5 Misconceptions About Financial Planning that You Must Steer Clear Of
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People have a lot of misconceptions when it comes to the world of financial planning. While some assume that they don’t need a financial planner, others feel that their income is not enough to even warrant some form of financial planning. Whatever the case may be, there is no doubt that numerous misunderstandings endure. Such misunderstandings often prevent people from even considering financial planning as a service that they require. Consequently, they end up missing out on the many benefits that financial planning provides.
Let’s take a closer look at the 5 most common myths about financial planning that you need to steer clear of:
Misconception #1: Only Wealthy People Require Financial Planners
Many people think that financial planning is only for wealthy people. However, this is just not the case. The 2018 Evolution Revolution report states that nearly 82% of individuals who have their accounts managed by an SEC-registered financial advisor do not fall under the high-net-worth bracket, i.e., they don’t have over $1 million of investable assets. This statistic clearly proves that the services offered by financial planners are being used by all kinds of people and not just the wealthy ones. In fact, it makes more sense for people with fewer assets to invest in financial planning – if a planner helps save $500, it is more meaningful for low or middle-income individuals rather than those with a high income.
Financial planning is for all the people who want to manage their money efficiently and achieve their financial goals in life. The bottom line is that if you have certain desires in life, you’re a suitable candidate for financial planning.
Misconception #2: Financial Planning Services are too Expensive
Some people believe that the fees charged by financial planners are too high. The truth, however, is that instead of becoming a financial burden, the services offered by a financial planner can actually help save a lot of money. Moreover, trusted financial advisors are very transparent about their fee structure. They will tell you upfront about the benefits that you will receive in lieu of the fees that you are paying. While there are some financial planners that only target the wealthy and charge exorbitant fees, there are also numerous ones who are willing to work with low and middle-income families on an hourly or fixed-rate basis.
Ultimately, if you have any doubts about whether you can afford a financial planner or not, be honest about your budget and inquire about the kind of fees you’ll have to pay. Chances are that you will find an affordable financial planner sooner rather than later.
Misconception #3: People With Simple Finances Can Go at it Alone
Oftentimes, people believe that their finances are simple and hence the best option is to just ‘do-it-yourself’ rather than hire a financial planner. In all effectiveness, this is a very ‘penny wise, pound foolish’ approach. Firstly, finances are more complex than most people think them to be. A qualified financial planner can manage tax planning, estate planning and other complicated areas of finance in a manner that untrained individuals never can – that’s a simple truth. Secondly, even if an individual’s finances are indeed simple, having a second opinion from a trained professional can never hurt. Finally, a financial planner can offer valuable insights and bring up options that aren’t otherwise easy to spot.
A 2018 study by Vanguard estimated that individuals working with a good financial advisor experience a 3% increase on average in the value of their portfolios annually. As you can clearly see, it just makes more sense to work with a financial advisor rather than going at it alone.
Misconception #4: Financial Planners Only Help With Investing Money
It is a given fact that one of the primary roles of a financial planner is building the value of a person’s portfolio through investments. However, it goes much more beyond that. A good financial planner will also help with other key areas of finance such as budgeting, estate planning, taxation, insurance, retirement planning and much more. Ideal financial planning should help develop a plan that is unique to an individual’s particular financial situation. In fact, if a financial planner is only concentrating on investing your money rather than helping you formulate a comprehensive financial plan for life, you might want to consider replacing him/her.
Always remember, a good financial advisor will help you achieve your financial goals by charting an effective plan towards them. Investing your money is only a small part of that plan, not the whole of it.
Misconception #5: Everything is Set When There’s a Financial Plan in Place
Some people believe that all their financial problems are fixed once they have a financial plan in place. This is far from the truth. An important aspect of sound financial planning is meeting new opportunities and challenges in life by adjusting and fine-tuning the original plan whenever required. As your life changes, so might your financial goals and desires. You can create a base plan by working with a financial advisor, but don’t leave it at just that. Instead, examine your plan regularly and diligently to assess whether you need to make any adjustments to it. Don’t hesitate in doing the legwork required towards ensuring that your finances are being managed in the best manner possible.
Creating a good financial plan is only half the battle won. Once you have an effective plan in motion, keep monitoring it and make it better by working closely with your financial advisor.
To Sum it Up
The aforementioned misconceptions can prevent you from realizing the potential advantages that good financial planning provides. Therefore, it is indeed a good idea to steer clear of them. Ultimately, it wouldn’t be wrong to state that financial planning is the need of the day. It can help you live life to the fullest by ensuring that you have adequate finances whenever there is a requirement.
If you need any kind of financial planning services, consult top financial advisors today.