When do you need a financial planner?
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A friend asked this question-- "When would I need a financial planner?" and I thought is was worth exploring with you.
If you wake up with a toothache or a painful, maybe contagious rash, you know you need to call a doctor. But is your need for financial advice that clear and dramatic? Probably not.
Let's consider the five top reasons you may need a financial planner and then
let's look at what financial planning can do for you.
A financial planner can help if you are in one of these five situations. They happen to all start with the letter "U". Your situation is 1) Unusual 2) Unexpected 3) Ugly 4) Unruly
5) Uncharted
Let's start with Unusual. 1) Something unusual has happened in your life.
You won a big lottery. You are getting a divorce. Your spouse died. You inherited money. In each case--good or bad, a significant change in your lifestyle may occur. These have in common that you are not in control. They happen to you.
2) The Unexpected has happened: you are about to lose your job or you just lost your job. Here you have some control because you can look for another job and you have kept your skills or resume up to date. Maybe you contributed to the reason you were let go. Your home was destroyed by fire, but you had insurance. So you were prepared as prepared as you could be for something this awful.
3) Something Ugly has happened that throws you into court or a hospital: a law suit against you; identity theft; a terrible accident; a debilitating illness. The courts and hospitals although they can bring about good outcomes are often stressful and financially draining.
4) Your finances are Unruly on a day to day basis. You feel out of control not knowing where the money is going. You think that you are making an adequate living but for some reason there's "no money." What are you doing wrong?
5) You, or you and the person you manage money with, are yelling about money, or do not have a joint vision of where you are going with your money, or you are not maximizing your money for the goals that you have. You find your future is just Uncharted. There are: Conflicting goals, No stated goals, Goals with no strategy for reaching them.
So whether you are in a situation that is unusual, unexpected, ugly, unruly or uncharted, you are feeling uneasy or even frightened, and you want to do the best you can with your money.
In addition to feeling uneasy, you feel that you don't know enough for the next stage. You've reached your limit for figuring out how to improve your situation, and you do not have enough knowledge of the marketplace of investments. Now is a good time to call in a financial planner.
A good financial planner is first a good listener who wants to know what you want, what worries you and what fits your money lifestyle. The first meeting with the planner should be about you.
At the next meeting, the planner should set out strategies for resolving problems, taking steps toward your goals and/or answering your questions. If the advisor was really listening, the plan should feel sensible and doable, maybe even exciting. It is exciting to feel we are on a path that can lead to our achieving what we want. That does not mean you won't be uncomfortable about being told to do something like save more money for retirement, but it does mean a compelling argument will be made based on your statements and your timelines for retirement.
Financial planning is a road map. You are here and you want to get to there. Yes, we are talking about your money not a car trip, but there are similarities. If you want to drive from Boston, Massachusetts to San Diego, California, there are many roads that you could take. You decide how fast, how scenic, how expensive a trip you want.
With a financial plan, you are stating your goals and asking someone with training to show you some choices that can get you to those goals. A good advisor, financial planner, money coach, will get you on the right road given 1)who you are, 2)what your money habits are, 3)how much money you have to invest, and 4) how much stick-to-it-ness you have.
Let's take on those five points.
1) Who are you? Are you someone who wants to learn about investing, or someone who just wants a strategy to follow? Are you too busy with your life to care about money? Do you have a love-hate relationship with money? What is your history with money?
2) What are you money habits? Money habits are not about how big your paycheck is; they are about how you define: needs, wants and luxuries. Has the paycheck covered the needs or is there a worry about paying your bills? Is your habit of mind about money that it is to be used today without much concern for tomorrow? Are you so used to saving, that it is hard for you to have fun?
3) How much money you have to invest and when you need to arrive at your financial destination are key components for the financial plan. If you have $25 a month to invest you can begin a program, but there are not as many investment vehicles available to you.
But you can make a meaningful beginning. If you have a goal that must be reached in one year, then too you have fewer choices. So dollars and your time frame narrow down the many investment options.
4) Can you stick-to-it? This financial plan is about the process of investing which includes the paperwork of applications and forms, as well as the nature of how money grows in the marketplace. If your investments go down instead of up will you bail out or will you learn enough about long-term investing to stay with your financial plan?
So bring in the advice of a financial planner when you want to do better with your money, and you want a strategy to lead you to your goals.