Have you ever considered hiring a financial advisor? Many Americans want to take control of their finances, but they will often say no to working with financial advisors, saying they don’t feel like they need one.
It’s true that the entire process of financial planning comes with a bit of a stigma. Many people might not understand how to financially plan for their future – through no fault of their own – and others might not want to work with a financial advisor for a variety of reasons. One of those reasons being: the role of a financial advisor is often misunderstood.
Financial advisors do more than just help you save money and invest for your retirement. The entire process of financial planning helps you better define your goals and develop a plan of action to achieve those goals. But a good financial planner can offer advice on multiple aspects of your financial life, from tax planning to income planning to insurance advice and beyond.
If you’re thinking about getting some help with your finances – no matter where you may be in life – it’s important to understand just what to expect from a financial advisor.
What is Financial Planning?
Many people struggle to really understand what financial planning means, especially when it comes to them. Financial planning is a simple concept: it’s the process of defining your financial goals. That means setting goals and assigning milestones along the way, so the process is all laid out – kind of like a road with checkpoints.
For a financial advisor to best help you, they will need to start by learning more about you. This data helps build a greater picture of you and your life – and how you can reach your goals. It’s an especially important process for people who might not have had a lot of financial literacy growing up. This is commonly seen in younger, single women, as well as people who might have been in a relationship where just one person controls the finances, like divorced women.
Financial planning takes all of this into account and forecasts where you might be able to go in the coming years, taking into account investment returns, any goals you may have, and inflation. As a result, you’ll learn how much you might be able to save for your goals, realistically, and how much you might be able to spend month-to-month.
5 Ways a Financial Advisor Can Help Save You Money
Whenever you ask people if they need a financial advisor, they tend to say no because they don’t see a need for one. But the truth is that a financial advisor can help you in so many ways, no matter what stage of life you are in. Here are some of the big benefits.
1. Coaching You to Make Financially Smart Moves
The biggest driver of your financial plan’s results is your own decisions. Your decisions will by far have the biggest impact on your finances – not your investments, for example, or even your savings.
Let’s take retirement as an example. If you don’t have a solid distribution plan in place for retirement, you could come up short or lose a big chunk of your money to inflation, taxes, or too much risk. Understanding your own biases and digging deeper into emotional decision making versus logical decision making will make the biggest difference. For example, if you sell your investments when you see the market tanking instead of riding out the market volatility, you lose out on any potential gains. Financial advisors can help coach you to understand your own decision making process, so you make smarter, money-saving moves in the future.
2. Smarter Income Planning to Meet Savings Goals
Income planning doesn’t just mean thinking about your income right now – it means planning ahead for your income during retirement, too. It’s never too early to work with someone to help think ahead. No matter if you’re a young adult, a new couple starting their life together, or a recent divorcee trying to get their financial life in order again, a financial advisor can help create a personalized plan and coach you on how to make decisions that best suit your goals. Working with an advisor could mean the difference between retiring when you want and being forced to work during your retirement.
3. Investment Advice
Investing your money can be intimidating, especially for people who have never been exposed to investing before. It can all seem a little bit like a boy’s club. What stocks do you buy? How much money do you need to invest for your retirement, or other big financial goals? Not everyone is exposed to investment advice, and not everyone receives an education in financial literacy – especially women.
Unfortunately, many people try to go it alone when it comes to investing and the numbers are not encouraging. Looking at how the average stock investor performed compared to the S&P 500 index over the past 30 years, the average investor underperformed by more than 3% each year! If you had $100,000 invested, that would mean you lost out on $3,000 annually in returns by making bad choices. And that 3% adds up over time – nearly $1.3 million left on the table!
A great financial advisor can help you not only plan your own investments, but also teach you about investing and how to overcome your biases, so you can understand the moves to make and understand the reasoning behind it. There’s nothing better than being an active participant in your future!
4. Tax planning to save big bills
Unless you’re working with a financial professional, there’s a good chance forward-thinking tax strategies will be left out of your plan. Choosing the right investment structure will have a big impact on your taxes.
So what, exactly, is a tax strategy? A tax strategy will help deal with money inside or outside of your retirement accounts, and plan ahead accordingly. When it comes to your retirement funds, deciding if you should pay taxes now or at retirement can have a big impact on your overall plan.
In addition, your taxable accounts might be causing problems you may not even understand yet. Small tweaks can help you avoid paying hundreds of thousands of dollars in capital gains distribution taxes over time. For example, we recently worked with clients who could have avoided an unnecessary $20,000 tax bill by making one change to their portfolio without sacrificing returns. A financial advisor can help keep your taxes to a minimum, while planning ahead for the future.
5. Understanding the Choices – And Which Best Fit Your Needs
There are so many different choices to make when you are building and running your financial plan. It can be overwhelming to understand which choices are the right choices for you – and which choices best serve your goals.
After all, life isn’t static, and your financial plan shouldn’t be, either. Changing life circumstances, like new children, an earlier retirement age, or buying a house, should all be taken into account when considering your financial plan. Your goals and dreams will differ from your neighbors and even your family – so your advice needs to be tailored to your own goals and resources as a result.
How can we help you save money? A financial advisor can help set up SMART goals. What does that mean? SMART stands for Specific, Measurable, Achievable, Realistic, and Time-bound.
People who make their own financial plans often do a good enough job, but they may forget to account for one factor or another. While there are some big changes you can likely make to improve your plan, incremental changes that compound over time are usually where you should focus in the long run. In your financial plan, details matter! Your plan may not be realistic. Your plan may not factor in the time it takes to achieve certain goals. You may not stay up to date on changes in the tax laws. Your brain may sabotage you into making emotional decisions. You might make decisions based on bias not connected to the reality of the financial markets. You might have blind spots: you don’t know what you don’t know. That’s why taking advice from an expert can help you. A financial advisor is equipped with the proper knowledge to ensure any goals you may have can be met within the right time frame. In the long run, understanding your choices and making the right choices will likely save you thousands of dollars.
The Benefits of a Financial Advisor
A great financial planner can help you out in so many ways. They will be able to identify and give advice on the following matters:
- Lifestyle changes to save money
- How much money you should be saving for retirement
- How to identify the correct risk tolerance for your personality and goals
- Retirement investment accounts that best fit your needs, like a Roth IRA or 401K
- Advice on your mortgage, refinancing, and repayment
- Different types of insurance and how much you might need. This can be especially helpful if you’re recently divorced or a young woman looking to kickstart change in your life. This includes life insurance, disability insurance, and even health insurance.
- Creating, rebuilding, or enhancing your emergency fund, an important part of anyone’s savings plan, especially women
- Downsizing in the future
- Investment plans for the future based on goals you may have
- The rate of return for your investments depending on your accounts
- Estate planning advice and tax planning services. But keep in mind: Some financial advisors may not be able to help with this!
One thing to keep in mind: if you meet with a financial advisor and they start talking about their products and pricing right away, steer clear. Some advisors will try to sell you products instead of genuinely trying to help you.
A great financial advisor won’t tell you what they need until they learn about you, your goals, and your long-term plan. They need your account statements and other data about your finances before working through anything else.
Financial Independence
Being financially independent can be a long and difficult road, especially if the process of financial planning seems tedious, stressful, and out of reach. A financial advisor can help you better understand and outline your goals and take actionable steps to accomplish them.
