If you live in the same world I do, you are probably bombarded with advice. From your family, friends, neighbors, co-workers, uber drivers, podcast hosts, news reporters, etc. Everyone is smarter than you, wiser than you, and knows more about money, parenting, relationships, and life than you. Or so they all think.
In the world of personal finance following one piece of bad advice can wreck your finances, so it is important that you carefully evaluate any advice you receive. Before you listen to your neighbor who is telling everyone with a pulse about their zero percent car loan, your co-worker who keeps telling you to put all your money in penny stocks, or the retired actor telling you to buy gold you need to evaluate four aspects of the advice.
Do you know and trust the person you are receiving advice from? It is very possible to get good advice from someone you don’t know or trust, and to get bad advice from someone you know and trust, but the person you have a relationship with is likely to know you and your situation better than someone you don’t have a relationship with.
There is advice that we seek out (solicited), and advice that we are given without our consent (unsolicited). These can both help point to the motives of the person giving the advice.
There are usually only two reasons why we would be given advice. Either someone wants to help us whether because they care about us or we pay them to help us, or someone wants to help themselves by selling us something or convincing us to do something that is good for them. These two are not mutually exclusive. Motivation alone is not a reason to follow or to ignore advice given to us, but it does help us see through any nonsense.
Many people who give you advice may not be qualified or certified in that field, yet they still do. You may be given advice from your best friend who would do anything for you, but if he or she doesn’t know the first thing about money, it is probably in your best interest to say thank you and not give it a second thought. Good advice is good advice regardless of who it comes from, but you are more likely to receive good advice from someone who knows the difference.
Bottom right is the best. Top left is the worst. The ideal situation would be getting advice from someone who you reached out to because they are qualified, you have a good relationship with them, and you know they want to help. The worst case would be someone contacting you who you don’t know, who is not qualified, and who is trying to sell you something. Because most advice comes from somewhere in-between the two extremes, here are 4 questions to ask yourself when deciding whether to follow the advice:
1. Do you trust them?
2. Is their motivation to help you?
3. Are they qualified?
4. Did you ask them for advice?
The more yesses the better. If I could build you a definite flow chart for when to follow advice I would, but it really comes down to you using your best judgement. Hopefully these 4 questions can help guide you in your decision.