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Saving and investing are important. Not sure where to start or what to do? In that case, consider working with a financial planner. These professionals can help you make sound decisions regarding your money. However, hiring a financial planner isn't something to take lightly. Here are some things that financial planner can and can’t do for you:
What can a financial planner do?
It doesn't take expertise to make basic investments online, pay off credit card debt or set up a Roth IRA. However, when it comes to developing a money management strategy to improve your overall financial health, a finance expert may be your best asset. Below are a few of the benefits of working with a professional:
- Saves you time — Meeting your long-term financial goals is not a one-and-done scenario. It's an ongoing process that requires adjustments based on changes in your life, federal regulations, and tax laws, etc. These are time-consuming tasks. Your financial planner is able to keep up with changes in the financial landscape that impact your wealth. Allowing him or her to handle the ongoing maintenance of your investment portfolio means there's one less thing for you to deal with.
- Brings expertise to the table — Finance is complicated. Managing money requires in-depth knowledge, which is something financial planners have. As trained professionals, they stay up-to-date on what's going on in the financial markets. A finance expert is like your eyes and ears for money matters that impact your bottom line.
- Helps you plan for retirement — Do you want to retire while maintaining a comfortable lifestyle? A financial planner can help you with that. Your advisor can assist you with everything from creating a savings plan to deciding on the best retirement options. This ensures all your financial needs will be met long after you walk away from your career.
What can’t a financial planner do?
While it sounds appealing and liberating to turn your finances over to someone who knows more about money than you do, financial planners are not money wizards. The following are a few things a financial planner can’t do for you:
- Guarantee that your investments will have returns — Even with playing it safe and diversifying your portfolio, there’s never any guarantee that your investments will bring returns. If a financial planner guarantees that your investments will yield certain returns, then this is a red flag.
- Give you tax advice — Some financial planners are CPAs but not all of them are. Because of this, financial planners may not be able to give you tax advice. If you ask your financial planner for tax advice, make sure that they have their CPA. If you’re not sure, then ask. Financial planners may have a tax expert they can refer you to for tax advice.
When do you need a financial planner?
Financial planning is a machine with many moving parts. Even if you're comfortable managing basic money matters, there are situations when consulting with a finance expert makes sense. Below are a few of these circumstances:
- Life changes — Major milestones such as engagements, marriages and having children impact your financial well-being. A financial planner can guide you through the changes. For instance, he or she can assist with a prenuptial agreement, plan for college costs, and prepare estate planning documents.
- Income fluctuations — Did you win the lottery? Inherit a windfall? Get a promotion? Let a finance expert level up your money. In other words, he or she will make sure every dollar goes toward an investment, savings, bill, or debt. This is how your income turns into wealth.
- Support — The world of finance is a roller coaster. One minute the stock market is up, then the next thing you know, it crashes. A financial planner can guide you through the downturns by making decisions based on sound financial principles.
How much do financial planners charge?
There are financial planners who charge by the hour and earn commissions from the financial products and services they recommend to their clients. There are also finance experts who charge a flat fee, which is also known as fee-only. They don't earn commissions. Hourly rates can range from $100 to $500 (or more). If your advisor also manages your investment portfolio, he or she may charge 1 to 2 percent of your assets each year.
Is it worth it to hire a financial planner?
Hiring a good financial planner is not an expense, it's an investment. With the right professional working on your behalf, you can improve your financial health. A Vanguard study showed that regular consultations with a financial planner added an average 3 percent boost to a client's assets on a yearly basis. Depending on your portfolio, this can be the difference between earning an extra hundred dollars or thousands of dollars.
There are pros and cons to hiring a financial planner. Generally speaking, working with a financial planner is a wise choice. However, there are instances when it is not the best move to make. Do your due diligence and assess your financial situation. Using a low-cost, online investment tool may be better for you. In any case, you're in the driver's seat when it comes to your financial future.