Financial planners help you arrange and plan your finances. They use your current income, savings, and investments to project what you will have when you're ready to retire. They also help you decide what to do with your money to help you reach your goals.
The terms "financial planner" and "financial advisor" typically mean the same thing. However, not all planners and advisors are alike because there are different ways to become a planner. The level of education, training, and skills a planner has makes a bigdifference in the quality of the advice you receive. If you handle your own finances, a planner can usually help improve the plans you've made.
If you're thinking about getting some help, it's good to know what to expect from a financial planner. You'll need to know how to tell if the person you're talking to is selling products or if they are giving you solid financial advice and have valid credentials. Learn what to look for and what to expect from a financial planner.
Key Takeaways
- Financial planning helps you define your goals and develop a plan of action to achieve those goals.
- A good financial planner can offer advice on several aspects of your financial life.
- Financial planners are paid in various ways, so make sure you understand how they’re paid before you start working with one.
- While some planners can give investment advice, not all are able to or want to.
What Is Financial Planning?
Financial planning is the process of defining your financial goals. This can include knowing when you will need to use your money and what you will be using it for. You set some goals, with milestones along the way to those goals. Then, you lay out a plan of action you need to take to achieve those checkpoints and goals.
To give good advice, a planner must gather personal and financial data about you. They use this data to create a picture that shows you when and how you can reach your goals. A planner takes your information and forecasts where you'll be using data about inflation and investment returns. You'll learn how much you can save and how much you can expect to earn and spend.
What a Good Financial Planner Does
A good planner will be able to identify and give advice on all of the following:
- Things that you might need to dodifferently to save money
- How much money you should be saving for retirement
- The types of retirement accounts you can choose from (e.g., IRA, Roth, 401(k))
- If the mortgage you have or want is best for you, and whether you should pay it off or refinance your existing one
- If you have the correct type of insurance and how much you might need (this would include life insurance, long-term care insurance, disability, and sometimes property, casualty, and health insurance)
- How much money you should keep in your emergency fund based on your lifestyle
- Some changes that might improve how much you pay in taxes
- The rate of return you will need to earn to achieve your goals over a given time frame
- If downsizing sooner or later in life is best for you and your circ*mstances
- The level of investment risk that is appropriate for the types of accounts you have
Also, many planners provide estate planning advice and tax planning services. Ask a planner which of the above items they address and whether they'll put their advice in writing. Getting recommendations in writing is always a good idea. This way, there are no questions about the recommended course of action.
Note
If you meet with a planner who starts talking about a product right away, they are not helping you plan; they are trying to sell you something.
A good planner shouldn't tell you what you need until they understand your goalsand run a long-term forecast. Planners should want to gather account statements and data on all aspects of your finances.
Financial Planners Fees
You'll find that fee structures vary. Planners can each differ in the way they charge fees for their services:
- You might pay an hourly rate for basic services.
- The planner might ask for a flat fee to complete a specific project.
- If you plan to visit them often, a planner might ask for a quarterly or annual retainer fee.
- Planners might charge a fee as a percentage of the assets that they manage on your behalf (This is typically anywhere between 0.5% per year to 2% per year; the more assets you have, the lower the fee usually is).
- Many planners are paid using commissions from financial or insurance products you buy through them.
- Sometimes you might see a combination of fees and commissions.
Always ask a planner for a clear explanation of how they are paid. If they work as a registered investment advisor, they must provide you with a disclosure document called an ADV, which consists of two parts. Part one is a fill-in-the-blank form, and part two provides details on all fees and any potential conflicts of interest.
Investment Advice
Some planners also offer investment adviceand investment management services in addition to financial planning. Investment advice can range from a general recommendation of the asset allocation model you should follow to specific recommendations on which investments to buy and sell. Make sure to ask your planner if they give specific investment advice or only offer planning services.
FAQs
A financial planner works with clients to help them manage their money and reach their long-term financial goals. They advise and assist clients on a variety of matters, from investing and saving for retirement to funding a college education or a new business while preserving wealth.
How can a financial planner help you meet your goals? ›
A financial plan can help you create an investment portfolio. Your financial plan can give you the full lay of the land: You'll know what your goals are, how much time you have to reach them, and how comfortable you are with risk. Once you have a comprehensive view, you can figure out how to reach each individual goal.
