Don't Trust Financial Advice From These Folks...

We’ve all gotten (and probably given 😳) bad advice before. Not every hot take is going to be a good one! However sometimes the stakes are higher than just a bad recommendation for a restaurant, or accidentally pointing someone in the wrong direction…

Personal finance advice, when taken from the right sources, can help to accelerate your progress towards your money goals. But if you take advice from the wrong folks you could find yourself experiencing major financial setbacks.

Financial Advice Red Flags 🚩🚩🚩

It’s great to learn from the people around you. But you need to make sure you’re only taking advice from people you trust. And even when you’re doing that, you still need to be doing your own research on top of that.

Sometimes, people with good intentions can still steer you wrong. That’s because in most cases, financial advice isn’t one size fits all. Your own personal circumstances need to be taken into account when receiving advice. Because good financial moves taken at the wrong time can still hurt you.

Broad sweeping language 🚩
Phrases like “everyone needs to do this,” or “this is exactly what you should be doing,” fail to take personal circumstances into account.

Have something to gain 🚩
If someone stands to profit from you following their advice, you may want to take it with a grain of salt. Their advice might be biased. Insurance agents are a prime example. Many sell policies that aren’t in the best of their clients, and pad their own pocket with big commissions.

Making wild claims 🚩
If someone makes wild promises, (“fix your credit score in a month,” or “start making a million of dollars by next week”) run. Run swiftly in the opposite direction. Preferably screaming.

Think Twice Before Taking Advice From These People…

Now that you know what to look out for, think twice about taking advice from these folks…

Social Media Gurus

There are a lot of great things about social media. And the transfer of ideas through this relatively new medium has allowed for quicker spread of information. Unfortunately, this means that misinformation can also spread like wildfire. It’s true in the personal finance space too.

Yes, there are some people on social media who do know what they are talking about. But there are also a slew of people who probably don’t. You need to be aware that not everything you’re going to see on TikTok and Instagram is going to be 100% accurate. A lot of it is designed to ignite financial FOMO.

One of the biggest issues with money advice on social media is that because short form content is so popular, it’s hard to get all the context necessary to know whether or not that money advice is suitable for your situation. It’s difficult to give advice that applies to everyone in 60 seconds or less.

Instead of taking everything you see online at face value, use it more for getting inspiration. Follow accounts that get you excited about saving and investing for the future. And if you see a cool money challenge or frugal hack you’d like to try, do your own research before taking the plunge to confirm it’s right for you.

TV Shows & Movies

When I was in high school, I started watching the show Dexter and swiftly decided I wanted to be a blood splatter analyst when I grew up. As it turns out, with a little research, I learned that it’s a lot different in real life than it looks on TV. Hence why I’m here, writing for How To Money and not taking down suspects with the powers of forensic science!

TV shows and movies are often highly dramatized, and probably won’t provide you with the best money advice. I probably wouldn’t recommend starting a business based only on the knowledge you’ve gleaned from Shark Tank.

While TV shows and movies can provide you with endless inspiration, they are not a replacement for an MBA, hours of research, or your own hard work. So make sure you spend time researching how to start a business before you open a restaurant just because you’ve been watching The Bear.

Journalists

Have you ever noticed that most of the headlines you read every day make it sound like doomsday is here and it’s time to start prepping for the zombie apocalypse? Then you read on and the rest of the article isn’t saying that at all?

That’s because us humans have something called “negativity bias”. Meaning, we tend to pay more attention to the negatives in life as opposed to the positives. Once upon a time it helped us survive. But now it just means we sometimes like to stew on that jerk who cut us off in traffic, or that rude comment someone made a few weeks ago.

Unfortunately, major publications are well aware of our negativity bias. They like to exploit that to get more attention on their posts. Clickbait and sensationalism are big problems in the world of journalism. The main goal is to get you to read their article, not actually provide good advice.

Yes, there are some great publications to which this doesn’t apply to. But it’s important to be aware that this issue exists so that you can take what you read with a grain of salt.

Friends & Family

If you have good friends, you know you can rely on them for almost everything.

Unless you’re besties with Warren Buffet (like me), you probably shouldn’t be taking financial advice at face value from your friends.

Sure, some of you may have friends who are insanely knowledgeable and smart and funny and effortlessly cool (like me), and in that case, you can listen to them. But not without doing your own research. We just don’t want you making a major change to your investment strategy based on a quick convo with a pal.

