There’s never been a better time to take charge of your own finances. Fund fees and other expenses are lower than ever, and the proliferation of digital tools has put the power of planning firmly in the hands of consumers. Even do-it-yourselfers can set financial goals for themselves, select investments, and designate beneficiaries for their accounts.
But everyone has their limits. Some investors lack the discipline, interest, or time required to achieve optimal results. Others face financial circumstances too complicated for any one person to reasonably handle alone. And even experienced investors can use a coach, or consultant, to save time and gain technical expertise as well.
That’s where personal finance professionals come in. If you run into challenges, are overwhelmed by the volume of information out there, or would like support when you need it, a professional can help fill in any gaps and provide customized advice.
Here is a look at four key areas of your financial life and a list of helpful tools and professionals.
The goal-setting aspect of financial planning is a perfect do-it-yourself task, because only you can decide what you want out of life. Maybe you hope to retire at 62, fully finance your child’s college education, or purchase a second home. A guide and counselor can help you attain those goals.
So start by articulating your financial goals, listing them in order of priority, and assigning a dollar amount and due date to each. If you need help prioritizing your goals or estimating your savings targets, this is where an advisor can be helpful.
Once you’ve sorted out your goals, figure out how much you need to save each month to achieve them. If the prospect of juggling multiple goals feels daunting, a financial planner can help you establish a savings strategy and timeline as well as provide an honest assessment of what is and isn’t possible.
Of course, a financial plan is only as good as its execution, which means sticking to your plan through good times and bad. Diverging from your savings strategy, even for a short period of time, can significantly undermine your plan. Pro tip: Setting up recurring contributions can help keep you on track and not deviate from your saving strategy.
To create an investment portfolio that supports your goals, first you need to consider your risk tolerance and time frame, which will help determine the appropriate mix of assets for your needs. Keep in mind, too, that you may have multiple goals with different time horizons. For example, you might be planning for retirement as well as your child’s education. Each goal may benefit from an allocation of their own.
After determining your target asset allocation for each goal, start researching and selecting investments. This is where most average consumers will stall. With so many options to choose from, it's hard to know where to start, how to compare, and what to implement.
Even those who’ve successfully managed their own investments during their working lives may benefit from outside guidance, a process, and a plan as they approach retirement, when income generation (as opposed to wealth accumulation) takes center stage.
As people accumulate more money, making the right decision becomes more important. Working with a professional can help you think through all the options and choose the best path with confidence.
If your tax situation is relatively straightforward, you may not benefit much from having someone else do your taxes or help with multi-year tax planning.
However, if you run a small business, own rental properties, or have multiple investment accounts or other more complex financial needs, you have a greater chance of running afoul of tax laws or, perhaps as importantly, missing out on tax-saving opportunities each year and the life of your plan. Hiring a Certified Public Accountant to prepare and file your taxes can help ensure you pay your due—and not a penny more.
There are also ways to save on taxes using investment strategies. Such tax-smart strategies include:
Making charitable donations for maximum tax benefit.
Optimizing your investments across taxable, tax-advantaged, and tax-deferred accounts.
Using investment losses to offset investment gains and/or ordinary income.
A financial planner can help you identify areas to improve tax-efficiency, including strategies you can consider each year and map out in your plan. Also, the planner may recommend working with a tax professional, who can help with everything from creating a charitable-giving strategy to timing the sale of your investments to managing the required minimum distributions (RMDs) from your tax-deferred retirement accounts as mandated by the IRS.
At Castle Hill we partner with a tax preparer and help guide clients through the tax filing process. We can also work with the tax preparer on ways to save the client more of their hard earned money.
4. Estate planning
People tend to think estate planning is only for the very wealthy, but if you have any assets whatsoever—such as a house, investments, or retirement accounts—it’s critical to articulate what to do with them once you pass away.
Some estate-planning tasks, such as designating beneficiaries for retirement assets, are as simple as logging in to your financial accounts and filling out a form. Others are slightly more complicated but still perfectly manageable, like confirming your assets are titled correctly and updating your will.
If you need to create or update any legal documents, however, working with an estate attorney can save you—and your heirs—a lot of headaches. Unless you have a very simple estate—no kids, no house, no assets outside of your retirement accounts—you’re probably better off working with someone who can tailor your estate documents to your specific circumstances.
At minimum, it’s important to have a will, beneficiary designations that match your intentions, and other basic documents in the case of incapacity or other healthcare events. These are relatively easy to create and should be in the file of any family or investor.
At Castle Hill we work with a partner who has a flat fee and works with us to create the documents according to our clients wishes. It's important that our clients know what they're paying up front instead of an attorney charging many hours and running up an unexpected tab.