How Can A Financial Advisor Help You Manage Your Finances?

Each one of us has certain goals that we wish to achieve. From buying a home to getting married, saving for your child’s education to paying off your debt, lowering your tax burden to building a large retirement corpus, or more. To do all of these things and more, you need a carefully crafted financial plan. Money is finite and you have to use your limited resources to extract the most value out of them. Moreover, you require the right financial plan to accomplish them. To do so, you need someone who can help you optimally manage your money and work towards assisting you in realizing your financial goals and ambitions. Using the services of a financial advisor can help you achieve your financial dreams as they can guide you through changing fiscal laws, create a budget and pick suitable financial products for you, help you minimize taxes, assist you in creating a retirement corpus, and much more.

Though a lot of folks realize the importance of hiring a financial advisor, they find the cost of hiring one can be expensive. Some question whether the expense would be worth it for them or not. However, most of the time, the benefits far outweigh the costs when it comes to financial advisors. Not only do you get expert financial advice, but you can also seek their guidance on the amount of money you can spend and save, the kinds of accounts you need, the types of investments you can make, the kinds of insurance you should buy, estate and tax planning strategy you can use, and more. The size of your portfolio makes little difference when it comes to your decision of hiring a financial advisor; nearly everyone can benefit from the expert services of a financial advisor. Moreover, your financial advisor can help you educate and increase your financial knowledge by offering guidance on budgeting, saving, and investing to achieve your financial goals. As you accumulate more knowledge, you would be better positioned to understand complex investment regulations, tax implications, estate taxes, and more.

Let us discuss the different ways in which financial advisors can help you manage your finances:

1. They can help you in creating a budget

A budget not only helps you maximize your savings but also enables you to optimize your spending. It is an excellent way to keep track of your money and is the first step towards securing long-term financial wellness. With the help of your financial advisor, you can create a zero-based budget wherein you can ensure that each dollar is optimized to the fullest. With a budget, you can plan how much money goes towards paying your bills, spending on something you like, or investing in different financial instruments. Your financial advisor can further assist you by keeping a careful eye on your expenses. They can help you categorize your expenses into essential and non-essential expenses. The purpose of a budget is to make you a more responsible spender where you prioritize your essential expenses (utility bills, rent, etc.) while curbing your non-essential expenses (dining out, online subscriptions, etc.) to funnel the excess funds towards savings. With the guidance of your financial advisor, you can learn how to save nearly 20%-30% and live on 70% to 80% of your income by doing this on a consistent basis. This will enable you to establish a healthy budget that will act as a foundation for securing your financial future. As per financial experts, apart from maintaining your emergency fund consisting of at least 6 months of your monthly expenses, an average person should also save at least 20% of their income. It is not easy to consistently save, but, with the help of a financial advisor, you can effectively manage your money and achieve your savings target.

2. They can assist you in clearing off debts with the help of a debt management plan

Financial advisors help you pay off your debt by creating a debt management plan for you where they identify loopholes and problem areas and work on mapping your cash flow. In addition, they can create a new balanced budget that covers the essential expenses without taking on additional debt. They also focus on trimming unnecessary expenses and redirecting the excess funds towards paying off debt. Moreover, the advisor can work towards finding solutions to bridge the income gap to reduce the risk of adding further debt. Furthermore, the advisor can help with debt restructuring to enable you to pay off high-interest debt first and pay the low-interest debt, such as mortgages, etc later.

3. They help you manage your investments and protect your hard-earned money

There are several factors that may threaten your ability to invest and derive the maximum benefit out of your funds such as market volatility, changing norms, the introduction of new investment opportunities, etc. For example, if you have invested in a 401(k) retirement account, you are mandated to take out RMDs (Required Minimum Distributions) if you are 72 years of age. Failure to do so would attract harsh penalties by the IRS (Internal Revenue Service). The withdrawal of RMDs was temporarily suspended by the CARES Act 2020 due to the COVID-19 pandemic. However, the suspension has been lifted and if you reached the RMD age bar in 2021, you would have had to resume taking out your RMD.

It is possible to miss out on the changing norms if you do not stay on top of such announcements and especially if you are not a financial expert. That is not the case with a financial advisor. If you work with an advisor, you would be updated about the RMD norms, and he can ensure that you take your RMDs within the stipulated time period. Additionally, the advisor can help you identify investments that suit your risk profile and return expectations. For example, if you have a low-risk appetite, your advisor may suggest you invest in debt-related securities that generate regular income instead of focusing on capital appreciation. On the other hand, if you have high-risk tolerance, you may be advised to invest in equity and equity-related securities and alternative assets, such as real estate, commodities, currencies, etc. The financial advisor may also assist you in restructuring your investment portfolio as per your changing life stage and risk tolerance. When you are younger, say, in your 20s and 30s, the financial expert can create a more equity-centric portfolio due to you having a higher risk appetite. This changes as you move closer to retirement where capital preservation takes precedence and the advisor can restructure your portfolio to include more debt-related investments. Investing can be an emotional exercise. A financial advisor helps take emotional bias out from investing, allowing you to make wise, informed, and better investment decisions.

