Ways to Avoid Financial Foolishness on April 1st (and Beyond)

April 01, 2013

Happy April Fool’s Day! Today marks my very first day as a regular contributor to the Monday blog spot for Financial Finesse. When I was first informed of this new role, I thought it may have been some kind of April Fool’s Day prank. Now I know that it wasn’t a practical joke (and hopefully you don’t find my financial tips and guidance comical either) and I look forward to the opportunity to share some of my thoughts and experiences as a financial planner and educator.

Rather than trying to pull some ill-conceived April Fool’s prank and get this blog started on the wrong foot, I decided to discuss ways to avoid being at the wrong end of real world financial shenanigans. After all, 30 million consumers are defrauded each year. Whether it’s a potential financial “phishing trip” or an investment that sounds too good to be true, here are some tips to avoid getting caught up in a potentially devastating scam or situation that can damage your financial future.

Have a written financial life plan…and follow it. An effective way to avoid financial scams and make the best decisions with your money is to have a financial plan that aligns your money with your values and life goals. However, the CFP Board/Consumer Federation of America Household Financial Planning Survey found that less than one-third of the families in America have actually put together a comprehensive financial plan. This is troubling because having a financial plan helps keep you focused and less susceptible to distracting offers that may actually be too good to be true. If you’re among those without one, you can use these resources provided through the Financial Planning Association and a SMART goals worksheet to help develop and reach your life goals. You can also learn more about financial planning and how to find a CFP® professional at http://letsmakeaplan.org/.

Take a team approach managing your wealth. Let’s face it. With financial education resources readily available on the Internet, there is no shortage of knowledge available to guide our financial decisions. The hard part is knowing what information you can trust and how to apply that information to your specific situation.

This is where having a support team comes in. In addition to a financial planner, when most people put together their financial planning team they usually consider estate planning attorneys, tax professionals (EAs or CPAs), insurance specialists, and investment advisers. Other team members could include counselors and Employee Assistance Programs at work (many which offer financial coaching) and trusted friends or family members who may be able to keep you on track.

Check out your advisor’s background and ask how they are compensated. While it’s important to have a team of advisors, as our CEO pointed out in this Forbes blog post, it can be dangerous to completely surrender your financial decisions to someone else without some degree of knowledge and due diligence. Here is a list of some sites you can use to check the credentials of financial professionals and companies that you are working with (or considering using) to help manage your financial affairs:

Avoid complicated investments. Even good financial sales professionals can often complicate investment decisions with industry jargon and complex products with bells and whistles that sound great but are many times expensive and hard to understand. The old adage if it sounds too good to be true it probably is holds just as much importance today as ever. That’s why I prefer to stick with the “KISS” principle (aka “keep it simple stupid”) when it comes to investing and most other areas of my life (note: trying to complete a PhD while working with two young kids at home is my one major exception to the “KISS” strategy). Take these 5 Steps to Smart Investing to help tune out the noise in the media and steer clear of complex investments. If you need more guidance, you can always work directly with an investment advisor (refer to tip #3) or use a target-date fund for one-stop diversification.

Organize your important financial documents. We all have various forms of pocket litter that can give savvy scammers important information. For years, one of the biggest risks I had was carrying a copy of my Social Security card in my wallet. I originally put it in there when I was completing new hire paperwork after taking a new job…and it stayed in my wallet for almost a year before I realized my neglect. Thankfully, my wallet wasn’t picked off by a thief (or accidentally misplaced).

It’s always good practice to keep your financial documents in a secure location like a safe or a secure online document storage site. What you don’t want to do is just dump unopened financial statements and IRS letters into a box only to forget about them. To prevent allowing your personal information to end up in the wrong hands, check out the FBI’s list of common fraud schemes and schedule some time to get those personal files organized.

If your work environment has a character like Jim from “The Office”, you definitely need to watch your back at work today. Fortunately, as long as these shenanigans don’t have a negative financial impact, they are usually pretty harmless. Otherwise, the best way to protect your financial future and avoid falling victim to financial fraud or abuse is to have a financial plan and team you can be confident in.