However, your friends are the perfect people to start talking to about money, and to bounce ideas off of. Having a few like minded friends who share similar goals can provide a ton of motivation for attacking your money goals. Also they are fun to do money challenges with!

Coworkers

If your coworkers are tossing out investing advice around the water cooler (or on Slack?), it’s probably best to take that advice with a grain of salt.

Unless you’re super close with your coworkers, you probably don’t know if they have their finances buttoned up. If you hear something that interests you, do your due diligence before acting on it. And if you find out they were incorrect, don’t feel the need to combat their errors unless you have a close relationship.

On the flip side, we do want to encourage you to talk with your coworkers (away from the workplace) about money, if and only if they seem interested in doing so. It can be a great way to make sure everyone is being fairly compensated!

Related: Here are more money etiquette rules more people should know.

Parents

Our parents typically want what’s best for us. And if they’re offering financial advice it’s likely because they genuinely want to help us get ahead in life. But despite what they might have you believe, parents can still be misinformed. Or they might have a different outlook on life than we do.

Likely, when giving advice, our parents might be offering advice based on what they did when they were your age. But despite some similarities, times have changed. You usually can’t pay for a year of college anymore with just a Summer job (unless you rack up those scholarships!), and buying a house is comparatively more expensive (but still possible). Even Roth IRAs, one of the most powerful investment tools, didn’t even exist before 1997!

So listen to your parents when they give you financial advice. But ultimately, it is up to you to make your own decisions and do your own research when it comes to your money. It’s possible to still love and respect your parents without executing your finances the same way they did.

And Dad, if you saw this part of the article… no you didn’t.

Financial Advisors

Hiring a financial advisor can be like wading through murky water. On the surface you may not see any imminent danger, but there’s no telling what’s lurking beneath…

If you have built up a large nest egg and feel like you need some help managing it, you can look into getting help from a fee-only fiduciary advisor. Just remember that even when you hire a professional to coach you through financial decisions, you will still need to follow through on that advice. Meaning, you still have to be well informed!

Building up a solid personal finance base of knowledge isn’t a step that can be skipped here. You can’t rely solely on the opinions of others. So make sure you take steps to stay informed on your own in order to vet those professional recommendations properly.

And another quick warning here… Make sure your financial advisor or coach is asking you plenty of questions about your unique money background. They shouldn’t give someone who makes $60,000 a year the same advice as someone who makes $6,000,000 each year.

How to Vet Personal Finance Advice

Now that you know to take a deeper look at the financial advice you receive, here are a few questions that can help you determine whether or not this advice is sound.

How similar is this person’s situation to mine?

If the person giving you advice has extremely different circumstances, they really need to be asking the right questions about where you’re at in order to give sound advice. Again, advice from someone making 100x your salary might not be right for where you’re at right now.

That’s why we recommend checking out the Money Gears! They give you a sense of what steps you should take based on where you’re at right now on your financial journey.

Does this person stand to benefit from me following their advice?

You may want to think twice about following advice from someone who will make money if you do. An insurance salesman is very likely to suggest that you buy a more comprehensive insurance package. Someone selling mattresses will likely be adamant that you’re in need of a new one too. So make sure to do your own research in situations like this, and pull your information from unbiased sources.

What does this person’s finances look like?

You probably don’t want to take advice from Bob down the street who is filing for bankruptcy for the 14th time. Before you take financial advice from someone, be sure to think about where their own finances are at. You might not want to end up in a similar situation to them!

What kind of advice do you need right now?

Most of the time, people don’t want unsolicited advice. If you feel like you’re crushing it with your budget, you don’t need to listen to the guy on social media who is telling you you’re doing it wrong. Instead, seek out advice from trusted sources for the topics you feel like you need help with.

The Medium is the Message

I don’t want to bash on social media influencers again, but the medium matters a lot when we’re talking about digesting potentially complex money advice. Books and podcasts are inherently superior at conveying information, allowing more time to explore topics fully, delving into the nuance. I follow some really great social media accounts that help me in my pursuit of financial freedom. But I think of them as more of a garnish than the main dish.

The Bottom Line:

Learning from others and expanding upon that knowledge is a huge part of how we advance as a society.

However, when taking advice and learning from others, you need to have the intellectual curiosity to explore that concept yourself to ensure that this advice suits your particular situation. Getting your financial education from well informed and unbiased sources is key to maximizing your wealth building potential for the future.

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Beer tasting notes:

While talking about bad money advice we enjoyed a Return of the Tripping Dead by Tripping Animals! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

Best friends out!