There’s never been a better time to take charge of your own finances. Fund fees and other expenses are lower than ever, and the proliferation of digital tools has put the power of planning firmly in the hands of consumers. Even do-it-yourselfers can set financial goals for themselves, select investments, and designate beneficiaries for their accounts.
But everyone has their limits. Some investors lack the discipline, interest, or time required to achieve optimal results. Others face financial circumstances too complicated for any one person to reasonably handle alone. And even experienced investors can use a coach, or consultant, to save time and gain technical expertise as well.
“Today’s tools, transparency, and low costs make it easier than ever to manage your own finances, but they also can foster a false sense of security that could put your goals at risk,” says Rob Williams, Certified Financial Planner™ (CFP®) professional and vice president of financial planning at the Schwab Center for Financial Research.
That’s where personal finance professionals come in. “If you run into challenges, are overwhelmed by the volume of information out there, or would like support when you need it, a professional can help fill in any gaps and provide customized advice,” says CFP® Professional David Jamison with Centralized Planning Group.
While getting professional help often comes at a cost, access to professional planners is becoming easier, and expenses should be weighed against the value, as well as potential setbacks that can arise from faulty planning, poor investment decisions, and tax-filing snafus. The trick is figuring out which tasks you can confidently and successfully handle on your own and which you can outsource with support and consultation available when you need it.
The goal-setting aspect of financial planning is a perfect do-it-yourself task, because only you can decide what you want out of life. Maybe you hope to retire at 62, fully finance your child’s college education, or purchase a second home. A guide and counselor can help you attain those goals.
“Having a general sense of where you want to end up isn’t the same as making a concrete plan to get there,” David says. “Too often we end up saving what we can and hoping for the best, without any real sense of whether it’s actually enough. And we may think only of retirement, while forgetting or not prioritizing other goals.” This is where a planner is useful.
So start by articulating your financial goals, listing them in order of priority, and assigning a dollar amount and due date to each. If you need help prioritizing your goals or estimating your savings targets, Charles Schwab has a number of online resources and tools available to help.
Once you’ve sorted out your goals, figure out how much you need to save each month to achieve them. If the prospect of juggling multiple goals feels daunting, a financial planner can help you establish a savings strategy and timeline as well as provide an honest assessment of what is and isn’t possible.
Of course, a financial plan is only as good as its execution, which means sticking to your plan through good times and bad. “When unexpected expenses arise or your financial situation changes for the worse, your goals are often the first thing to suffer,” Rob says.
But diverging from your savings strategy, even for a short period of time, can significantly undermine your plan. Rob explains, “Setting up recurring contributions can help counter the temptation to cut back on your savings when things get tight. In addition, a written plan that you can refer to and track—with support and check-ins as needed—allows you to remain committed and stay the course.”
To create an investment portfolio that supports your goals, first you need to consider your risk tolerance and time frame, which will help determine the appropriate mix of assets for your needs. Keep in mind, too, that you may have multiple goals with different time horizons. For example, you might be planning for retirement as well as your child’s education. Each goal may benefit from an allocation of their own.
After determining your target asset allocation for each goal, start researching and selecting investments. “This is often the step where people stall,” David cautions. “With so many investments to choose from, it’s hard to know where to start or how to evaluate comparable choices.”
Fortunately, a variety of investment options can help build and monitor your portfolio—from investing in set-it-and-forget-it target-date funds and using a portfolio builder to employing a professional investment manager and an algorithm-based robo-advisor.
“In the past, you had to have considerable savings to get quality advice,” Rob says. “But these days, you can get top-level portfolio management at a low cost that’s backed by research as sophisticated as that offered to institutions or at higher cost.”
Even those who’ve successfully managed their own investments during their working lives may benefit from outside guidance, a process, and a plan as they approach retirement, when income generation (as opposed to wealth accumulation) takes center stage.
“When you reach those inflection points in your investing life, you want to know you’re making the right decisions,” David asserts. “To me, the right decision means knowing my options and selecting the one that best aligns with my goals and preferences. Working with a professional can help you think through the alternatives and choose a path—and steps—with confidence.”
If your tax situation is relatively straightforward, you may not benefit much from having someone else do your taxes or help with multi-year tax planning.
