Should You Pay Zero and Actually Create a Financial Plan Yourself?
One of my favorite radio shows is hosted by Glenn Haege, America’s Master Handyman.® Every Saturday morning, he amazes me with his answers to callers’ questions on a wide range of home improvement topics.
One of his signature quotes is “The most important tool in your toolbox is your checkbook!” Given my lack of eye-hand coordination, I use that tool quite a bit!
Although many wealthy individuals (those with investible assets over $500 thousand) can manage their finances themselves, the question is: Should they? If you are a member of this group and do not have a financial advisor, you are not alone.
According to a Cisco Internet Business Solutions Group report, 30% of wealthy individuals have not hired an advisor.
Unfortunately, it is likely that the majority of these individuals do not have a comprehensive financial plan.
There is actually much online and offline support for the financial do-it-yourselfers. Local community colleges and nonprofit corporations host financial planning seminars. Many churches and religious organizations sponsor financial planning classes based on the work of well-know speakers such as Dave Ramsey and Chuck Bentley.
There is also much to be found online and in videos and books. There are apps that keep track of your money, create a budget for you to follow and allow you to perform rudimentary investment analytics. There are even financial advisors that will give your plan a one-time tune-up for a fee (those offering “free” reviews are giving marketing pitches in disguise.) By doing financial planning yourself, you save the advisor’s fee and you earn big time bragging rights when an investment you buy doubles.
All that being said, sure, you can do it yourself, but why?
Your financial plan is one of the most important sources of tangible security in your life. A bad plan (or no plan at all) could impact your children’s educational opportunities, retirement lifestyle, and/or ability to leave a legacy to your loved ones.
Learning a financial planning program or app will take weeks of work. If you can only perform this work during evenings and weekends, you may be signing up for a multi-month commitment. You will need to create a financial plan consisting of numerous parts: (1) current financial status, including the mix of credit/debt, (2) retirement planning, (3) college planning, (4) insurance planning, (5) tax planning, (6) estate planning, and (7) investment planning.
If you are a numbers person that loves research and working with technology (or multi-column ledger paper and a calculator), this can be very gratifying. However, if you live with others, they may miss being with you as you toil in your home office for months on end. On the other hand, an advisor can interview, gather your financial information (from the accounts you have at various organizations), run numbers and have a proposed financial plan completed in a few weeks, at most.
If you don’t want to do-it-yourself, there are many things you can do to add value to the process:
- Imagine – Think about how you want to spend the rest of your life. Money creates little value until it is spent. What kind of schools do you want your children to attend? How do you want to spend your life after retirement? How do you wish to build your community, nation or world? How do you want your funds distributed after your death?
- Collecting Data – Gather all of your financial data. This includes:
- Assets by accounts
- Liabilities by creditor
- Pension and social security information
- 529 and other college savings plan information
- Life, disability, and long-term care account information
- Last two years income tax filings
- Formal estate planning documents including power of attorneys
- Financial planning background - It would be great if you review financial planning books, websites or software. Your financial advisor will create the best financial plan for you. No media can replicate an advisor’s years of experience. She will have the updated legal and financial information to best serve you. But if you hold basic financial knowledge, together with your advisor, you will come to the best conclusions in the least amount of time.
- Coordinate with other professionals – Although your professional team will talk to each other when needed, the financial advisor may need your help to make introductions. Also, as the plan is implemented, you will want to keep your professionals updated on the moves being taken.
The more financial planning you do yourself, the more money you will save. But don’t do it if it will not be fun or gratifying. The most important tool in your toolbox is your checkbook. The most valuable commodity you own is your time. Use both prudently.