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Do you need a financial planning consultant?

A financial planning consultant could save you time and money so it is best to discover from the beginning whether or not you require his/her services.

Up to now, you've received basic training in personal finances, know, in general terms the steps in financial planning and those aspect that you should consider (additional income, insurance, wills, savings, investments, estate planning, etc.). For this reason, according to your own personal needs you already have some idea of the time and effort which is going to be needed.

But, should you do this all yourself, or hire a financial planning consultant? Use the following decision tree to find out.  Click in each of the numbered activities: 1, 2, 3 and finally in END for more details and examples.

financial planning consultant

Additional Notes and Examples

1. What aspects do you wish to cover in your financial planning?

This list depends on your personal situation, for example:  if you are 50 years old and already have an established situation, securing your retirement and estate planning might be your primary needs.

On the other hand, if you're 30 years old and just starting your career, it is possible you need a comprehensive plan (extra income, insurance, investments, taxes, wills, etc.)

Also consider if you will need help putting your plan into action as well as future updates and adjustments. For example, you might contract a financial planning consultant at certain intervals (perhaps every 3 or 5 years) or each time there is a major change in your life (getting married, having children, divorce, etc.)

Based on your list estimate the time you'll need to learn and do your planning and answer the following question. Go to the question.

2. Cost/benefit analysis of doing your own planning v.s.  hiring a financial planning consultant

Doing this analysis is simpler that you might think.  To do this:

a) Calculate how much is your hourly income (regardless of whether you are an employee, independent contractor, business owner or investor)

Example: As a dentist, the average annual earnings are approx: $185.000.

The year has 52 weeks with a normal work week of 5 days (ignoring vacations, holidays and off-time), so with about 8 hours worked each day, the work year is 2080 hours.

From this, hourly earnings (as a dentist) is roughly $89.00

b) Multiply your hourly rate by the time you've estimated in step 1 above and calculate the cost of doing your own financial planning.

Example: I need to learn and plan for my retirement, how to manage my taxes and plan my estate.

If I devote 2 hours a day, after work and spending time with my family, I estimate that this would take 3 months, or a total of 168 hours.

For this, the cost of doing my own financial planning would be $ 14,952.00

c) Compare your cost with what a financial planning consultant would charge for a complete job.

According to our research of various financial planning websites, we found that a complete financial plan takes about 20 hours of a planner whose hourly rate averages to be:

  • United States: $ 120 to 300
  • Australia: AU$ 220 to 275
  • Canada: C$ 100 to 255

If you don't live in one of these countries, simply convert the above rates to your currency, or contact a local financial planning firm and ask for their rates.

asteriskTip: What to do if there are no financial planners in your country?  Don't be discouraged, there are other professionals who can help you (just click the link to learn more). For the purposes of this analysis, I suggest you simply convert the above rates to your own currency.

Example: To hire a financial planning consultant would cost me: 20 hours at $3,000.00 per hour = $6,000.00

d) Think if the time you would use for financial planning would be better spent doing something else such as: family time, starting your own business, etc.

Example: In three months I could:

  • Spend time with my family on a family trip.
  • I could take a course to enhance my professional status and thus my income,
  • I could increase my clients through building a web site.
  • Etc, etc.

Conclusion: The cost of doing my own financial planning is greater that the benefit or savings I would realize.

asteriskTip: Remember that this is a general analysis so it isn't necessary to make exact calculations regarding the number of days you work in a year or to learn the fees of all the financial planners in your country.  Instead, make a simple analysis such as the example we've done.

Now answer the question: Go to the question.

3. Honestly answer the following questions:

  • Are you an independent thinker?
  • Do you consider yourself to be capable of self-teaching?
  • Does it bother you to ask for help?
  • Do you prefer to do things yourself?
  • Do you find it difficult to take and follow advice?
  • Do you feel confident to make financial decisions?
  • Do you like to do financial research?
  • Do you like doing calculations and working with numbers?

Note your answers and answer the next question: Go to the question.

Final note

Did you notice that at no time did we say that you need to consider how much money you have or your net worth? This is because it does not matter in this decision.  You don't have to be rich to start building wealth.

We make this note purely to avoid making the error of feeling intimidated about your present situation and erroneously concluding that you don't need a financial planning consultant because you don't have much wealth or because your present situation isn't worthy.

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