Why every young worker needs a financial planner
I'm going to suggest something to my fellow 30-somethings (and even 20-somethings) that might make you cringe.
Get a financial planner. Now.
You don't need to have a lot of money to seek help. You might even be deep in debt. But having a financial planner is as important as having a family doctor.
There are two very good reasons why this is a must.
Reason 1. A small investment can yield big returns.
Planners who charge a fee and aren't on commission get paid in one of two ways: an hourly rate (usually between $150 and $300 per hour) or a percentage of assets under their management (typically about 1% annually).
This might sound like a lot of money, especially if you don't have a lot of cash set aside. But here's how a planner can save you big down the line:
Choosing a Planner
|Questions to ask||What to look for|
|How do you make your money?||You want a fee-only planner, someone who charges per hour or takes a percentage of invested assets.|
|Are you a Certified Financial Planner?||This certification means the planner has passed rigorous exams about all sectors of financial planning, including retirement, asset, tax and estate planning. To keep up certification, he or she must also meet continuing education requirements. You can check up on their status here: http://www.cfp.net/learn/disciplineactions.asp. A CFP isn't a must. Ask friends and family for recommendations.|
|What is your history?||How did your planner act during the financial crisis? Knowing how someone reacts to a volatile situation can provide clues on what they'll do the next time around (because there's always a next time around).|
|Are you a fiduciary?||A fiduciary has pledged to act entirely in your favor. Planners who aren't fiduciaries have no obligation to do the best for you. So if he or she is not one, find someone else.|
|How much money do you typically handle?||Some planners only want clients with over $250,000 in assets. Others hope to grow with their clients. Ask what he or she will do for someone who is on the same track as you; ask to speak with other clients with financial situations similar to your own.|
|Are you a criminal?||OK, that might not be the best way to ask, but ask if he or she has ever been convicted of a crime or been investigated by a regulatory body.|
- If you're in debt, he or she can help you figure out how to get out of that hole faster, which means less of your cash going toward interest. A planner also will prioritize goals for you, like paying off a student loan before saving for a house, which will help you have more money in the future.
- Investing correctly when you're young will mean more money when you retire. Even if your planner gets you a slightly better return than you'd get on your own, that's a lot of money over 30 to 40 years.
- A planner will tell you what you can afford, steering you away from rash decisions or big money mistakes. If your goal is to save $2 million for retirement and pay half of each child's college education, your planner will tell you how much you need to put away, how much house you can afford and whether or not leasing a new BMW is a good idea.
- Your planner will tell you about alternative investing options. The first person to give a thumbs-up to my plan to buy a second investment property was a planner. I have accounts at Vanguard but wouldn't get that advice there.
Reason 2. It's all on you.
We don't have pensions. Social Security may not be in the future what it is today. Will we have Medicare to pay our medical bills? Who knows.
Our generation is being asked to shoulder more financial responsibility than ever before — retirement, health care, education.
My grandfather never worried about retirement. I worry about it all the time, because I know that if I don't do it, no one will, and I could be working for the rest of my life or doomed to poverty in old age.
That's why starting a retirement plan now is crucial.
I am good at a lot of things. I even write about personal finance. But I do not have the knowledge, or the time to acquire it, to invest my money to maximize every single penny.
One important thing to remember: Make sure your planner is fee-only. You can find them through the National Association of Personal Financial Advisors (www.napfa.org), which also has tips on interviewing planners.
A fee-only planner earns money through fees paid by you, not through commissions by selling products to you.
This means he or she works for you, not in the hopes of racking up commissions by possibly putting you in something that's not right for your situation.