How can creating a financial plan help you meet? ›
A financial plan can help you to establish and plan for fundamental needs, such as managing life's risks (e.g., those involving health or disability), income and spending, and debt reduction. It can provide financial guidance so that you're prepared to meet your obligations and objectives.
What does a financial planner help with? ›
A financial planner is a professional who works with clients to manage their financial affairs, develop financial goals and create strategies to achieve those goals. Financial planners offer expertise and guidance for budgeting, investing, retirement, tax planning, insurance and estate planning.
How can I meet my financial goals? ›
Reaching those milestones starts with setting clear financial goals.
- Define your goal clearly. A goal is the first step that sets you on a path. ...
- Identify your time frame. Categorizing your objectives by short-term, medium-term, and long-term financial goals provides focus to your plan. ...
- Monitor your progress.
A financial manager conducts financial analysis by reviewing past performances, forecasting the future and identifying key drivers of success. The analysis of their findings provides direction to executive management and allows for the development of SMART financial objectives.
Why should you meet with a financial planner? ›
A financial advisor can help you hone in on your goals and map out a way to achieve them. This can be anything from starting to invest, buying real estate, saving for an emergency or retirement, or something else.
What six things will financial planning help you do? ›
Below are several key benefits that come as a direct result of creating a financial plan.
- The process of financial planning helps you set goals.
- Financial planning is a great source of motivation and commitment.
- Financial plans provide a guide for action and decision-making.
- Financial plans set performance standards.
Financial planning helps ensure your money is working for you and is aligned with your short- and long-term financial goals. A 2022 survey found that 91% of people who have a financial plan find it useful, and 33% say their plan has been “critical” for setting them on a positive path to retirement.
How does financial planning help individuals? ›
The financial planning process looks at your financial situation to find strategies to meet your goals. It can support your needs and help you save money. Creating a financial plan is important because it allows you to make the most of your assets and gives you the confidence to weather any bumps along the way.
**Keep track of earnings and spending**: One of the primary benefits of financial planning is helping an individual monitor their income and expenses. By creating a budget and tracking financial transactions, a person can better manage their money and make informed decisions about saving and spending.
Why is financial planner the best? ›
A financial planner generally takes a more comprehensive, long-term approach to money management. While they often hold the same licenses and carry out the same functions as financial advisors, financial planners tend to focus on creating personalized and holistic plans for clients.
What is the purpose of a financial goal in financial planning? ›
Financial goals can be short-, medium- or long-term. These goals can help you succeed in your personal and professional life and save for retirement. Examples of financial goals include creating an emergency savings account, building a retirement fund, paying off debt and finding a higher-paying job.
How do you plan to achieve your financial goals? ›
9 TIPS FOR ACHIEVING YOUR (FINANCE) GOALS
- S.M.A.R.T. goals. ...
- Save before spending. ...
- Focus on your needs, not your wants. ...
- Keep track of your expenses. ...
- Invest, invest, invest. ...
- Invest early and wisely. ...
- Diversify your investment. ...
- Build your wealth slowly but surely.
A better way to write financial goals is to use the SMART method. SMART stands for Specific, Measurable, Achievable, Realistic, and Time-bound. These are five criteria that can help you make your goals clear, realistic, and trackable.
What does it mean to meet financial goals? ›
Financial goals refer to the objectives or targets that individuals or businesses set for their financial future. These goals can be short-term, such as paying off a credit card debt, or long-term, such as saving for retirement.
Why are financial goals important in financial planning? ›
It reduces financial stress, instilling confidence in one's ability to meet short-term and long-term financial objectives. Goal achievement: Financial planning helps individuals define and prioritise their financial goals.
How does setting financial goals help you? ›
Financial goals can help you visualize necessary steps to make smart money decisions. When looking at the big picture, these goals can prepare you to pay off debt, save for a comfortable retirement and reach other financial milestones. Here's what you need to know when setting a financial goal.
How financial planning is important in our daily life? ›
It helps you identify and prioritize your financial goals. It identifies the financial stressors in your life, as well as possible risks and emergencies, and proposes solutions. It recognizes your spending habits and introduces solutions to increase your cash flow.
