It the world of personal finance, there is nothing more powerful than information.
If you have a financial decision to make — say a big purchase, an investment or an impending major repair — the best thing that you can do for yourself is to make sure you have the most accurate information possible. Making a decision out of ignorance can cost you a lot of money. Choosing based on solid information, on the other hand, can save you a lot.
It’s impossible to be an expert in every area of life, which means that we all have to rely on the expertise of others to help us solve problems from time to time. All too often, though, the people that we turn to for insight stand to gain financially from us taking their advice.
In order to protect yourself from this kind of conflict of interests, you need to make a habit of getting second opinions.
Second opinions are common practice in the medical world, especially when patients are dealing with difficult circumstances and doctors can offer various diagnoses and treatment ideas. But they need to be common practice in your financial life too. Just like getting a second opinion from a doctor could give you a valuable medical perspective that you wouldn’t have otherwise had, getting second opinions on financial issues can offer substantial savings and enhanced strategies.
Here are five areas in which it’s really important to get various opinions before you make a purchase:
1) Home Mortgages
When it comes time to by a home, it seems like everyone you know “has a guy” — a mortgage broker that they trust to get them home loans. Most mortgage brokers do good work, but that doesn’t mean that you should automatically buy from someone just because a friend of family member recommended them.
Different brokers have access to different types of loan products, and some organizations might judge your creditworthiness differently than others. I’ve saved thousands of dollars over the years by shopping around for the very best mortgage deals offered from multiple companies. You should never sign on the dotted line for a mortgage until you’re sure that you’re getting the very best deal available.
2) Home Repairs
Once you own a home, you are going to find yourself paying to repair the things that will inevitably break down. Sometimes these are small expenses, like fixing a clogged drain. Other times, they’ll be major ordeals, such as replacing your roof or your heating and air conditioning system. The bigger the job, the more important it is to get various estimates before beginning the work.
Getting good information in the world of home repair may be even more important than in home mortgages, because the repair/remodel/handyman world is full of a wide variety of contractors and characters. Many are very good, but some don’t do quality work. Most are honest, but some will take advantage of you.
When you have a big job coming, you should never hire the first person who gives you an estimate. I saved around $1,000 on an HVAC replacement a couple of years ago by taking the time to shop around, ask detailed questions, and negotiate with my providers.
3) Car repair
Much like home repair, auto repair is an inevitable part of owning a car. There are plenty of people and companies out there that want to help you fix your car, but the quality of service that they offer — and the prices that they charge for them — can vary wildly.
The dealership that sells the make of car that you own almost certainly has a service department that can fix just about any car problem you have. Unfortunately, dealerships are notoriously expensive on car repairs — so much so that people in the industry often call them “stealerships.”
When it comes time for a big car repair, take the time to get a number of estimates — you’ll likely find that there are hundreds or thousands of dollars in difference between the most and least expensive. And a good, honest mechanic may even be able to tell you that the service or repair that someone else was pressuring you to do isn’t really necessary at all.
You need insurance for all sorts of things in your life — your car, your home, your health, and your life, among others — and you’ll likely buy each of those types of insurance on the open market. It’s tempting to buy all of your insurance through one agent, who may also be a friend (because these folks build a lot of their business on the basis of personal relationships). But doing this may be a really expensive way of acquiring insurance.
Insurance costs are all about risk, and every company out there is going to measure your risk differently. This means that Allstate may offer you a substantially cheaper rate on car insurance than State Farm, or vice versa. The same is true for all types of insurance, which means that you should always shop around for the best rates on any insurance you buy.
Your friendly neighborhood insurance agent is often only able to sell insurance through one company, which means that they can’t necessarily offer you the best deals. Since insurance is essentially a commodity, you should work to find the cheapest way to get the coverage you want, so long as the company you’re doing business with has a good reputation.
When you’re ready to invest for retirement, education or wealth building, you’re going to find all sorts of people who want to advise you, and they will likely each have their own perspective on the best way to handle their money. In many cases, they’ll have investment products to sell you (and will make nice commissions if you buy their products), so you need to be cautious about the decisions that you make.
Some financial advisers are going to give you very conservative advice, while others will be much more aggressive. Some may try to put you into investments that you don’t really want to be in. Some will have hefty fees and commissions, while others may be more affordable.
You need to educate yourself on investing before signing on with any one adviser or broker. Talk to a range of advisers to find out about their expense structure and their financial perspective. Since investing well can make you a millionaire by the time you retire, this is one deal that you really don’t want to screw up.
Photo by Bruce Barrien. Used under Creative Commons License.