The Right Stuff
Recently, my father sent me a Wall Street Journal article that I had been staunchly avoiding. Feeling bad about deleting it outright, I briefly skimmed it before sending him a verbose reply explaining my rational for avoiding the piece. In fact, my actions are likely to shock both my father and many of my friends. I am an avid Journal reader and consume about as much information about personal finance as I possibly can. Why then would I refuse to read a Journal article about personal finance?
The answer is simple: BECAUSE IT'S SO WRONG!
That's right. Even the Journal's authors can be quite wrong when it comes to topics that they know little about. They just fall into the same trap that most other media outlets fall into... annointing their columnists as so-called "experts" when they really have no business talking about that subject.
Take, for example, this author's comment that one should not begin "seriously saving for retirement" until after age 30. They couldn't be more wrong. Analysis has shown that someone who puts away a fixed amount every year from 20 to 30 and stops will have almost twice as much in the bank at 65 than someone who puts away the same fixed amount from 30 until 65. That's the power of compound interest!
Good financial advice will tell you that. In fact, it's one of many questions I use to triage whether or not somebody knows they're stuff about finance.
Here's another question: when are student loans good? The answer is two-fold: 1) when you need them to finish school, and 2) when you can make a rate of return from investment that is significantly higher than your interest payments. Student loans are somewhat unique because they tend to have more generous terms than most other loans, including lower interest rates. That in turn makes it possible to use money from student loans for investments in securities, which enables you to reap the difference between the two rates (rate of return and interest rate). The caveat: don't try this unless you know how to invest... you're taking on extra risk so you need to be confident that you're not going to actually lose the money (although, better to do it in your 20s than when you have a family to care for).
The first thing that you need to ask when you're getting financial advice, is whose advice are you getting? In other words, why is this person qualified to give you advice?
Let's break it down: what types of professionals are qualified to offer advice? Bankers? Financial Advisors? Columnists? Economists? Successful Businesspeople? Successful Investors?
The correct answer is only the last two - successful businesspeople and successful investors. People like Robert Kiyosaki and Warren Buffet, who have whethered all sorts of financial changes and crises, and made hundreds of millions or even billions over decades. If you're not willing to go that course, than financial advisors may be right for you... they know what they're doing in terms of savings and helping you meet modest goals. They won't generate millionaire returns, but they'll give your kids a college education and you a comfortable retirement.
So if you're keen to start getting advice from the right people, or at least test the water, what should you do? First, take the advice of one of my best friend's fathers, a man whose made many millions in his lifetime, run down to your local bookstore, and buy yourself a copy of Rich Dad, Poor Dad by Robert Kiyosaki.
Now, I've noticed a lot of people have read this book without really reading it. So, what I want you to do is read it once kind of quickly. Then, pull out a pen, pencil, or highlighter and read it again slowly, chapter by chapter. Highlight or underline key points and make notes in the margins. Never read more than a chapter in a day, and if you want extra credit keep notes on a notepad. Get a couple of your friends who share your interest to do this with you and discuss it regularly. This method of studying will help you internalize those lessons.
When you're done, go out and buy another book from a real expert and start scouring the Internet for articles from real experts. They're out there. Robert Kiyosaki writes a column for Yahoo!Finance, Warren Buffet has produced a number of books, some successful mutual fund directors, like the Hussman Funds, regularly publish columns about investing on their websites.
The information's there. GO GET IT!!! And remember to always ask yourself: is this person really qualified to give me advice?