Understanding Financial Advice from Others

Getting financial advice from others is part of our frugal living journey. Many think they have the answers, and indeed some do. Let's look at some of the lessons I have learned on my journey thus far.

Professional advice comes in many forms. They're only professionals because they make their living investing your money. It doesn't mean they know what they're doing.

Some know what they're talking about, and many do not. It's just like any other "professional."

In my mind, there are five steps to using financial advice from professionals. Here are the five steps that I would use if I wanted to invest money using the advice of others:

  1. Ask them what they would do with your money to make it grow and stay secure. They should have a good answer for you in short order. They should be able to project your investment growth well into the future.

  2. Have them explain why they would take such action. Their story should make sense to you and feel right. It should have a long term investment strategy that makes sense.

  3. If you're comfortable, give them a chance to make a small initial investment grow, to prove to you that they know what they're doing.

  4. Assess results and analyze what went right or wrong. Was it the adviser or the market, or was it something else. Course correct as necessary.

  5. Repeat these steps with a larger investment with the advisers that you believe know what they're talking about and are worth listening to.
Never let anyone tell you how to spend your money. You are the manager of your money, your health care, your life, your time, and your future. Stop listening to unsuccessful people providing you with financial advice. Consider the source when you hear people tell you what you should and should not be doing with your money.

There are two main reasons people tell you how to spend your money: first, because it isn’t their money; and, second, because they want you to be in "the same boat" or "club." Be good at personal finance, be a good manager of your assets, and don’t listen to the financial advice of others unless you have reason to believe that they know what they are talking about and have your best interest in mind.

I can’t tell you how many times friends, family members, neighbors and co-workers would say things like "part with some of those bucks" or "you’re saving all kinds of money" or "did I see a moth fly out of that wallet." All of those people are still working now, and I’m not. So, we now know who had the better aim, the better plan, the better approach to saving money and obtaining financial freedom for the long haul.

It isn’t hard for me to recall when people 20 years older than me would offer financial advice. While I wanted to be spending less, they were encouraging me to spend more, especially on discretionary things like Saturday night poker and luxury vehicles. These were people that had solid established careers, and often were part of a two income family. They were showing off in front of a young guy who was just getting started and didn’t have any disposable income to speak of.

Stop listening to folks unless they are encouraging you in constructive ways. If people haven’t demonstrated good money management skills through their own success, then don’t pay attention to their financial advice.

Hang around smart people – they make you smarter. The opposite is also true. If you want to learn how to fish in the ocean, whom do you talk to? If you want to learn how to fly, whom do you talk to? If you want to learn about framing a house or building a piece of furniture, would you interview a chef, a convenience store clerk, or a carpenter? You get the picture.

Stay close to smart and successful people to learn about how to be smart and successful with money. They are the ones that I would listen to when they give financial advice. Know what they do and how they do it. It might very well be something worth imitating.

Hanging around the not-so-smart will likely result in adoption of harmful attitudes and habits that won’t serve you over the long term. Their attitudes will likely encourage you to "settle" for something far less than you can and should be.

At some point in your journey you're going to have to decide who has good financial advice, and who doesn't. Learn from the best and forget the rest. If it feels right to you, then it probably is. Remember, this is your life and only you will have your best interest in mind.

Done with Financial Advice, take me back to the Mindset of Frugality

There certainly is a broad scope of topics here at Frugal Living Freedom. When you think about it, money permeates so very many activities in our lives, therefore, being frugal encompasses a wide range of interests, from being employed to taking a vacation, and just about everything in between. Enjoy the variety, pick up some new ideas, and start making frugality a part of your signature.

I'm a big proponent of being debt-free, and I mean entirely debt-free - no mortgage payment. It's not essential for financial freedom, but you'll love the feeling once you get there. If you didn't have a rent or mortgage payment, how much more could you do for yourself with your current level of income? I suspect plenty.

If you ever hope to see an abundance of wealth, you need to plug the hole in your boat. The wealthy don't necessarily make lots of money, instead, they know how to hang onto what they make, and make it work for them.