Getting Back Into the Black

   Let’s face it, everywhere you turn, someone is offering money advice.   Since my husband and I have straightened out our finances and gotten serious about saving we’ve read and watched countless people giving advice.  It can be a little overwhelming and a lot confusing.  Here’s a few things we’ve learned while wading through the swamp of financial advice.

   What works for someone else, might not work for you.  I was recently reading about a twenty-something who started investing  5 years ago with 1000 in mutual funds and now it’s grown to over six figures.  That sounds fantastic, doesn’t it?   During those 5 years, this person invested 65% of their salary and they were living rent-free with their parents.   Obviously, that’s an outstanding way to get huge results if you don’t have any bills to pay, but it’s not very practical for most of the people we know.  I have to admit, I chuckled a little when I read that this person has stopped contributing for the time being, now that they have rent and other bills to pay.

   Percentages can be misleading.  This example is taken straight from the Suze Orman show last night.  She was talking about how percentages are talked about so often when it comes to investing but that most people really don’t know how they relate to their money.   She gave two examples and asked which one would make the most money with 10,000 dollars to start with.  Example 1- You are guaranteed to make a 80% profit the first year. The second year, however, you are guaranteed to lose 50%.  Example 2- You put the money into money market savings account, and are guaranteed to make 5% profit both years.   Most people asked, choose option 1, which is the worst choice.  Upon first glace, it looks like you would still be ahead by 30% but here’s how it breaks down.  The first year you would have 18,000 but then the second year when you lose half, it would knock you down to 9000.  That’s an overall loss of 1000 dollars.  The second option at the end of two years would add up to 11,025.  I’d rather make 1,025 than lose 1000!

   Research all of your money decisions.  By now, we all should know that impulse spending is bad, the same is true of taking someone’s advice without investigating further.   It’s not just that it makes you vulnerable to scams, but it might not be good advice for you.   There’s been a lot of conflicting information and advice given about much talked about tax rebates to come.  One blog at a major website that I’m not going to name has written several articles about what you should do with your money and the advice has changed significantly from one article to the next.   I’m guessing there would have been less confusion if the author had waited to get more information about the subject.  

   Make sure your information is current.   Just like we’ve seen in the stock market, things can change quickly in the financial world.  And new laws can have negative effects, like the “kiddie tax” on Uniform Gifts to Minors Act.   The “kiddie tax” was put in place to prevent high income families from giving  unearned income to their children as a way to lower their taxes.   Unfortunately, these changes now make this a bad choice for college funds. 

   If it sounds too good to be true, it probably is   This bit of advice never goes out of style.  If get rich quick schemes worked, we’d all be wealthy by now.  Most people know enough not to be fooled by the Nigerian email scams but bad advice isn’t always that easy to spot.   Hence, the subprime mortgage crisis, a lot of people and financial institutions who should have known better ignored the warning signs.

   Brokers and financial planners are not your friend.  This is not to say that they are all bad, but they aren’t to be trusted blindly either.   There are always stories of people who have lost their life savings because of taking bad advice from so-called experts.  And according to Smartmoney.com  and talked about at Freemoneyfinance.com, many brokers give bad advice.