefly considered buying a duplex until I witnessed how much work my then-landlord had to pour into my last apartment because previous tenants neglected to report some serious maintenance issues. By the second ceiling leak, my dreams of earning rental income faded. Not every landlord has a horror story, but they do acknowledge that it can take time before a property starts paying for itself.

Michaelson Buchanan owns three properties in Richmond, Virginia, and spent $130,000 on fixing up the first two. “We do a lot of the work ourselves so we can do these things economically,” he says. “I would say it’s the house that Google built.”

Mr Buchanan has dealt with maintenance issues and problem tenants over the years, but ultimately recommends owning a rental property so long as you have the savings to afford major issues. “Don’t have unrealistic expectations about what you could get in rent,” he says. “You won’t get wildly more money because you’ve fixed a property up.”

Investing is key, but it’s a space where one old adage does ring true: To make money, be prepared to spend money.

Sara Rathner is a writer at NerdWallet

• AP