How Do Financial Advisors Help Manage Your Money?

Everyone has goals they want to accomplish. You might buy a home, get married, save for your children’s education, pay off your debt, create a significant retirement corpus, or more. However, it is critical to understand that you require a carefully drafted financial plan to achieve these goals. Money matters are often complicated, and while you may know your ultimate goal, you might not have the right financial plan to accomplish them. Therefore, it is critical to engage with a professional financial advisor who can help you optimally manage your money and ensure you realize your financial dreams and goals. These professionals can guide you through changing fiscal laws, introduce a wide array of suitable financial products, help you minimize taxes, support you in creating a retirement corpus, and much more.

While most people understand the importance of hiring a financial advisor, the cost often becomes prohibitive. Hence, you may have thoughts like – “do I need a financial advisor” or “are financial advisors worth it?” When you compare the benefits of engaging with a professional with its cost, expert advice has proven to be a solid investment for the future. Irrespective of how small or large your financial portfolio is, nearly everyone can benefit from the expert services of a financial advisor. Together, you and your advisor can discuss relevant financial matters like the amount of money you can spend and save, the types of accounts you need, the kind of investments you can make, the types of insurance you should buy, estate and tax planning strategy you can employ, and more. Your financial advisor can also offer guidance on budgeting, saving, and investing to achieve your financial goals. Further, as you accumulate financial knowledge and sharpen your financial acumen, the advisor can help you understand complex investment regulations, tax implications, estate taxes, and more.


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Here are some ways in which financial advisors help you manage your money:

1. Create a budget to maximize your savings and optimize your expenses: 

A foolproof, workable budget is the first steptowards long-term financial wellness. If you maximize your savings and optimize your spending, a budget can be an excellent way to keep track of your money. Your financial advisor can help you create a zero-based budget, where each dollar of your income can have a good use – whether it goes towards paying your bills, spending on something you like, or investing in building wealth for your future. Each dollar has a particular role. Ideally, your advisor can assist you in carefully tracking your expenses and categorize them into – discretionary and non-discretionary expenses. The objective is to spend frugally and fulfill your necessary or non-discretionary expenses (utility bills, rent, etc.) while minimizing your discretionary expenses (dining out, online subscriptions, etc.) and redirecting the excess funds towards savings. Your financial advisor can guide you on how to live on 70% to 80% of your income and do this consistently to establish a healthy budget with considerable savings (nearly 20%-30%). Savings are the foundation of a secure financial future. According to financial experts, an average person should save at least 20% of their income, exclusive of the emergency fund that comprises at least six months of your monthly expenses. Achieving your savings target is not an easy job. However, a financial advisor can help you effectively manage your money and achieve your savings target.

2. Pay off debt through debt management services: 

Financial advisors not only manage your money but also shape your finances for a better financial present and future by providing debt management services. Managing debt is a critical way financial advisors can support you in creating a financially healthy future. A trusted expert can map your cash flow and identify loopholes and problem areas. The professional can then create a new balanced budget that covers the essential expenses while not adding more to the existing debt. The advisor can also trim any unnecessary expenditure to redirect excess funds towards paying off debt. Further, the expert can work with you to fulfill the income gap, minimizing the risk of further debt. You can also ask your advisor to restructure your debt so that you pay off high-interest debt first and pay the benign, low-interest debt, such as mortgages, etc later.

3. Manage investments to optimize and safeguard your funds: 

Market volatility, changing norms, the introduction of new investment opportunities, etc., can complicate the investment process. For instance, if you hold a retirement account like a 401(k) and you are 72 years of age, you will be liable to take RMDs (Required Minimum Distributions). If you fail to take the amount or take only a part of the total RMD sum, the IRS (Internal Revenue Service) will levy strict penalties. However, the CARES Act 2020 had temporarily suspended the RMDs for 2020 in the wake of the COVID-19 pandemic. But if you reached the RMD age bar in 2021, you would have had to start or resume RMDs as the suspension had expired.

For a non-financial expert, it is possible to miss out on these changing norms. But if you work with a financial advisor, you would be updated about the RMD norms, and the professional can ensure that you take your RMDs within the stipulated time. Further, apart from apprising you of the changing developments in the investment world, a financial advisor can help you find investments that suit your risk appetite and return expectations. For instance, if you are a low-risk investor, the advisor might suggest you invest in debt-related securities that generate fixed income instead of capital appreciation. However, if you are a high-risk investor, the professional can guide you to invest in equity and equity-related securities and alternative assets, such as real estate, commodities, currencies, etc. Your financial advisor can also help you restructure your investment portfolio according to your altering life stage and risk tolerance. When you are in your 20s, 30s, or 40s, the professional can create a more equity-centric portfolio. However, as you move closer to your retirement, the advisor can restructure your portfolio to include more debt-related investments. Financial advisors eliminate emotional bias from investing, enabling you to make wise, informed, and optimized investment decisions.

