We all want what's best for our finances, but sometimes making the best decisions can be tough. There are numerous "right" ways to manage money, and what's most beneficial for one person may not be best for you.
Because there's no one-size-fits-all approach to managing your finances, one of the best things you can do is simply learn as much as you can to figure out how to best meet your needs. Sometimes, that means relying on an expert for some help. However, the vast majority of Americans are only relying on themselves to handle their money, which could be a big mistake.
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When it pays to ask for help
Only 1% of Americans say they manage their money with help from a financial advisor, according to a recent survey from CNBC in partnership with financial services company Acorns. Instead, the vast majority of survey respondents say they either handle their finances themselves or with help from a spouse or other family member.
Before you rush to hire an advisor to help you manage your money, keep in mind that not everyone needs professional help. Some people are perfectly capable of handling their finances all on their own, especially with so many resources available online to help you make the best choices with your money. This is especially true if your finances aren't overly complicated. For example, if your money situation is fairly straightforward and you're mostly focused on paying all your bills and socking some cash away for the future, you may not need to hire someone to help you come up with a financial plan.
However, there are certain situations where working with an expert can save you money and make your life a lot less stressful. For instance, there are some major life events -- like getting married or divorced, having a baby, or inheriting a lot of money -- that can significantly complicate your finances. Sometimes it's a good idea to get some advice from a professional to make sure you're making the best money decisions in your unique situation.
A financial advisor can also be helpful for those who simply don't like thinking about their finances. Sometimes, a person may know they should be planning for the future, but the thought of sitting down and actually creating a long-term financial strategy is overwhelming. So instead, they do nothing, which only exacerbates the problem. Talking to a financial advisor can help ensure you're making the right decisions to protect your financial future without having to handle it all on your own.
Keep in mind, too, that working with an advisor isn't an all-or-nothing situation. You don't have to choose between handling your finances entirely by yourself or working with a professional for the rest of your life. For instance, you might be financially savvy and have a good grasp on your money overall, but you have a few questions and want some personalized advice. An advisor can help you map out your financial plan to make sure you're on the right track, and then you can take it from there and handle your money on your own.
How to choose the right advisor
If you've decided that it might be beneficial to work with a financial advisor, the next step is choosing the right person for the job. Not all advisors are created equal, and if you choose the wrong person, you might end up paying a lot of money for bad advice.
First, consider what type of advice you're looking for. Do you just want someone who can help you establish a plan to meet a specific long-term goal, like planning for retirement? Or are you looking for a go-to person who will give you ongoing advice and help you with all your finances every step of the way? Many advisors can help you with a broad range of financial topics, but if you're looking for help in a very specific area -- like investing for retirement or managing your taxes -- it's worthwhile to find someone who specializes in that field.
It's also important to look at how financial professionals are paid. In general, there are two types of pay structures: commission-based and fee-based. Commission-based financial advisors receive a commission on the investments they recommend to you. The advantage of this type of pay structure is that the advice is generally less expensive (or even free) compared to what you'd pay for a fee-based advisor. However, the major downside is that it's sometimes tough to tell whether the advice you're receiving is really in your best interest or if your advisor is suggesting it because he or she will get a commission by selling you a certain type of investment.
Fee-based advisors, on the other hand, don't earn a commission on the investments they recommend. Rather, you'll either pay by the hour or pay a percentage of the total amount the advisor is managing for you. So if your advisor is managing a retirement fund worth, say, $100,000 and charges a 1% annual fee, you're paying $1,000 per year to your advisor. If the advisor charges by the hour to help you come up with a financial plan, you can usually expect to pay a couple of hundred dollars per hour for their services. Although fee-based advisors are often more expensive than commission-based advisors, there are fewer conflicts of interest.
Managing money can be difficult for even the most financially savvy individuals, and it can be tough to tell whether you're making the right decisions. Although it can be expensive to hire a financial expert, if you find the right person who can help you create a solid long-term plan, that advice is priceless.
