Don’t Trust Financial Advice Just Because It's From Someone You Trust
Always do your due diligence
Credit Card Troubles
She knew nothing about credit, so she allowed her friend to guide her into applying for back-to-back credit cards until she finally got approved.
Her next question was, “What do I do now?”
She had a new credit card and didn’t even know what to do with it. Hence, she ended up negatively affecting her credit because of late and missed payments due to a lack of knowledge and understanding of how credit cards work.
Her friend was just trying to help her gain access to financial resources, but her friend didn’t even understand credit themselves.
Though her friend didn’t have bad intentions, they also didn’t positively affect her financial situation.
They also failed to mention that you need to make payments on time or the late payments will be reported to the credit bureau; she also didn’t understand how credit utilization worked (i.e., keep your credit utilization within 30% or less).
Unnecessary Bumper-To-Bumper Insurance And Bad Investments
One of my financial mistakes was taking advice on a car purchase from someone with a poor financial track record. Though my car lasted for years, I should’ve paid significantly less and not bought the unnecessary bumper-to-bumper insurance.
I also made a bad investment deal after signing up just because a person had faith in the deal. Since I had the money and trusted them, I decided to go for it. It didn’t end up horribly, but we lost money we didn’t have to lose.
There were a couple more financial mistakes after these, and I can’t promise myself I will never make more financial mistakes, but I can do more due diligence in the future.
Ignorance Can Cause Inertia
Have you ever made a poor financial decision? Maybe it was an investment, a credit card, a loan, a large purchase, etc., that you messed up on and didn’t do your due diligence on. Many people have because they don’t have the knowledge or financial experience.
The simple solution to avoid these situations is to educate and learn for yourself, but this isn’t always the initial reaction or next step for some people — especially when receiving advice from a trusted person. Why would a trusted family member, friend, or colleague try to lead you astray? I don’t believe people necessarily have malicious intentions; they just don’t always have all the facts themselves.
Why don’t more people educate themselves before making big financial decisions? Outside of trusting the person introducing the deal, it’s likely inertia! When you’re unfamiliar with a subject, you might fail to learn or understand where even to start, which can lead to inaction or allowing others to make decisions for you.
So many people sign up for financial advisors because they don’t know what to do with their own money. But people who give up power over their money often don't understand and know what is happening, displacing them to a disadvantaged position.
It took me a few times to finally learn that I have to take the time to gather context and details about certain purchases or investments before going all in. You can’t avoid all financial risks but can mitigate them with due diligence.
Most people follow the follower. “Hey, invest in this!” “Buy that!” “Put your money here!” “Apply for that credit card or loan!”
A wise person asks, why, and what are the details? After they gather the details, they analyze them to ensure they align with their financial goals.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.