However, if you run a small business, own rental properties, or have multiple investment accounts or other more complex financial needs, you have a greater chance of running afoul of tax laws or, perhaps as importantly, missing out on tax-saving opportunities each year and the life of your plan. Hiring a Certified Public Accountant to prepare and file your taxes can help ensure you pay your due—and not a penny more.
That said, there’s a big difference between preparing your taxes once a year and managing them daily. “Taxes are one of the biggest expenses investors face, but employing simple strategies can make them more manageable,” Rob says. “If you buy, sell, and manage your investments with tax-efficiency in mind, you stand to save a lot of money in the long run.”
Such tax-smart strategies include:
- Making charitable donations for maximum tax benefit.
- Optimizing your investments across taxable, tax-advantaged, and tax-deferred accounts.
- Using investment losses to offset investment gains and/or ordinary income.
“There are a variety of strategies you can deploy to minimize your tax bill,” Rob says. “The challenge for many investors is knowing what they are and how to implement them effectively.”
A financial planner can help you identify areas to improve tax-efficiency, including strategies you can consider each year and map out in your plan. Also, the planner may recommend working with a tax professional, who can help with everything from creating a charitable-giving strategy to timing the sale of your investments to managing the required minimum distributions (RMDs) from your tax-deferred retirement accounts as mandated by the IRS.
“A lot of people make costly mistakes that are perfectly avoidable,” David says. “Working with a tax pro can help you make sure you’re on the right path, and they can proactively bring up strategies to improve your specific tax situation.” But there are more proactive strategies, such as tax-efficient investing, you can consider to help keep more of the wealth you build—and use—over time.
4. Estate planning
People tend to think estate planning is only for the very wealthy, but if you have any assets whatsoever—such as a house, investments, or retirement accounts—it’s critical to articulate what to do with them once you pass away.
“Some estate-planning tasks, such as designating beneficiaries for retirement assets, are as simple as logging in to your financial accounts and filling out a form,” David says. Others are slightly more complicated but still perfectly manageable, like confirming your assets are titled correctly and updating your will.
If you need to create or update any legal documents, however, working with an estate attorney can save you—and your heirs—a lot of headaches. “Unless you have a very simple estate—no kids, no house, no assets outside of your retirement accounts—you’re probably better off working with someone who can tailor your estate documents to your specific circumstances,” Rob suggests.
“At minimum, it’s important to have a will, beneficiary designations that match your intentions, and other basic documents in the case of incapacity or other healthcare events.” These are relatively easy to create and should be in the file of any family or investor.
Some attorneys will charge a flat fee for basic estate documents, but others may charge by the hour, which is why both David and Rob recommend doing some of the legwork before you meet with one.
“The most important thing is the not-so-small task of figuring out in advance who inherits what and how they should receive it. That way, you’re paying the attorney to create the correct documents that carry out your wishes instead of the attorney running up a tab working through questions only you can answer,” David says.
Some of these tasks can be achieved through titling and beneficiary designations while others might be included in a will or other documents. Ask a financial planner for estate planning guidelines.
- Prioritizing your goals
- Estimating your savings targets
- Setting up recurring contributions to your Schwab accounts
- Determining your target asset allocation
- Researching and selecting investments
- Using a portfolio builder for ETFs and mutual funds
- Designating beneficiaries
- Financial planner: Qualified—and often certified—to create financial plans for clients. May engage in areas of budgeting, estate planning, investments, retirement, taxes, and more.
- Investment manager: Licensed to provide financial advice to and execute investment transactions on behalf of clients.
- Robo-advisor: Used to create, monitor, and execute trades using sophisticated algorithms that automatically rebalance a diversified portfolio based on your goals.
- Certified Public Accountant: Licensed to provide various accounting services, including tax preparation and planning.
- Tax advisor: Qualified to provide tax preparation and tax planning while adhering to federal, state, and local laws.
- Estate attorney: Bar certified to provide estate-planning services, including the drafting and implementation of wills, trusts, and other legal documents.
Collaboration is key
If you do decide to bring in a pro, whether to manage a few key tasks or your entire financial picture, there’s no substitute for you in the decision-making process. “To achieve optimal results,” David says, “collaboration is key.