Personal finance advice is a lot like other fads and memes on the internet – some ideas get exceptionally popular, there’s a backlash (sometimes deservedly, sometimes not), and then there’s a reversion to the mean.
Many of the ideas are often, at their core, good. Like all ideas, they evolve and mature. Sometimes that means those ideas become a bit more niche and specific. Sometimes they become broader and more inclusive. (If you want a good example outside of money, look at religion – there are very broad inclusive religious beliefs and there are very niche specific and exclusive ones.)
What’s great about financial advice is that there is no right answer. It’s valuable to consider it all and take the ideas that will help you improve your financial life.
For the last few years, the FIRE “movement” has been extremely popular. The idea of retiring early and escaping the rat race is intoxicating. Most recently, there’s been a bit of a backlash (rightfully, I think) criticizing the movement. (FIRE stands for financial independence, retire early)
I’ve always seen the FIRE movement as a net positive. I’m not “in” it so I don’t see all of its parts (and thus can’t speak to the sexism and judgment and whatnot) but if you take the good and leave the bad, you’re better off for it.
And that’s what you should be doing with all financial advice on the internet – take the good, discard the bad – here’s why:
Take the Best, Discard the Rest
Nothing is one size fits all. It never is and we all know it.
The beauty of the internet is that it can expose you to the stories of many experiences and many backgrounds. There’s, of course, a bit of self-selection involved. You will only get the experiences of people with access to technology, desire to share, and the means to spend time writing, recording, and publishing those experiences. But you get way more than you would if you stuck to TV, books, or magazines.
This means you can read a lot of different stories and cherry-pick the best ideas that work for you.
There is no single best anything.
In its simplest form, FIRE is about saving as much as you can and investing it so you can retire early. It got popular in the most recent stock market run because it enabled many people to retire at really young ages. As it got popular, it developed sub-groups and certain characteristics became more extreme (not in a bad way, just more concentrated). You had those who celebrated extreme frugality, living off the grid, tiny homes, nomadic lifestyles, etc.
Frugality is always a good idea – until it isn’t. You want to save money but at what cost? Short term savings can mean longer-term costs. This is where your personal situation matters and you need to cherry-pick. It would be cheaper to sleep on a futon but your sleep may suffer – which has an impact on your life and productivity. That can impact your income. Perhaps you want to spend a little more on a bed that you’ll use for many years.
And many of the complaints about FIRE are valid too. It doesn’t take a genius to know that you can save more money if you earn more money. And you better get a little lucky with medical expenses.
In life, there’s no single right answer to every problem or single right way to do anything. You’re on a journey and you need to pick the tools and equipment that will get you there.
You Must Personalize It
I’ve gotten emails from readers who want specific advice for their situation. I never give it because I can’t possibly know the full situation and, honestly, I’m not qualified. That’s why you should work with a fee-only financial advisor. Free advice on the internet is just that – (potentially) worthless. 🙂
Another problem with free advice is that it’s not tailored to you. Even the seemingly simplest situation is extremely complicated.
But not everyone can afford a fee-only financial advisor and so when you read advice on the internet, you have to do the work of personalizing it. That’s the cost.
For example, common advice is to max out your Roth IRA and 401(k). This advice is “good” because it lowers your tax burden. But what if you can’t afford to max them out? What if your employer doesn’t offer a match on your 401(k) contributions or your plan is expensive with terrible options? What if you make too much to contribute to a Roth IRA? The list of What-Ifs is endless.
If you want to get it right, you need to invest more time reading and learning the reasoning behind that advice. You can’t blindly follow it because it was never written for your specific situation.
There’s No Fiduciary Duty
With financial advisors, there’s a fiduciary duty. They have to put your financial needs above theirs.
On the internet, there is no fiduciary duty. I’m not certified, I’m not licensed, and I’m also not giving you advice. We’re having a (one-sided) conversation over a coffee or a beer as you would with your friend. The site is supported by advertising, which means I get paid when you visit or when you sign up for various products, and some of those products aren’t going to work for you.
This site isn’t unique in that regard – that’s how the internet works. Much like on Facebook or Twitter, you get free stuff and, in return, the site makes money off your activity.
When you read reviews of products or services, the company publishing that review may make money when you sign up. We try to remain unbiased in our reviews (many are written by freelancers who are compensated for their time writing, not tied to the financial performance of the piece) but bias is everywhere. Writers may not want to be too negative because they don’t want the blowback.
There’s also the bias of exclusion – we tend not to write reviews of products that are obviously bad. We never reviewed Suze Orman’s prepaid debit cards (they had a $3 monthly fee!), which quietly disappeared after they were launched in the early 2000s.
You May be Listening to an Incompetent Bozo
I know I’m not a bozo… but you don’t.
I have zero formal education when it comes to personal finance. I have formal education in other things that are themselves hard but nothing really in the same domain (economics is close-ish but not really). I would not hire myself to create a financial plan and I am reticent to offer any kind of advice to friends and family.
I don’t know what I don’t know (this is my biggest worry) and sometimes I make mistakes. When I write on the Internet, I feel a different kind of responsibility to the reader. I want to get it correct, I want to get it complete, but I feel responsible only to get it right. It’s easy when you talk about something specific, like reviewing a product or discussing my mental models around money.
It’s harder if you want to discuss something much broader. If there is an omission, I trust the reader to do their own research and find it.
For example, investing is a very tricky subject because it, in a small way, depends a lot on the future. This is why many experts say invest in index funds – it’s a no-lose proposition. Index funds are cheap, you get the whole market, and they’re a safe choice. But what should your allocation be? How much in index funds versus bonds or other asset classes? You get rules of thumb. 120 minus your age. As you dig deeper, it gets more complicated – but most of the advice stops at “buy index funds” because that’s where the safe area is.
You have to do the work to fill in the blanks and not trust that the bozo you’re reading knows the whole picture. 🙂
Share it With a Friend
If there’s an idea that interests you but you’re not sure if you “get it” – tell a friend. Talk it over with someone you consider smarter than you on the subject. Just talking about it, and being forced to explain it, can help you better understand it.
This doesn’t have to be a friend you know in-person – it can be an internet friend. Someone whose background and ethics you know and trust. If your friend knows the particulars of your situation they could even guide you on how to fit this new idea into your financial plan.
The idea could be wrong (I’ve written stuff that was incorrect loads of times) or your interpretation could be wrong. A lot of financial topics are complicated (perhaps on purpose!) but getting a second opinion can give you the confidence that it’s correct and that you understood it correctly.
If you don’t have someone in your life that you can talk to you should still aim to get second opinions by reading books by actual, verifiable, experts. You should also follow several bloggers who have a wide range of opinions so that you can see the whole world of personal finance, not just one person’s view of things. This way you can pick and choose which ideas you most agree with.
Don’t blindly follow any advice, much less advice on the Internet, and hopefully, this framework can help!
The internet makes financial information accessible to a lot more people, which is great. But it also comes from generally unknown sources which means you have to do your homework. As they say, you can’t believe everything you see on the internet.
Your finances are extremely important and you should take care not to make important life-changing decisions based on an article you read – no matter where you read it.
Use the internet for exposure to new ideas and general education, but back up your actual decisions with advice from someone whom you trust and who has your best interests at heart.
Oh, and before you go, I want you to do all this with this post too.
Take the good, skip the bad, personalize it, and (most of all) share it with a friend! 🙂