Financial Tip Friday: Don’t Take Financial Advice from Broke People

Financial Tip Friday: Don’t Take Financial Advice from Broke People

The title of this post seems like it should be self-explanatory. We shouldn’t take financial advice from people who don’t have any money. However, do you know someone who tries to give everyone advice even when they don’t know much about that subject? Have you ever taken financial advice from someone and later regretted it? Do you listen to people who you shouldn’t listen to, including loved ones?

I am sure all of us have answered yes to one of these questions in the past. For example, we might have taken dating advice from our friend who hasn’t had a successful relationship in years. We might have taken cooking advice from someone who doesn’t really cook just because they are family. Do you have a friend who has a fancy car and because of that you went to that person for financial advice and it turned out bad?

What is the moral of the story regarding these questions?

First, be careful who you ask for advice. When seeking financial advice you probably should ask does that person have the ethos to speak intelligently on that subject? My academic specialty is rhetoric. So I know a little bit about that subject. One of things I love to discuss with my students is persuasion. Aristotle argued one of the most important aspects of persuasion is ethos, otherwise known as credibility. Credibility can be achieved in a number of ways, but when it comes to finances someone who is broke and/or mismanage their money has little to no ethos on the subject.

I know that sounds like a no-brainer but it is amazing to me how many times we take advice from people on subjects who have no ethos. For example, you should probably not take much advice from me regarding weight loss. I am over weight. If I knew the secret to weight loss I would have lost the weight. I would eat better. I would do better. I can share my experience (and I have begun to lose weight) but what I am doing is not rocket science. I am eating less, not drinking soda, and started weight lifting again. Finance, is often the same thing, but for whatever reason it is a mystery to most of us. So we ask people for advice (or don’t pay attention at all, which is just as bad, if not worse). Don’t take financial advice from broke people.

Second, get multiple perspectives. When it comes to finances, particularly for a big decision (or even small one) you should probably solicit multiple opinions. In doing so, hopefully you advice from people who would have some credibility on a subject. When it comes to investing decisions I, frankly, don’t talk to my parents. Partly because my parents have never really talked with us about money. Additionally, even though I know my parents are ok financially, I don’t know what kind of financial knowledge my parents have. Instead, I consult websites; go on personal finance blogs; ask people who have had to make a similar decision (e.g. those who just bought a house about their experience). I also know people who don’t have 2 nickels to rub together. I am not going to be asking those people for financial advice.

Moreover, just because some person appears they have their financial life together, doesn’t mean they do so. I know that I still struggle with certain financial subjects. We still have a lot of student loan debt, car debt, and mortgage debt. However, the advice I try to give is stuff that has also worked for me. I also pass on things I have gleaned from the wonderful personal finance community out there (e.g. index funds are the best way to invest). After reading dozens of blogs and hundreds of articles they have convinced me to make certain decisions and I try to pass on those items to readers. Finally, to give myself a bit more gravitas when talking about financial issues I started to do research on specific subjects (e.g. public service loan forgiveness) and give workshops on certain things. I also finished up a certification to be a Certified Financial Education Instructor. So while I don’t have total ethos when it comes to money on all subjects I have tried to create a great ethos for myself when discussing subjects regarding money. And it helps that Mrs. ROB and I are not broke (at least at the moment….that new Lamborghini just might be in my sites someday).

Third, try to use best practices when it comes to certain advice . I certainly don’t think you should take financial advice from people who are broke. Just as I wouldn’t take business advice from someone who just went bankrupt. I wouldn’t take dietary advice from someone who doesn’t have some credentials in health (e.g. a nutritionist or doctor). I wouldn’t take medical advice from my Uncle Larry because he has no medical background. Instead, if you are going to get financial advice it should be from people who have knowledge and use best practices. How do you find that out? Well, that is where the research comes in. You have to sit down and do some of the leg work. Read books, articles, personal finance blogs. We spend more time planning our vacations than we do thinking about our retirement accounts. It should be backwards. Find the best practices for your particular monetary situation and act accordingly.

Finally, make decisions that are right for you financially. There is a reason they call it personal finance because it is personal. Just because I recommend index funds doesn’t mean that it is right for everybody. I also don’t like annuity products, but some people might find them right for their situation. I think it is better to take a 15 year mortgage than a 30 year.

But that is me. I do those things because I like my life simple for investments. I don’t like a lot of mortgage debt. I don’t like the high fees with annuities and all of the rules and regulations with them. Only you can judge what your financial situation is. Hopefully, this blog helps people make more informed decisions. Ultimately, those decisions are personal to each person’s situation.

The Bottom Line: I think most people will agree you should take advice from folks who have informed opinions. I hope this blog provides some informed opinions. When it comes to money I try to take advice from people who do it better than I do (e.g. Warren Buffett). Hopefully, you will do the same.

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