Advances in technology have made the quantitative side of financial planning easier to manage, allowing financial planners to focus more on the qualitative side of their professions – getting to understand clients at a deeper level, learning what behaviors and habits drive their financial decisions, and helping them articulate and reach their goals. When determining whether you need a financial planner, you should consider these facets of service in addition to being able to solve quantitative, number-focused or investment-related issues.
Why Some People Don't Seek Financial Advice
The majority of people who seek the help of a financial planner have some quantitative issue related to their finances – paying down debt, prioritizing free cashflow towards various goals, saving for a down payment on a home, maximizing employee benefits. All are important issues that are addressed through the financial planning process. However, some people are embarrassed by their financial situation or are afraid they can't afford a financial planner.
If you are in the group that thinks getting help is not within your budget, you may be surprised to know there are financial planners who charge an hourly retainer or subscription fee with no account minimums. And regardless of the shape you're currently in, these professionals will get more satisfaction out of successfully helping you build a better financial foundation and future than any embarrassment you might feel. No matter how savvy you may have been with your finances, an outsider always seems to find something to improve. Financial planners actually encourage each other to have a financial planner of their own for this very reason. There are biases that arise when planning for yourself, regardless of who you are or what your occupation is.
Establish and Reach Financial Goals
The whole point of financial planning is to help you articulate, track and eventually realize your goals. Sure, making money from your investments is great, but the question that arises is, "What is the purpose of my money?" What do you want to accomplish or experience, and who do you want to provide for in your life?
Some of these goals are pretty common among individuals or families. You want to eventually have enough money to become financially independent, to give your kids a quality education, eventually have a place to call home. Taking the proper steps on the quantitative side of financial planning can help you accomplish these.
However, some goals are not so easily articulated. This becomes evident when having conversations with spouses who disagree on how much of an allowance should be given to their children, or when one spends significantly more than the other. Having a financial planner assist in these discussions can help spouses and individuals prioritize and articulate goals that are the most meaningful to both of them. Once a clear depiction of goals has been outlined, it helps provide the peace of mind we seek when it comes to managing our finances.
Reduce Biases and Increase Rational Behavior
Behavioral finance helps planners understand how biases, behavior and emotions all affect financial decision-making. The following are two common biases.
Confirmation bias: When seeking an opinion, we inherently seek those that support our original ideas. In the case of investments, we tend to seek information that supports our original investment strategy rather than information that contradicts it. Look no further than political debates and the media for evidence of confirmation bias.
Recency bias: As investors, we tend to act in a manner similar to the fashion industry. Whatever the hottest new thing on the block is, we pour our money into. Yet we all know past performance is not an indication of future returns.
Financial planners are aware of these biases and keep clients from falling into their traps. As individual investors, it can be hard to maintain the awareness necessary to avoid them.
Behaviors around financial decision-making are ultimately what differentiates people who are successful with their finances from those who are not. If you have a lot of consumer debt, a financial planner will devise a way to pay off the debt, but they also need to address the behavior that put you in debt in the first place. Without addressing the behavior, you're likely to repeat poor financial decisions and find yourself back where you started.
As Marketwatch reports, the average investor significantly underperforms their benchmark. Why? Investor behavior and allowing emotions to dictate financial decision-making, selling and buying investments at the wrong time. It's more important to participate in the market long-term than to try to time it.
You may have done a great job outlining your goals and figuring out how much money you'll need to accomplish them. Actually putting the plan in place and holding yourself accountable is another thing. It's human nature to ease up when we have no one watching or encouraging us. It's no different when it comes to your finances. A financial planner can be your accountability partner when it comes to accomplishing your goals. No more, "I'll increase my 401(k) plan allocations next year, it won't hurt to put it off."
Peace of Mind
Arguably the biggest benefit you can get from working with a financial planner is peace of mind. If you're the type of person who consistently worries about their finances, it can be a huge relief to have a professional put a plan in place that makes sense and keeps you on track towards your goals. Peace of mind about your finances, in turn, leads to a more meaningful and stress-free lifestyle!
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