The 5 Worst and Best Financial Advice from Family Members
When it comes to giving and finding advice on a variety of topics, there is no shortage of opinions.
Topics on which advice is freely given can range anywhere from dating, marriage, dieting, what careers to pursue, etc. The sky is the limit.
Another area or topic on which it seems that everyone has the advice to offer is in the area of finances. Under this broad topic one can hear a variety of strategies on how to invest in the stock market, what stocks to purchase, how to budget, and advice on get rich schemes, etc.
Most of the time, the advice that is offered is freely given and the intention of the advisor is well-meaning. However, there are a few individuals who will try to mislead the individual by giving bogus advice and which are given selfishly.
The beauty of advice given by strangers and friends is that it can be graciously received and ignored if the one that is being advised is so inclined.
However, there is a segment of our sphere of influence in which advice is given and is sometimes unfounded advice or provided to the individual as advice that has endured the test of time. This circle of influence in a family member’s life is advice given by other family members.
Therefore, it may be appropriate to look at some of the five best pieces of advice given by family members and the five worst financial advice ideas given by family members.
Let’s start with the best financial advice.
1. Learn to support yourself
Probably the bluntest, but a loving piece of financial advice that can be offered to a family member is for that family member to learn to support themselves. This is good advice because it is straight to the point and doesn’t beat around the bush.
It is this honesty that we often need to hear because it doesn’t allow room for excuses, but it’s also coupled with a solution. That solution is to learn about supporting one financially.
Of importance to note is that this advice talks about learning which is a process. Additionally, in order to learn there needs to be an instructor which speaks of support. This advice is not only sound in words but practical in nature because of the need to learn from other resources. Perhaps the family can become the faculty.
2. Live within your means
Another gem of practical advice is to encourage the family member to live within their means. This simply means that they cannot overextend themselves financially or they cannot spend what they do not have.
Coupled with this advice, the family can talk about the importance of budgeting and to adhere to that budget which, of course, would include a budget line for savings.
3. Diversify your investment portfolio
A third valuable piece of advice that can be shared by family members is to share with those members about the importance of diversifying their investments.
The old adage of not “putting all your eggs into one basket” certainly holds true when it comes to one’s money. Therefore, in addition to this advice, practical instruction of placing investment money in stocks, bonds, CD’S, money markets, etc.
When diversification occurs and there is a downturn in one or more of those investments, the negative impact is lessened because different financial investment vehicles are being utilized.
4. Read financial books
Another great piece of practical financial advice that can be given to a family member is to continue their financial education. This continued education can be realized by reading reputable articles on the Internet, going to the local library, visiting bookstores, subscribing to solid financial magazines, etc.
Topics to research could include investing in the stock market, diversifying one’s investments, the importance of budgeting and other critical financial investment topics.
5. Enjoy your money occasionally
Finally, when giving sound financial advice to family members, it is important to the talk about the importance of money and that, occasionally, it needs to be spent. Money or financial resources are obviously just a practical symbol of one’s financial position. Although to be respected, money and resources are also to be enjoyed. Therefore, the spending of money, in moderation, is to be indulged in.
Consequently, there can be a line item for entertainment in the personal budget and if larger purchases need to be made, such as a large screen TV, stereo system or household appliances, the money that has been set aside for these larger purchases can be used.
An additional meaningful use of financial resources is to help others. This can be accomplished by giving to worthy causes. It is important to not have a miserly attitude when it comes to money.
Additionally, as with everything, in parallel with giving good financial advice, it is important to stay away from bad financial advice.
1. Place all your money in the bank, it’s safer that way
One of the worst financial advice tips that can be offered to a family member is for them to simply place their money in a checking or savings account with a financial institution.
This is bad advice because there is little or no return on money that simply sits on a ledger in one’s bank account.
2. Invest in real estate, they never go down in price
This can be actually good advice. However, like most other investments, there is no guarantee that this is an investment with no risk. One simply needs to look back a few years and reflect on the real estate bubble that burst and caused quite a number of homes to go underwater.
In fact, the bursting of the real estate bubble was one of the major causes of the recent financial devastation to the market. It is important to understand and realize that most investments carry some sort of risk on the investment.
3. Work for the government for 40 years then retire
Another piece of misguided financial advice is to secure employment with a government agency, work the required years and then retire with a comfortable and secure pension.
This may have been true in days gone by, but in today’s financial climate there is no guarantee of this working and retirement strategy.
This is because even the government, which typically has a reliable income from the public, can no longer count on the taxes, assessments and other streams of revenue that filled the government’s coffers.
The unreliability stems from the outcry of the public about big government, the cost of doing business which affects the government as well, huge pensions that are being paid from depleted retirement accounts, etc.
Therefore, the old strategy of working for the government and retiring has met with the cold and stark reality of today’s economy.
4. Get a credit card and only pay the minimum until you die
Probably, the worst financial advice that can be offered to a family member is to take out a credit card and only pay the minimum on that card until death comes. This is wrong on so many fronts.
First of all, the credit given is based on one’s credit report. This report takes into account a number of factors. Of primary concern from creditors is the amount owed compared to the amount of credit available. If the person owing money has maxed out their card or cards, they will not be extended any additional offers for credit.
In addition, having a poor credit rating affects the ability of the individual to get other loans or loans at a quality interest rate. This then would affect a person’s ability to rent an apartment, purchase a car, take out a possible mortgage, etc.
Another negative reason for giving this financial advice is that there is no motivation in this strategy to improve one’s financial condition and make them self-sufficient. It would ultimately be a recipe for self-reliance on others and leaving little or no room for self-respect for the person accepting this misplaced advice.
5. Never invest in the stock market, you will lose your money
Finally, the worst financial advice that can be given deals with investing in the stock market. To give advice on not investing in the stock market as you will lose your money is not grounded in good financial sense nor does it play out practically.
The stock market is robust and will probably always be. Even though there have been downturns in the market, historically it always has come roaring back and restoring, for the most part, the investor’s cost with additional gain.
However, it is important to have a strategy when investing in the market. The investor can develop their own strategy by learning from other investors or additional resources. Or, the investor, can utilize a broker or invest in a goal-oriented retirement plan.
The other strategy for the investor to invest in is “slow and steady” strategy. Make the investment and leave it alone. The market will take care of the investor’s resources at its pace over time.
Although the risk of losing invested money is a possibility, it is important to remember that it is critical to take the risk that you are comfortable with, diversify your investment over these leveled risks and then leave the money alone.