Do you need a financial
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.
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
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.
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
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
- 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.
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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