Summary

The article provides guidance on how to discern and select financial advice that is relevant to one's personal financial situation and goals.

Abstract

In an era of information overload, especially concerning personal finance, it's crucial to filter through the myriad of advice available online. The article emphasizes the importance of understanding one's financial status, setting clear goals, recognizing one's money personality, assessing risk tolerance, and identifying credible sources of information. It suggests that by knowing where you stand financially, what you aim to achieve, and how you typically handle money, you can more effectively seek out and apply advice that is tailored to your needs. The article also warns against taking financial advice at face value from unverified online sources and recommends consulting professionals when necessary.

Opinions

Personal finance advice is not one-size-fits-all; it should be tailored to the individual's financial situation and life stage.
Knowing key financial figures, such as net worth and credit score, is essential before seeking financial advice.
Setting specific financial goals is crucial for determining the type of advice one should follow.
Understanding one's money personality can guide the development of financial skills and mindset shifts.
Risk assessment is a key factor in making comfortable financial decisions, particularly in investing and taking on debt.
Online communities and forums can offer diverse perspectives on finance, but advice from these sources should be verified with credible, professional sources.
Professional financial advice is recommended for significant financial decisions.

How to Know Which Financial Advice to Take and Which to Ignore

Not all money advice is equal

Photo by LinkedIn Sales Solutions on Unsplash

The vast majority of us are dealing with a pretty constant case of information overload.

It’s been estimated that an average person living today processes as much as 74 GB of information on a daily basis: roughly the amount of information that the brain of a highly educated person consumed in a lifetime, 500 years ago.

When it comes to money advice, that’s a problem. Personal finance is complicated. For every piece of advice you read online you can probably find a contradictory one somewhere else. Here’s what to do before even seeking out advice about your personal finances, so you know what to embrace and what to ignore.

Know Where You Are

While not all online sources make it immediately clear, personal finance advice is usually aimed at a specific audience. There’s no one-size-fits-all solution to financial issues, because we’re all coming from very different places.

A lot of the advice you’ll find online simply won’t apply to you, so you need to have a way to figure out what does and what doesn’t. Cash stuffing isn’t a budgeting idea for the super wealthy. Home ownership isn’t an option for many younger or low-income individuals.

Knowing your numbers helps with this. There are a few figures we really need to know (such as our net worth and credit score) before we start to get our finances in order. Having a clear picture of where you are will help you know what kind of advice to seek. Don’t focus on investment advice if what you need right now is getting-out-of-debt advice.

Clarify Your Financial Goals

Once you know where you are, you need to know where you’re going. What are you aiming for? This will also dictate which advice you follow. Not setting clear financial goals makes it hard to know where to start. Once you have more specific ideas of what you want to achieve, it’s easier to search for specific advice that will help you achieve it.

Maybe you’re aiming for:

Less than $5,000 in consumer debt
A $1,000 emergency fund
Buy a $250,000 condo
A million dollar investment portfolio

Any of these are feasible goals to work toward, depending on where you are and where you want to be. But you won’t find all of them covered in one resource, so you need to know what you’re searching for.

Know Your Money Personality

We all have a money personality and while it’s not set in stone, it is often pretty ingrained. Knowing how you feel about money and why can help you both work with your natural traits and recognise when they’re working against you.

Your money personality at least partially dictates:

Your general spending and saving habits
Your level of impulse spending
Your hoarding instincts
Your relationship with your partner
Whether you know how much money you have in the bank
How much money you actually have in the bank

So knowing it well can be a guide to the type of skills, knowledge and mindset shifts you need to work on.

Assess Your Attitude to Risk

This ties in to your money personality, and is one of the most important things to know in order to be comfortable with your financial decisions, especially when it comes to investing, but also taking on debt.

Once you know how risk-averse (or otherwise) you are, you can communicate this to a financial advisor, investment professional or potential lender. You can also seek out the advice you need to make decisions that you feel comfortable with when searching for online advice.

Many personal finance gurus have a specialty, whether it’s living frugally, or making your first million through high-risk strategies. Know which one you should be following right now.

Learn to Recognise Credible Sources

Online communities can be a good source of diverse views that you might want to consider, but be wary of any user-generated content online. There are forums, Reddit threads and Facebook groups full of people giving out financial advice, and there are interesting things being discussed in those communities.

Just remember that those participating don’t have to prove their credentials, and often they’re just repeating advice that they’ve heard or read elsewhere, rather than speaking from experience.

Check any advice you find online with other more credible sources, discuss it with those you trust in real life, and always consider taking professional advice before making major financial decisions.

Originally published on Wealthtender.com.

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