This is a guest post from Tough Money Love, the personal-finance blog that doesn’t pull any punches.
You don't have to look far in our economy to find someone willing and able to assist with your financial planning. Bankers, insurance agents, stock brokers, wealth managers, and professional financial planners are everywhere. Advice passed along by personal finance bloggers and other amateurs is easy to come by as well.
Many of those wanting to give you advice or manage your money are competent and focused on your best interests. Unfortunately, some are not. Separating the good advice from the bad advice can be a daunting task for anyone.
That's why I am suggesting that many of us can (and should) be more actively involved in our own financial planning. Although a complete do-it-yourself financial plan may not be best for you, applying DIY energy to the overall planning process keeps you in front and in charge of your financial destiny.
Here are some advantages to increasing your level of personal involvement in your financial future:
Professional services are not free and financial planning is no exception. Whether you are paying commissions, fees based on assets under management, or fee-for-services charges, you are going to pay something. Fees that represent even a small percentage of your assets can be substantial. The impact of the fees is magnified over time and is particularly harmful in an economy where investment returns are depressed. That's where we are now and where we may remain for an extended period.
If you do for yourself that which is within your realm of competence — and let a pro do only what you cannot — you will save money and come out ahead overall.
Reduce Conflicts of Interest
Some financial advice you receive from others may be burdened by inherent conflicts of interest. For example, a stock broker or insurance agent makes a living by selling financial products to you. The advice may be "free" but you could end up buying something that is not best for your situation. If an advisor's income is based on what you buy or how much you invest, the temptation to give advice in that direction is hard to resist. Complete objectivity may be missing. That's where the DIY planner — you — steps in to recognize what is really happening.
When you are advising yourself, all of the focus is on your money and on your money issues. A third-party advisor may be distracted by other clients and by personal needs. If most of those other clients have more money than you, they will likely garner most of the attention. The wealthy receive custom solutions. The not so wealthy often receive standard recipe solutions. If you are more involved, you can determine if a proposed plan or solution for your money problems is really designed for your unique circumstances.
Appreciate the Risk
Perhaps the biggest variable in providing appropriate financial advice is adapting to the client's tolerance for risk. I have seen dozens of different questionnaires designed to ascertain a person's financial risk profile. The problem is that this is a highly subjective metric, heavily influenced by emotion. The best person for understanding how risk tolerance will affect your sense of money well-being is you. That's worth a lot.
Adapt to Changing Conditions
Most financial planning decisions are made for the long haul. Others are made in response to internal and external conditions. Some of those conditions can change rapidly, as we have seen in recent months. A third-party advisor with hundreds of clients may find it difficult to keep up with all of the changes that affect you or promptly react to them. You won't have that problem.
Be a Better Consumer
If you are crafting and following your own financial plans, you will have a more intimate knowledge of how your behavior as a consumer affects those plans. This makes you a better consumer thereby improving the prospects for a successful plan outcome.
Be a Better Citizen and Voter
Politicians have a lot of control over your financial destiny. Many voters lack real knowledge of how government spending, taxes, and budget deficits will affect them personally. If you are deeply involved in your own financial planning, you will better understand how monetary and fiscal policies impact your plan. That will make you a better voter. We need better voters.
Take More Responsibility
If recent economic events have taught us anything, it is that we must be personally responsible for our financial future. Depending on government or Wall Street has not worked. Turning everything over to a third party can be just another way of passing the buck — literally and figuratively. Having someone to blame for money misery doesn't get your money back. So keep the ultimate responsibility at home.
Final Words of Caution
I am not suggesting that DIY financial planning is for everyone.
- If you are a high net-worth individual there can be complex estate and tax planning tax issues that require professional guidance.
- If you are already in financial trouble, that may signal a need for third-party intervention.
- If you are unwilling to read, study, and read some more — constantly — then don't bother with your own financial planning.
- If you cannot prepare your own tax return, track your spending, or monitor your portfolio performance, you are probably a poor candidate for self-directed money management and investing.
That's okay. But at least give the idea of being more involved in your own financial planning some serious consideration. You may be the best candidate for the job or at least to play on the planning team. To get you started, here are some ideas on how to be your own financial planner.
Related Articles at Get Rich Slowly:
- 12 Financial Tips for Women
- The Fundamentals of Personal Financial Planning
- Creating a Will: It’s Not as Scary as You Might Think
- Personal Finance Resources from the U.S. Government
- Man Risks Life Savings on Spin of Roulette Wheel