Mom's favorite phrases still hold truth
Wisdom, thy name is "Mother."
Your mom's favorite phrases kept you safe ("Look both ways before you cross the street") and out of trouble ("If it looks too good to be true, it probably is").
Many of the phrases she repeated are pure gold for your financial life, too. So on Mother's Day, as you wash your hands before you eat your veggies, thank Mom for advice that -- if you listen -- can make you rich. And enjoy a new look at five of Mom's all-time favorites.
If it looks too good to be true, it probably is
When it comes to money, Mom's admonition that "if it looks too good to be true, it probably is," is "absolutely true," says Karen Altfest, CFP, principal adviser for Altfest Personal Wealth Management.
This advice is the watchword of consumer organizations everywhere. It applies to everything from money-making investment opportunities to superlow-priced deals.
"Nobody is waiting to give you a thousand bucks or the best deal in town," says Linda Sherry, director of national priorities for Consumer Action. "The sniff test is a very important consumer skill."
When shopping price, keep it realistic, advises Sherry. "You have to ask yourself, 'Wait a minute, why would they be offering me this for X, when I've gone onto Google and everyone else is offering it for Y, or says this is a scam.'"
This outlook applies to investing. Bernie Madoff and the con artists who came before and after him have made fortunes by promising large returns, she says.
When someone promises low risk and high reward, the smart consumer "should be hearing bells," Altfest says. "It's a red flag if it's too good to be true."
Look both ways before you cross the street
"Look both ways before you cross the street." This little gem works as well for financial decisions as it does at crosswalks.
Before you do anything vital with your money, look for any potential dangers speeding your way.
"Every decision is a trade-off," says Jill Gianola, a CFP based in Columbus, Ohio, and author of "The Young Couple's Guide to Growing Rich Together." "And you should be aware of what you're trading off to make this decision. If you're deciding to buy this shiny new car, realize you're trading off making a contribution to your retirement plan or putting money away for college."
Ask yourself: "If I didn't do this, what could I do instead? What am I giving up to do this?" says Gianola. Write it down so you will have to think about your goals and what will best help you meet them.
If you're torn between paying off a debt and saving for retirement or education, "sometimes you can do half and half," Gianola says. "That's often what financial planning is about: making progress on multiple goals simultaneously."
Don't take candy from strangers
Every mother advises: "Don't take candy from strangers." Substitute "money advice" for "candy," and mom's warning will serve you well through life.
Before hiring a money pro, get to know him (or her) professionally. Find how, and by whom, the adviser is compensated.
"We all work for a living, we all get paid in different ways," Gianola says. "The nitty-gritty of it is to find out how the person's getting paid, and whether they're working for you or someone else." Financial planners usually charge fees to clients, receive commissions on financial products they sell, or a combination, Gianola says.
Here are other sources of information about financial advisers:
- Professional organizations and licensing agencies. Does your pro claim membership in professional organizations? Verify that. (For instance, you can vet a CFP credential at CFP.net.) Check that any necessary licenses are current and in good standing.
- The Securities and Exchange Commission at SEC.gov. A searchable database of ADV forms on its website details investment advisers' professional backgrounds, how they're compensated and if they have been in trouble.
- The National Association of Personal Financial Advisors. The group posts a "how-to guide" that includes questions to ask your pro on its site: NAPFA.org.
You've earned a timeout
When you were a kid, being told that "you've earned a timeout" was a bad thing. But as a grownup, you've more than earned the right to step back and take some quiet reflection before you act.
And it's a move that can save you big bucks.
"When it comes to your money, don't do anything on impulse," Sherry says. "It could come back to haunt you."
Always comparison shop -- even if you just do an Internet search, she says. "That one step takes you out of the emotional zone."
Beware of high-pressure tactics that use the clock or the calendar to force your hand. "If it's good for you today, it's good for you next week," Altfest says.
"If someone is handing you a pen, saying 'This offer expires today,' that's a good time to walk away," she says. "Nothing that good disappears that fast."
That move is "an arm-twisting tactic," Altfest says. Equally suspect: When a sales representative discourages you from doing your own research, asking questions, getting second (or third or fourth) opinions or talking about the situation with whomever you like.
If everyone else does it, doesn't mean you should
When Mom said, "Just because everyone else is doing it, it doesn't mean you should," she might have been talking about blue hair or that house party where the host's parents were out of town. But her words are spot on for investment advice, too.
"If you follow the crowd, you'll be locked into mediocre results," Altfest says. "You'll get into the market at the wrong time, and you'll get out at the wrong time.
"If everyone is buying gold, that's a good time to say, 'It's too high, I'll find something else,'" she adds. "If everyone else is gloom and doom, you should be looking at buying opportunities. Don't listen to your friends and neighbors except as the background hum for what you don't want to be doing."
The "everybody's doing it" argument is a favorite of scam artists, Sherry says. Be suspicious of pitches that target your emotions: greed, envy, excitement or just the fear of being left out, she says. "That's another way they try to get you."