consumerism

It’s been said that when you take free advice, you should remember that you get what you pay for. I agree that it’s important to evaluate any advice — free or not — before following it, but rejecting all free advice because it is free is a really bad idea. (Unless you paid someone to tell you that free advice is lousy, that advice is itself self-contradictory, declaring itself unsound.)

While some free advice is bad advice, most of the great advice I’ve received has also been free. In fact, every one of the ten best bits of personal financial advice I’ve ever received have all been free. I now pass them on to you . . . for free. I hope you will find them far more valuable than the price you pay.

1. Get out of debt and stay out of debt. My father, who is generally reluctant to give financial advice, once offered me this statement as the best advice he could give. Even a moderate level of debt forces the debtor to throw away money on interest; higher levels can lead to extreme stress, loan defaults, bankruptcy and more. Many financial advisors will cite some exceptions to avoiding debt — for instance, taking out a loan to start a business to make money or carrying a balance on a mortgage that has a lower interest rate than current investment opportunities — and most rules have exceptions. Nevertheless, while you might miss out on some extra income by scrupulously avoiding debt, you will not suffer any real harm. A related bit of excellent advice is to live within (better yet, well below) your means, which allows you to save enough money to take advantage of other good financial advice.

2. A penny saved is better than a penny earned. A penny earned will have taxes taken out; a penny saved does not. Plus, a penny saved can earn more money. A penny earned and then spent rarely does. This advice also has a complementary recommendation I like to follow: “Let your money work for you.” Any penny saved is great, but a working penny (in a mutual fund, money market account, or other investment) is worth more than an idle penny (under the mattress, in a regular checking account, or in a coin jar).

3. Never pay full price for anything. This bit of advice has obvious exceptions; there are times that you have to pay full price for things. Nevertheless, most things you buy have variable prices, and many purchases with set prices can be delayed or avoided entirely. Making a habit of paying the lowest price you can find saves a lot of money and makes personal finances much easier to manage.

A related, more specific bit of advice to help with this practice is “Don’t pay for the name.” Many brand names, especially designer brands, have lower-priced alternatives of equal quality. The price difference comes from the popularity and image associated with the brand name. The extra price you pay for the brand equates to “paying for the name.”

4. Both offense and defense are important. A football team wouldn’t go on the field with the intent of playing just offense or just defense; we should expect to do both, as well. Offense (earning money) and defense (preventing the loss of money through good saving and investing habits) are both important to avoiding defaults. Single people usually have to be iron men and women, playing both offense and defense, but couples may find that they are most effective financially when they work as a team, with one person focusing on earning while the other focuses on saving/investing.

5. Waste not, want not. You probably have heard this proverb in relation to household supplies rather than money, but it applies to both. Avoiding waste in your household means you have to buy less and are able to save more money; avoiding waste in all your spending habits means that you are likely to have money available when you really need it.

6. Start young. Yes, anyone with poor money management skills can make a change to wise financial practices at any age, but those who start young can build their wealth with much less effort. Compound interest and reinvested dividends make a difference. Also, starting off with good financial habits is much easier than having to break bad habits. As a parent, I talk with my children about money even before they are old enough to completely grasp the concept. I want them to have the advantage of starting young, too.

7. “Make as much as you can; save as much as you can; give as much as you can.” When a development (fundraising) consultant first quoted Methodist preacher John Wesley to me, I wondered how it was possible to both save all I could and give all I could. After thinking about it, I realized that giving all I can doesn’t necessarily mean giving all my spare money or giving to every good cause. Sometimes, giving all I can means saving and earning interest so that I can give more when a need arises for which I can really make a difference. It is important to evaluate carefully every giving opportunity to be sure that the money (and time) I am able to give will be used as effectively as possible.

I do not question the value of giving, as many people do; I have seen the results of generosity in both givers and recipients. In fact, the portion of this advice that I am most likely to dispute is the first — make as much as you can. In my own life I have intentionally chosen to earn less than I am able to earn so that I can do work I enjoy (writing and editing) and can dedicate most of my time to my family. The relationship between earning, saving, and giving money is complicated, but aiming to increase one or more of the three with each financial decision I make is a good guideline to follow.

8. Treat yourself occasionally. Like a too-strict diet, a too-tight budget can have a negative effect on meeting goals. If I never treat myself to a small luxury, I may believe I am unable to live within a budget and give up completely on trying to save money. Beware of too many treats, of course, but don’t try to avoid all non-essential spending altogether.

9. If it sounds too good to be true, it probably is. Because it’s hard to resist a bargain or a great money-making opportunity, it’s especially important to evaluate carefully every proposed deal or investment. Ask yourself how any deal benefits the other party; if the benefit isn’t obvious, the offer is likely to be a scam. Whenever something seems off, avoid it — or at least take some time to think it over. If you wind up missing a great deal, at least you can learn from your mistake.

10. Buy Fidelity’s OTC Portfolio. This bit of my dad’s rare specific advice encouraged my husband and me, then newlyweds, to buy our first mutual fund. Within a year, our money had almost doubled, and we had enough saved to pay cash for a new car. Like much advice, this recommendation was perfect for that time in our lives but not forever. (We no longer own any shares of this specific fund.) It does, however, illustrate the fact that what constitutes good advice will change from time to time. What works at one time in your life may not work at another time; you have to regularly evaluate your financial needs and goals.

Buying this mutual fund was also good advice for us because it gave us a good start to investing. Following that initial success, we have learned to take calculated risks, and we have not become overly discouraged by a few failures in the stock market.

Now the best financial advice I have ever received is yours for the taking, too — all of it for free. I am not a millionaire, but I am comfortable with what I have and satisfied that (barring an extraordinary catastrophe) my habits will provide for the future needs of my family. I would be thrilled if some of this advice helped you feel the same way.

Image courtesy of kendrick