How to Avoid *BAD* Money Advice (red flags you can’t AFFORD to ignore)
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How to Avoid Bad Money Advice (biggest red flags)
Most people wouldn’t offer a friend plumbing advice if they’re not a plumber, and we wouldn’t offer mechanic advice if we don’t know much about cars.
But when it comes to money, some people have NO PROBLEM giving their two cents – even when they don’t know what they’re talking about.
I don’t know why, but people who aren’t great with money are sometimes the first ones to speak up and give bad advice.
For those who don’t know, I’ve been writing about money topics professionally since 2005. So whenever money discussions occur around me, my ears notice. And unfortunately, I’ve heard some pretty iffy advice over the years.
The bad news is that terrible financial advice is always amongst us. The good news is that we can protect ourselves from this bad advice.
Consider the source
If you don’t know much about financial topics, there could be a tendency to believe any and everything you hear.
Some people have the gift of gab, so they might speak confidently and convincingly. And as you’re listening you might think, “this person really knows what they’re talking about.”
However, you have to look past all of that and consider whether this person is “really” qualified to speak on the subject.
To be fair, someone doesn’t have to be a money expert to give good financial advice. There’s plenty of content online dedicated to financial education, so they might have a lot of insight.
Even so, it’s important to err on the side of caution. If you don’t know the depth of their financial knowledge, take what they say with a grain of salt.
Ask questions to avoid bad money advice
The best way to know whether someone is qualified to speak on a topic is to ask follow up questions.
As a money person, I’m not saying this person should know every single fact or detail about the topic. We’re not robots and guidelines can change, so we’re constantly learning and researching ourselves. Even so, asking questions is a great way to draw out a person and get them talking about a subject. This way, you can gauge their knowledge level.
If you ask a basic follow up question and they can’t provide any additional information beyond their initial statement, they’re probably repeating what they’ve been told. In which case, they might know little about the topic.
Do your own research
Even if they’re able to answer your questions, don’t take their words at face value. A little due diligence goes a long way.
At end of the day, we’re ultimately responsible for our own finances. If we accept bad advice and it doesn’t work, we have to live with the consequences. The other person isn’t coming to your rescue, even though they steered you in the wrong direction. If anything, they’ll probably deny giving the advice.
It only takes a few minutes to fact check a statement.
Is the advice relevant?
Through research you can also gauge whether their advice is relevant today.
Some people have difficulty adapting to new ways of doing things, or they hold onto outdated money advice.
For example, I constantly see videos and read articles advising people to save a 20% down payment to buy a house. Now, if someone chooses to purchase with 20% down to avoid mortgage insurance, that’s great! But that’s not the point.
The point is: That advice holds onto an idea that isn’t relevant today.
Nowadays, you don’t need a 20% down payment for a house. You can purchase with as little as 0% to 10% down, depending on the mortgage program.
Is the advice realistic for you?
Some money advice isn’t bad in itself. However, it might not be the best advice given your circumstances. And if you apply this unrealistic advice to your life, it’s as if you’re setting yourself up to fail.
A great example of this is the 50/30/20 budgeting rule. Now personally, I love this budget plan and I feel it’s an excellent way to take control of spending.
But the truth is, this will only work if you’re able to keep your needs within 50% of your take-home pay. This is unrealistic for some people, especially if they’re spending 60% or 70% of their take-home pay on needs. They need a different approach, perhaps a 70/20/10 budget or a 60/30/10 budget.
Is the advice too good to be true?
This tip is geared at advice that promises to make you a lot of money in a short amount of time.
To be clear, I’m all for nontraditional work and thinking outside the box. I’ve been able to support myself without a traditional job for nearly 20 years, so I know it’s possible.
However, as you look for the right opportunity don’t ignore red flags – especially when you’re being sold information.
I’m not saying you shouldn’t buy information. I bought a digital marketing course years ago that was extremely useful and I don’t regret it.
At the same time, I’ve also heard stories of people buying courses that promise to reveal secret tips and tricks on how to do something. Yet, the information was very basic or readily available for free. So it’s important to read reviews.
Also, be careful of anything that guarantees results.
Listen to your gut to avoid bad money advice
Bottom line: Go with your instinct if something doesn’t feel right – especially if you’ve done your research.
I’ve made these types of mistakes so many times, and in most cases, my gut was right. Unfortunately, though, I sometimes ignored my instinct and had to deal with the consequences.
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