How to Make the Most Out of Seemingly One Size Fits All Financial Advice

by Tracy · 5 comments

My family is getting a tax refund this year. According to some, this isn’t exactly great news because it means that we gave the government an interest free loan but personally, I’m happy not to owe anything like we did last year. I suppose we could have played around with our W4 and such to get the number down to zero but our situation is complicated. We were content to keep a reasonable “cushion” in taxes paid just in case things didn’t pan out the way we thought they would because my husband receives bonus income (which is taxed at the highest rate) and my income fluctuates as a freelancer. Losing out on the potential interest or utility gained by less than $100 a month was less uncomfortable for us than the prospect of finding ourselves owing a substantial amount in April.

Your approach might be similar to mine or it might be different. If I were writing an article today about the most optimal way, financially speaking, to handle federal income taxes, my advice would be different. After all, there is often a world of difference between the most optimal practices when approaching a problem from a strictly rational viewpoint than coming up with a solution that best meets all the needs of the person or family in question.

Does this mean financial advice is worthless? Not at all. My point is that getting the best possible advice is just the starting point when it comes to making decisions that will be practical and sustainable for you. Ignoring your own personality, inclinations and unique situation when making financial decisions rarely works as well as solutions that take a holistic approach.

In order to get the most out of the advice that you are given (financial or otherwise), try these suggestions:

1. Do your best to listen to the advice completely before you start coming up with reasons why this just won’t work for you. I know I said that there are very valid reasons why perfectly logical advice won’t work in all situations, however, you are doing yourself a disservice if you balk at good advice before hearing it out. There is almost always something useful to be gleaned from the conversation even if you can’t or won’t implement 100% of the suggestions.

2. Decide how interested you are in solving this problem. Very few of us are willing to put in the effort to lead a 100% optimized life. In fact, I think it would drive the majority of us crazy to try. Going back to my tax refund situation, if our refund was going to be in the thousands of dollars, I might be willing to put in the effort to try to keep more money in our pocket throughout the year. Or, if we were unable to make our bills, it would be a worthwhile goal for us to get more in our paychecks each month.  We all only have a certain amount of energy, attention and time that we can spend each day so it’s a good idea to focus our attention on the changes that are most important to our bottom line and/or our values.

3. Ask yourself how you (and your spouse and family) would be putting this advice into action. Maybe you’re not comfortable with the amount of risk most financial advisors say that you “should” have in your portfolio at your age. Perhaps you’re much more comfortable paying down your mortgage as fast as possible even though you could get a better rate of return by investing it in bonds. You could feel very strongly about staying home with your children despite the long-term financial costs. There will be times when you have no choice but to do things that you don’t feel completely comfortable with, but generally speaking, you usually can make a workable choice that aligns with your values and personality.

4. Do give yourself a reality check every now and again. Ask yourself if you are really making choices because they make the most sense for you or if it’s because you are scared of change or intimidated by the effort involved or are in denial about your situation. Are you really making choices at all or just drifting along? This is where taking a good annual inventory of your net worth and progress comes in very handy. There is nothing wrong with being more comfortable with risk or needing more of a safety nest or valuing your time over saving money. It is a problem when you tell yourself that everything is okay and you don’t need to change even though all of the evidence is saying the opposite.

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  • Bradley Creamer says:

    I like the idea of trying to pay down a mortgage as quickly as possible. Even with interest rates as low as they are right now, many with less-than-perfect credit still have mortgage rates in the 5-6% range even after a refinance. Tough to beat in the current stock market. I do try to max out IRAs and such, but we try to put most of what is left over towards owning our home ouright (gaining equity & lowering debt:income ratio).

  • Harrison Byrne says:

    Thankfully I’ve gotten a lot more frugal since last summer when I finally took control of my finances. When it came to spending prior to that I could have probably checked “All of the above” when it came to the reason I was doing it. I am much happier now that I’m living a more frugal life, but I will admit I’ll allow myself to splurge on the next iPhone later this year!

  • Kurt says:

    I like this post. We’re all bombarded with advice about everything we do. It’s easy to begin feeling like I do nothing right! So I think it’s important to parse all this advice into “ignore” and “follow-up” categories. Not that I necessarily disagree with the stuff I choose to ignore, it’s just that, for whatever reason, it doesn’t feel that important to me, and I know it’s unlikely I’ll stick with it. So move on to something I feel I can and will do and that will have an effect that matters to me!

  • Adam says:

    A tax refund is typically the largest influx in income a household will get during the year. It is important to make the most of this extra cash. If you don’t have 3-6 months of expenses saved you should put 100% of your tax refund into your emergency fund.

  • Lulu says:

    I will be getting a refund this year too…but only because I lost my job part of the way last year. I paid a lot in taxes during the first part of the year based on my income but then did not have income for the last four months. My total income was therefore a lot less and based on all my deductions I will be getting a small refund. I think you take the general advice and tailor it to your situation!!!!

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