I was speaking about personal finance to a group last weekend when someone asked the question, “How do you know if you need a financial advisor?” I thought that this was a great question, but one that’s not necessarily easy to answer.
I think that most people could probably benefit from the help of a financial advisor. There are many reasons to look to a professional for help, but it may not necessarily be clear when you should start doing so. Here are some of the main points that can help you figure out if you need a financial advisor.
You Don’t Have Time to Focus on Your Finances Yourself
One of the main decision-makers for many people when deciding to begin working with a financial advisor is that they come to a point that they realize they simply don’t have the time to focus on their finances and investments like they should. There’s a lot that goes into our financial lives. It’s complicated. It can be overwhelming.
Will you really do it yourself?
A financial planner will manage your investments throughout the year and should ask you to update your financial plan annually. We often tell ourselves that we can take care of things on our own without the help of a professional, but even having someone on our side as an accountability partner with expert knowledge can be very beneficial.
More here: What Does a Financial Planner Do?
While working with a financial planner won’t eliminate having to spend any time on your personal finances, it can certainly help reduce some of that time. At many financial planning firms, there are people whose jobs are specifically to do financial planning and other jobs that are specifically to manage investments. If you’re trying to do this yourself, then you’re trying to take on the jobs of two trained professionals!
You Realize That You Don’t Have the Knowledge to do it Yourself
As I mentioned above, there’s a lot that goes into personal financial planning and investment management. Many people often begin working with a financial planner because they have become overwhelmed by all of the questions that they have. I think it’s a good thing to come to the realization that there’s a lot about a subject that you just don’t know and that you don’t even know the right questions to ask.
I work with clients who are very smart and very successful in their careers. However, that doesn’t mean that they know everything that they need to, or have the skillset to, be successful at managing their personal finances and investment portfolios without the help of an expert. Conversely, I’m really good at managing my personal finances and investments, but would be terrible at what they do. There are professionals in each field for a reason.
Your Personal Finances and Investments Become Too Complicated for You
When your personal finances start becoming complicated enough that you don’t feel comfortable making decisions based on a blog post or book, then it may be a good time to seek out a financial advisor. Complexity can mean different things to different people.
In financial planning, I think that complexity can range from having a high income, having a large investment portfolio, working spouses / two incomes, owning a business, and being compensated with alternative sources of pay such as stock options and Restricted Stock Units (RSUs). (This is not an exhaustive list, but some of the more common examples.)
Figuring out where and how to invest your money is complicated enough by itself. Throw in everything else from insurance needs to tax planning to estate planning and beyond, and a financial life can quickly become more complex than can be dealt with by someone who is not a professional.
You’re Experiencing a Significant Life Change
Change and transition can often be reasons to seek out a financial advisor. Getting married or divorced, getting a new job, having a baby, buying a house, taking care of parents, starting a business, and receiving an inheritance are all significant life changes that come with a lot of financial questions to answer.
One of the most common reasons that people begin working with a financial planner is because they’re going through one of these changes and want someone on their side who they can trust to help them successfully navigate it.
You Need Help Thinking About and Prioritizing Your Financial Goals
Thinking about the future is hard. I find that nearly everyone has a hard time thinking about their goals – not only financial goals, but life goals in general. A financial planner can help clients think through their goals and get them down on paper. Having your goals established drives the decisions that you make in your financial life.
When a question arises about whether you should or should not do something, you can always tie it back to the goals that you have set. Will doing this thing help me get closer to reaching my goals and/or does it support them, or will doing this push me farther away from my goals and/or does it detract from them?
There’s a lot to prioritize in our lives and it may not always be clear. Having an objective third party to work with who has had the opportunity to help others through similar situations can help to make it easier.
When You Feel Like You Need One
Ultimately, the decision of knowing when is the right time to start working with a financial advisor comes down to when you feel like you need one. The factors that I’ve laid out above can help you determine if it’s the right time for you.
