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 novice 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. “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, CFP® 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—or are simply overwhelmed by the sheer volume of information out there—a professional can help fill in any gaps and provide customized advice,” says David Jamison, a Certified Financial Planner™ professional with Schwab Intelligent Services.
While getting professional help often comes at a cost, such expenses should be weighed against the 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 should be outsourced.
Here's a look at four key areas of your financial life along with a host of helpful Tools and Professionals.
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.
That said, “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.”
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, there are a number of online resources and tools available to help.
Once you’ve sorted out your goals, it’s time to 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. “Setting up recurring contributions can help counter the temptation to cut back on your savings when things get tight.”
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.
After determining your target asset allocation, it’s time to start researching and selecting investments. “This is often the step where people stall out,” David says. “With so many investments to choose from, it’s hard to know where to start or how to evaluate comparable choices.”
Fortunately, there are a variety of investment options that 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.”
Even those who’ve successfully managed their own investments during their working lives may feel the need for outside help 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 says. “And working with a professional can help bring that peace of mind.”
If your tax situation is relatively straightforward, there may not be much benefit from having someone else do your taxes. However, if you run a small business, own rental properties, or have other complex financial needs, you have a greater chance of running afoul of tax laws or missing out on tax-saving opportunities. 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 day to day. “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 taxes 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 assess your total tax situation and may recommend working with a tax advisor, 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 mandated by the IRS. (For more information on RMDs, see “7 SECURE Act Takeaways.”)
“A lot of people make costly mistakes that are perfectly avoidable,” David says. “Working with a tax pro can help you make the most of the tax code and keep more of your money, both before and during retirement.”
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—you need 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 double-checking that your will is up-to-date.
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 says.
Of course, attorneys typically 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 to figure out in advance who you want to inherit what—no small task—so you’re not running up a tab working through questions only you can answer,” David says.
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.”