5 Things You Need to Know About Working with a Financial Planner

5 Things You Need to Know About Working with a Financial Planner

I’m often asked, “How much money do I need to work with a financial planner?” or “What are the requirements for working with a financial advisor?” Honestly, the only requirement is a desire to get better at managing your financial life.

Financial planners help individuals tackle matters ranging from retirement planning, to strategies for paying down debt, to planning your legacy. Think of financial planning as life mapping: a good finanical advisor helps you figure out where you want to go, and develop the best path to get you there. You wouldn’t take a road trip without consulting a map, would you? Whatever you think or feel about the current state of your finances, the best time to start planning is today. Don’t buy in to the notion that you have to be a high-income earner, or that you need a lot of money to get started. The truth is, the sooner you start, the higher the likelihood that you’ll be successful at meeting your goals. 

As you move through life, your financial needs and goals are going to change. Life is fluid, and your financial plan should be too. It’s important to have clear objectives about your financial well-being and not leave it to chance. And if you're not sure about your goals, a financial planner can help you get clear about all of that.

Here are five basic, actionable steps we take with our clients:

  1. Spend less than you earn.
    I know, I know... easier said than done, right? But you have to start somewhere. How will you know how to spend less if you don’t know how much is coming in or going out? Cash flow is at the heart of financial planning, so we begin our process by adding up the last 6 months of deposits and expenses/withdrawals, and then divide by 6 to get an average of both. Next we figure out how much is needed to cover basic monthly expenses: i.e., rent or mortgage, utilities, car payments and insurance, etc. Finally, by deducting that number from the 6-month average of deposits, we are able to see if your expenses are above or below that number. If it’s below — yippee! If it’s higher, there’s some work to do.
     
  2. Track it.
    Whether you’re spending more or less than what you’re bringing in, tracking your finances always proves to be an empowering exercise. Trust me, it will help keep you honest and provide some accountability when it comes to spending and saving. Here are a few of the more popular free online tracking platforms: Mint.com, YNAB (You Need A Budget), and EveryDollar. At UWM, our clients have access to an online tracking tool that interfaces directly with our financial planning platform. This allows us to see activity in real time — so we can advise you in real time, too.
     
  3. Take it down to ZERO.
    This seems counter-intuitive, but it works. Set up two bank accounts: one for monthly expenses, and one for savings. Deposit just what you need to cover monthly expenses into the first account, and spend it down to zero or as close to it as possible every month. Whatever excess you have, put it into a savings account and keep it there. It doesn’t matter if it is $10 or $1,000 — just start and you can always adjust from there. As your income increases, adjust your spending and savings buckets.
     
  4. Save for a rainy day.
    Now that your savings account is set up, your first goal is to set aside 3 to 6 months of living expenses. This is your "Oops!" bucket, because we all have "Oops!" days. The refrigerator goes on the blink, your pets have unexpected vet bills, or your car stops working. Whatever happens, your savings account can help save you from blowing up your cash flow plan. 
     
  5. Downsize home expenses.
    If you are paying more than 30% of your income for a mortgage or rent, it may be time for you to downsize. If you can’t downsize, get creative with ways to save on home expenses—like cutting back on other bills, such as utilities, cable, landscaping, etc. You might even consider taking on a roommate. 
     

Regardless of your marital or breadwinning status, starting your financial plan now is the only way to secure control of your finances for the future. The actions you take today will definitely affect your choice of lifestyle tomorrow. Need help getting started? Connect with us.