Young Professionals: Don't Make this Financial Mistake

Once you get a halfway decent job, you should expect "financial advisors" to begin approaching you.

I put this in quotations because the title is just that, a title. It's not an indicator of any type of credential. And it certainly doesn't certify that the person has your best interest at heart in their actions.

There are Fiduciaries and Certified Financial Planners , which are different...

Some important context here: I grew up in a home of public servants. My Father was in the military, just like my grandfathers on both my maternal and paternal side. My Mother was a primary school teacher, just like her sister and her mother.

No one in this part of my family saved any money to invest in anything other than, maybe, things like government bonds.

I didn't get a great personal finance education from these folks. No fault here, of course; it is what it is.

Some of what I know now, I learned the hard way. This is one story about learning the hard way...

Several years ago, I was approached by an advisor from Northwestern Mutual. This advisor had graduated from the same university as I did. I didn't want to hold him being young against him. I wanted to believe that with such a big name behind him, any transaction I might decide to proceed with would be a good one.

I was wrong.

Two main issues arose.

First, he misled me about the product itself. I've blocked some of this from my memory, but I believe what he sold me was some type of annuity. Frankly, the key piece of this that I misinterpreted from his analogies is that I could easily get the money back.

This is NOT the case with annuities.

I literally paid for my failure to do research and back check claims with a reliable source. So, here's lesson number one.

1) Do NOT trust people with your hard earned money, no matter how nice they are or how legitimate the institution they represent seems to be.

What else could have gone wrong?

This is the point where my heart sank entirely and I knew I had made a serious mistake doing any business with these people...

The "financial advisor" and his boss called me up one day - together. They proceeded to explain that they had gone through my LinkedIn contact list (without my permission) and had identified some people they would like to connect with... more specifically, they'd like me to refer them to these individuals.

I'm sorry, you did what?

Your professional network is built on your professional capital. You don't owe it to anyone, certainly not for free.

Here's the thing (and this is lesson #2)...

2) No product or service provider should be unscrupulously attempting to steal access to your professional network.

Think about it. If someone or a company is providing you amazing service, you will recommend them and provide referrals of your own accord.

OK, then what should I do?

If you are a young professional, here are some things you may want to ask yourself (and do) before thinking about engaging with an advisor on an investment vehicle of any type.

• Do you have 8-12 months of cash savings in a liquid account (that you seriously aren't touching)?

• Have you paid off all your credit card debt?

• Have you paid off other debts, or do you have a plan to expedite paying them off that you've put into effect?

• Are you maxing a ROTH IRA?

• Are you maxing your 401k contribution? Not just the amount to get your employer's match, but the maximum amount you can save period?

Those are 5 basic things you can (and should, imho) do. But don't take my word for it. Educate yourself by people you trust. Here are two resources:

• "Trusting Yourself" episode by Suze Orman - in which she explains her disdain for annuities and how others (apparently I'm not alone) have been duped into it as well, and other things you *should do...

• This Book: The Little Book of Common Sense Investing

Bottom line, don't make the mistake I did.