A lot of people think they cannot afford to work with a financial planner. I understand, financial planning isn’t cheap. But I really believe that it is worth the expense. In fact, instead of costing you money, in the long run, financial planning should save you money. At the very least, it usually pays for itself. Here’s how:
Save Money On Taxes
As I review every aspect of my clients’ financial lives, I’m always looking for ways to save them money on taxes. When one of my clients came to me, they were doing some very generous charitable giving and also participating in an Employee Stock Purchase Plan. With the new Tax Cuts & Jobs Act higher standard deduction, though, they weren’t going to be able to get the same tax benefit from their charitable giving.
I helped them set up a donor advised fund (DAF) for their charitable giving. By donating a large sum at once to the DAF that would cover several years’ of charitable giving, they were able to itemize their deductions and take a larger tax deduction the first year and claim the standard deduction in subsequent years. This alone increased their possible deductions and therefore lowered their taxes.
Just opening the DAF would have created significant tax savings, but because they had appreciated stock in an Employee Stock Purchase Plan they were able to multiply their savings. By funding the DAF with the stock, they were able to avoid paying capital gains taxes on the stock. Their total tax savings was over $5,000. Only one recommendation created more than enough tax savings to pay for their entire financial plan more than two times over!
Be More Aware And Intentional About Cashflow
Another way that financial planning saves you money, and therefore pays for itself, is by making you more aware of your money habits. I help all of my clients get on some sort of spending or budgeting plan. I am not rigid about it; my clients range from engineers with complex spreadsheet budgets to pastors who simply let mint.com aggregate their expenditures.
The first step in budgeting isn’t changing the way you spend money, it’s simply creating an awareness of how you are currently spending it. I have heard of people who have lost weight, not by changing any of their behaviors, but just by being aware of their weight. That’s why it is recommended to take pictures of everything you eat if you’re trying to lose weight. Awareness is powerful. And it’s just as powerful with money as it is with weight-loss.
While awareness is helpful, actually adjusting your spending habits to align with your goals and values is even more valuable. Having a budget or spending plan in place can save thousands of dollars per year for clients who are intentional about it.
Prevent Costly Mistakes
As humans, we all make mistakes. Sometimes our mistakes are due to ignorance; we simply didn’t know any better. Or other times our mistakes are due to allowing our emotions to overrule our logic. Both of these are areas where having a financial planner can really come in handy.
The financial world is incredibly complex. I had to take five graduate-level courses on top of my Bachelor’s in Business in order to become a Certified Financial Planner ®. Amy, who works for Wacek Financial Planning, is currently working on a Master’s degree in Financial Planning. It takes a lot of time and effort to understand the financial system, so don’t feel bad if you simply don’t get it sometimes. However, not understanding can lead to costly mistakes, which is why it pays to work with a competent financial planner.
One of the big fallacies of economics is that a lot of the assumptions are based on the idea that people make rational decisions. We simply don’t. We aren’t made that way. We have hearts, feelings, and emotions; we are not robots. We get swept up in the moment and throw logic aside. Knowing this about ourselves should lead us to work with an impartial third-party when making financial decisions, like a financial advisor. It can keep us from making costly mistakes.
Several years ago, one of my clients had hundreds of thousands of dollars in company stock options. They didn’t want to sell them because they seemed to always go up a lot. However, I explained to them the risk of holding such a concentrated position and encouraged them to diversify. After much discussion they decided to sell about half of them.
In the following months, the stock lost about half of its value. My clients lost a lot of money, but they would have lost about $50,000 more if they hadn’t heeded my advice and sold some of the stock. That $50,000 in savings is going to cover the cost of their financial planning for quite a long time!
Save Valuable Time
As I just explained, I had to go through a lot of training and schooling to gain the financial knowledge that I have. I’ve been in the industry for over a decade and have helped hundreds of clients. Yet, my knowledge isn’t some kind of secret information that you don’t have access to. Most of my recommendations can be found somewhere online for free. You could even purchase the same textbooks that I did and go through the same educational program.
But you don’t want to. You have better things to do with your time. You could easily spend all of your free time researching finance, sifting through the varying opinions online and figuring out how to apply them to your situation. If you wanted to do that, though, you would have just been a financial planner.
Time is the great equalizer. We all have the same amount of time and it is limited. Your time is incredibly valuable, and you can free up a lot of it by letting me be the financial expert instead of trying to do it yourself.
Find Lost Money
You know where all of your money is, right? Seriously, though, do you? We all think that we do until we realize that we don’t. Which really does happen.
How many jobs have you held since you were 16? It’s hard enough to remember them all, much less remember what kind of benefits you may have had through them. When I first started working with another of my clients, we found a $2,000 401(k) from a previous employer that he had no idea he even had. He didn’t even have to follow any of my recommendations for his financial planning to pay for itself!
Take Advantage Of Compounding Interest
One thing that I do for most of my clients is help get them on a savings plan. We all know we should be saving, but it can be hard. Especially for younger people, we think we have plenty of time to do it later.
If I can get a 25-year-old to start saving $200 a month into a Roth IRA, with 7% returns that account will be worth over $500,000 by the time they are age 65. But, you may be thinking, I would have started saving on my own eventually! True. I hope.
Let’s say that instead of working with me you did it on your own and started saving the exact same amount at age 35. With the same returns, you would end up with just over $240,000 at age 65. By working with an advisor who got you to start ten years earlier you would more than double your money!
Earn Greater Returns On Savings & Investments
I cannot promise to get you a certain return on your investments, because future investment performance is never guaranteed and you can always lose money when investing. However, it is typical for people with a good income to end up with large amounts of money just sitting in a savings account. If you spend less than you make, your savings account balance will gradually build up and you may find yourself with several hundred thousand dollars sitting in an account earning 0.01% interest.
This is a common situation people are in when they come to me. They have diligently amassed large accounts that they don’t know what to do with. They know that their money could be earning a lot more, they just aren’t sure how to do it.
One of the first things I usually recommend to all of my clients is to move at least 3 to 6 months’ cash reserves to a high-yield online savings account. Just moving $20,000 from a bank account earning 0.01% interest to an FDIC-insured high-yield account earning 2% will earn you an additional $200 a year. Without taking on any additional risk, you can earn hundreds or even thousands of dollars more each year, depending on the size of the account.
I have a client that had amassed over $600,000 in traditional checking and savings accounts by the time he came to me. The first thing we did was designate some as cash reserves for emergencies. Then, we took a large chunk of it to pay off student loans. He was paying over 3% interest on the loans, so by paying them off, he received an automatic risk-free return of over 3%. We invested the rest in a mix of stocks and bonds and, while his account balances did go down for a time, he is now earning significant returns on the account.
As you can see, while financial planning isn’t cheap, it really can pay for itself. If you want to learn more about how I can help you maximize your finances, schedule a call with me today!
About Guide Financial Planning
Guide Financial Planning (formerly Wacek Financial Planning) is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.