4. Create a retirement nest egg to ensure you have sufficient funds for your retirement years: 

You might have certain retirement life expectations. You may want to travel the world, start a business, visit or live with your grandkids, volunteer for charity services, and more. No matter what your retirement aspirations are, you require a retirement corpus to support them. Given the increasing life expectancy figures, creating an adequate retirement corpus to support you for at least two to three decades is necessary. A financial advisor can help you build wealth, support you to create a significant retirement nest egg, and preserve your savings for the long term. The advisor can work with you to estimate your projected financial requirements and create a wise plan to stretch your retirement savings. The professional could guide you on the best way to delay your Social Security withdrawals to maximize your benefits, the right time to take your RMDs to avoid the nasty penalties, optimum ways to lessen taxes during retirement account withdrawals, etc. The advisor can also help you create a retirement budget, ensuring you do not outlive your savings. Additionally, the financial advisor can help choose the right insurance plans for your needs. They can offer expert guidance related to Medicaid plans, lifetime care policies, health insurance, and other government support plans.

5. Manage taxes to minimize your tax burden: 

No one likes paying heavy taxes. Taxes consume a large chunk of your income, reducing your disposable income and creating room for debt. But no matter how tax-savvy you are, dealing with taxes after a point can get complicated and exhausting. Further, the ever-changing tax laws can cause you to miss out on relevant exclusions and deductions, resulting in a heftier tax bill. However, if you work with a financial advisor, you can effectively minimize your taxes. These professionals have the expertise and experience to manage your tax situation, irrespective of the complications involved. The expert can draft a wise tax plan to reduce your tax bill and improve your savings. The financial advisor might guide you to maximize your tax-advantaged retirement account contributions, make charitable donations, contribute to HSA (Health Savings Account), minimize withdrawal penalties, and more. The advisor might also assist you with smart investment strategies like tax-loss harvesting, carrying forward losses, etc., which can lower your tax burden. You can also get in-depth and updated knowledge about the changing tax norms and the available and applicable tax breaks. Their goal is to minimize taxes while generating the best possible investment returns so that you save more and pay less.

6. Assist in health and long-term healthcare planning: 

Health and long-term care planning is an essential step for a financially secure future. According to a study, a 65-year-old couple retiring in 2021 will likely spend between $156,000 and $1 million or more in healthcare expenses during their retired life. The figure will shoot up if the couple has an existing health issue. Further, this health care cost estimate is exclusive of long-term care expenses, which most people will need in their lifetime. By working with a financial advisor, you can pre-plan for your healthcare and life care expenses by investing in the right insurance policies when young. The advisor can guide you in selecting the best insurance policy and investing the right sum for your future. Further, the advisor might help you take advantage of government aids like Medicaid and other programs like Health Savings Account that allow you to save while providing tax advantages. The professional can explain all the available options for long-term care insurance. You can then choose a plan that is affordable in the present and will remain so in the future when you will likely require it the most.

7. Manage inheritance by minimizing the impact of associated tax implications:

A competent financial advisor also has the skills to help you manage your inheritance. If you expect to receive an inheritance, you may have concerns about its tax implications, optimum transfer, deployment or usage of assets, best use of funds, and more. A financial advisor can support you through this dilemma, ensuring you make the most effective use of your inheritance. The professional can assist you in adjusting your financial goals and strategies to make room for inherited assets. Further, the advisor can help you minimize the projected tax burden by adopting wise strategies like putting the inherited assets in a trust, gifting a part of the inheritance to your spouse or partner, leaving money to charity, and more.

8. Support estate planning by creating an estate plan: 

Thinking or preparing for end-of-life situations can be disappointing. Hence, most people tend to avoid estate planning. Estate planning is a vital step for ensuring a financially secure future. With the right estate plan, you can govern what happens to the assets you have worked so hard for. You can also account for how your estate pays for your last wishes. Other than that, an estate plan is also useful when you are alive. Your financial advisor can help you create a living trust, where you can transfer your assets when alive and govern their usage in case of your physical or mental incapacitation. You can assign trustees or give a power of attorney to a person who can responsibly take decisions on your behalf while you are alive but incapacitated. Your advisor can also assist you in creating a will and fulfilling all other estate plan requirements. Further, the professional can work with you to minimize your estate taxes. Wise strategies like giving lifetime gifts to family and friends, making certified charitable donations, etc., can significantly reduce your estate tax burden. Moreover, if you have a complex estate situation, such as a family feud, divorce, joint-tax filing with a spouse, foreign assets, etc., hiring a financial advisor can prove to be a wise decision. 

To summarize

Using the services of a financial advisor can be essential for your long-term financial wellness. However, not all financial advisors can offer all of these services. There are different types of financial advisors. Some professionals offer particular services, like retirement planning, tax management, etc., whereas others can provide comprehensive services from budgeting to inheritance to estate planning. Therefore, you can decide what kind of financial help you need and, accordingly, choose the required financial advisor. With the right professional financial advisor’s advice, guidance, and expertise, you can manage your money astutely for a better present and a secure future.

If you wish to hire the services of a financial advisor and understand how they can help you manage your finances as per your unique financial needs and situation, use Paladin Registry’s free advisor match tool and get matched with 1-3 qualified advisors who may be able to help you.

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