4. They can assist you in creating a retirement portfolio that maximizes your savings

Ensuring that you have sufficient funds to last your retirement years is paramount when it comes to retirement planning. Everyone has expectations when it comes to retirement. You may wish to open a business, travel the world, visit or live with your grandkids, volunteer for charity services, and more. To support and fund these retirement aspirations, you would need a healthy retirement corpus. Moreover, due to rising life expectancy, you would require sufficient retirement funds to support you financially for at least 20 to 30 years. To achieve this, you can hire the services of a financial advisor who can help you build wealth, assist in creating a substantial retirement nest egg, and preserve your savings for the long term. The advisor can help you design a plan that can stretch your retirement savings, guide you on the best way to delay your Social Security withdrawals to maximize your benefits, when to take your RMDs to avoid penalties, and how to minimize taxes during retirement account withdrawals. Apart from this, the advisor can help you create a retirement budget to ensure your savings last your retirement years. Further, the advisor can help select the right insurance plans that suit your needs from the various options available such as Medicaid plans, lifetime care policies, health insurance, and other government support plans.

5. They can suggest tax-saving strategies that help minimize your taxes

We pay taxes on most essential and non-essential commodities and services. As such, taxes consume a large part of your income, reduce your disposable income and create room for debt. Dealing with taxes is a complicated affair and the laws keep getting changed from time to time. It is not easy to stay updated with the ever-changing tax laws and can cause you to miss out on relevant exclusions and deductions. This may result in having to pay a hefty tax bill. A financial advisor can help minimize your taxes by employing several tax-saving strategies such as maximizing your tax-advantaged retirement account contributions, making charitable donations, contributing to HSA (Health Savings Account), minimizing withdrawal penalties, and more. Moreover, the advisor can draft a tax plan to reduce your taxes while simultaneously improving your savings. Further, using smart investment strategies like tax-loss harvesting, carrying forward losses, etc., can also help reduce your tax burden. In addition, the advisor can guide you and keep you updated about the changing tax norms and the available and applicable tax breaks. The purpose here is to lower taxes while generating the best possible investment returns to ensure that you save more and pay less.

6. They help you select the right policy for health and long-term care planning

It is essential that one must take care of health and long-term care planning to secure their financial future. Health expenses can use up a large chunk of your savings and may force you to alter your financial plans for the future. As per a study, a 65-year-old couple retiring in 2021, will have to incur costs between $156,000 and $1 million or more in health care expenses during their golden years of life. This number is likely to rise even further if they are afflicted with an existing health issue. In addition, healthcare cost estimates do not take into account long-term care expenses, which most people will need in their lifetime. This is where a financial advisor can prove to be beneficial. He can guide you on which insurance policies to invest in when you are young to take care of your healthcare and life care expenses. The advisor can also recommend different government aids such as Medicaid and other programs like Health Savings Account (HSA) that enable you to save while providing tax advantages. Further, the advisor can take you through all the available options for long-term care insurance and explain their pros and cons. You can choose one from among them that suits your needs, how affordable they are in the present and will remain so in the future when you will likely need it the most.

7. They can guide you in reducing the tax implications of your inheritance

Inheritance attracts hefty taxes defending upon which state you reside in. Financial advisors possess the necessary skills to help you manage your inheritance and take care of the ensuing tax implications, optimum transfer, deployment or usage of assets, best use of funds, and more. The advisor can guide you on how to effectively use your inheritance and further assist you in altering your financial goals and strategies to make room for inherited assets. He can also help reduce your tax burden by employing tax-saving strategies such as putting the inherited assets in a trust, gifting a part of the inheritance to your spouse or partner, leaving money to charity, and more.

8. They help you create and execute an estate plan

Preparing for end-of-life situations can be unpleasant at best and distressing at worst. Estate planning is an essential part of ensuring a financially secure future and helps ensure that your last wishes are carried out as per your desire after your demise. An estate plan can serve as a useful tool not only in the event of your death but also when you are alive. Your financial advisor can help you create a living trust. In this, you can transfer your assets when alive and dictate how the assets may be used in the event of your physical or mental incapacitation. In addition, you can appoint trustees or give a power of attorney to an individual who you trust to make decisions responsibly on your behalf as per your wishes while you are alive but incapacitated. Moreover, the advisor can help you create a will and work with you to reduce your estate taxes. You can use different tax-saving strategies such as giving lifetime gifts to family and friends, making certified charitable donations, etc. These steps can go a long way towards minimizing your tax burden. Hiring a financial advisor can prove to be wise in situations of estate feuds such as a family feud, divorce, joint-tax filing with a spouse, foreign assets, etc.

To conclude

A financial advisor can be a source of great help to you and enhance your financial knowledge on how to budget, save and invest your money to attain your financial goals. You should also know and understand the different kinds of financial advisors and the services they offer. Some advisors specialize in retirement planning, tax management, investment planning, etc while others choose to focus on comprehensive services from budgeting to inheritance to estate planning. You can interview multiple advisors and choose one that best suits your needs and would help manage your money astutely for a better present and a secure future.

If you wish to engage the services of a financial advisor and understand how they can help you manage your finances to achieve your financial goals, use WiserAdvisor’s free advisor match service to find highly qualified and vetted fiduciary advisors. Answer a few questions about yourself and get matched with 1-3 fiduciary advisors that are suited to meet your financial requirements.