What You Need in Your Planning Toolkit
Whether you're just now getting serious about managing your finances or have felt pretty confident with your planning and research all along, realize that the planning you're doing at this phase of life is complex enough and critical enough to warrant asking for advice from a professional.
Getting advice doesn't mean giving up control. You always have the final word on what you do with your life and with your money. There are six tabs in your financial plan: goal planning, insurance, investments, taxes, retirement planning, and estate planning. Find the combination of do-it-yourself and teaming with outside advice that works for you within each tab.
If You're a Do-It-Yourselfer
Doing it yourself is a lot easier now than it's ever been, thanks to the proliferation of online resources. If you have the time and interest, you can make enormous progress on your own, with only occasional specialized help. You can run goal-planning projections, buy insurance, research investments and open accounts, prepare and file your tax return, calculate how much you need to retire comfortably, and even prepare a will. If you're a do-it-yourselfer, you'll want to do as much as you can on your own and then ask for advice when you need it.
Don't try to skimp and save the fee by skipping the annual review with a financial planner. A simple one-hour check-in can save you costly mistakes and missed opportunities. Building a relationship with a planner will make dealing with emergencies and complications easier and cheaper because he will already be familiar with your situation.
When will you need advice? Partner with a fee-only financial planner who will function as a second opinion for you. An annual check-in with your planner to review what you're doing will uncover areas that need more attention or that need review by a specialist such as an attorney or a CPA.
If You're New to Finances or Too Busy to Plan
If you're new to managing your finances, too busy to plan, or really would rather be doing anything else but managing your money, you'll need a financial planner as a partner. It's important that your planner remain a partner and not the sole decision maker regarding your money — that should always be your responsibility. There are many resources to eliminate the tedium and time demands of researching investments, creating planning projections, preparing your taxes, and making a budget. Being in charge of your money doesn't mean that you are doing all of these things yourself. It does mean that you are overseeing the processes and staying educated about your plan as it develops and evolves. Pay attention to online magazines, blogs, newspapers, and books to keep learning and to stay on top of new financial issues that might affect you.
What do the initials mean after advisors' names?
In personal finance, the most common designations are CFP, for Certified Financial Planner, and CPA, for Certified Public Accountant. Both these designations require a rigorous exam process, experience, and ongoing continuing education. Check the Financial Industry Regulatory Authority's website,
You and your personal financial planner are the primary members of your personal finance team, but from time to time you'll need specialists to help implement parts of your plan and to offer advice in specialized areas.
The Quarterback: Your Financial Planner
If you're the head coach of your personal finance team, your financial planner is your quarterback. Your planner should meet with you on a regular basis to update your goals, review your plan, and help guide you in implementing the to-dos in your plan. If you're a do-it-yourselfer, you'll decide which things you want to do and which things you want your planner to do for you. It's the planner's role to understand the big picture and how your financial life meshes with your personal and financial goals. She will also suggest referrals to other professionals when you need their expertise.
Insurance policies — life, health, disability, auto, and home — are sold through an agent or directly to the public via the web. If you know exactly the type of coverage you need, you can save the cost of the insurance agent's commission by buying direct online. Term life insurance is convenient to buy this way. But if you're not quite sure of the coverage specifics you want, or you're buying a product such as disability, home, or auto coverage that requires expert insight, a relationship with an insurance agent is important.
Agents often specialize in either property/casualty or life/health coverage. Your property and casualty agent provides car, home, and liability insurance, which should be reviewed once a year. You may only see your life and health agent when you need a policy. They provide life, disability, and health insurance.
Tax Planning Advice and Preparation
Completing your tax forms can be pretty straightforward if you are not self-employed and have a limited number of deductions. If this is your case, you could complete your tax return using an online service, with some spot advice from your financial planner. If you are self-employed, have significant investment income or a rental property, or have employee stock options or a restricted stock plan through work, you should consider adding a CPA to your team.
Investing Advice and Management
Financial planners often double as investment advisors or managers because investing is so integral to reaching your financial goals. You may manage your own investments and use your planners as a guide or a second opinion, or you might have your planner acting as your investment manager. Some financial planners will refer you to money managers who specialize in a particular type of investment.
Legal Advice and Estate Planning
A general-practice attorney can handle most of the legal issues that will come up. He can prepare a basic estate plan including a will, health care proxy, living will, and power of attorney. He will often handle real estate transactions or refer you to an attorney who can. If you're planning a divorce or starting a business, you will need to add a divorce lawyer or a business attorney to your team. If you have a complex estate or want to put your money in trust, your financial planner might refer you to an estate attorney.