The medical industry recommends an annual checkup to ensure your mind and body remain in optimal condition. Shouldn’t you schedule a similar checkup for your finances? Your financial health needs at least a yearly, if not quarterly, checkup. These regular checkups ensure your long-term financial wellness by establishing an ongoing conversation about your financial health plan.
Prescriptions for long-term financial wellness include:
Discuss financial needs, plans and goals in advance. A financial wellness check is engaging in open, honest dialogue with your financial advisor regarding your financial life and developing a plan before you take active measures -- not after. Although it may be intimidating, being completely transparent with a trusted financial expert can help you avoid costly financial mistakes. An experienced and knowledgeable advisor will carefully review your situation, listen to you, and help you create and/or adjust your plan so that current needs will be met, and future goals may be accomplished. Taking a proactive approach – rather than waiting until a crisis occurs - will enable you to build a working plan and alleviate financial errors that would result in delaying or missing your goals.
Don’t self-diagnose. Books, websites and other financial resources typically provide only general financial information; your financial health diagnosis will be limited by the amount of personalization offered by those resources. Those resources also may not be able to review and compare various scenarios, and nuances needed in your personal situation. Studies have shown that people who work with professional financial advisors have better odds of meeting their financial goals than those who plan and invest on their own. Advisors can help you 1) save money on taxes, 2) feel more confident about reaching your financial goals and reduce financial anxiety, 3) prioritize what’s important to you and create an investment strategy focused on your individual goals and risk tolerance, and 4) avoid emotional decisions and prevent big mistakes such as retiring too early or panic-selling investments. Industry studies estimate that working with a financial advisor can increase investment returns by 3% or more. Over time, this really adds up.
Adjust your financial plan as your life changes. Monitoring and adjusting your financial plan as your life changes allows you to maintain overall financial wellness. Regular financial wellness checks ensure you make changes in a planned and strategic way, creating the desired long-term results. Just as a medical professional recognizes the early symptoms of illness, an experienced financial professional can help identify financial symptoms as they arise and successfully avert potential problems before they become critical.
Bring in specialists as needed. Wellness encompasses many aspects of your life. Mental health requires managing stress and depression; physical health requires regular exercise and proper nutrition. Your financial health requires managing not only your cash flow but also tax planning, retirement planning, and estate planning. Just like a general practitioner, an experienced financial advisor understands your unique needs and can ensure that all of your financial prescriptions are working together and not in conflict. A financial advisor has established relationships with specialists and can bring them in as needed to assess overall financial health. You need an advocate to review and verify that the ‘prescription’ does not produce unexpected adverse side effects, and help you explore alternatives. Conflicting financial prescriptions or strategies are not an unusual occurrence. What is advantageous in the legal realm may not be the best choice when dealing with your taxes and vice versa. CPAs typically focus on the immediate and possible tax repercussions of a decision, while legal decisions may be made solely on your stated final wishes. When all aspects of your needs and wishes are actively discussed, it is possible to make modifications to your financial plan to achieve goals while minimizing any potential side effects.
Choose the right financial “wellness practitioner” for you.
A regular wellness check is not the only critical element to ensuring your financial health. Choosing the right advisor is extremely important. When you select a medical doctor or specialist, you want a doctor who is experienced, knowledgeable and personable. These same considerations apply when choosing your financial advisor. Also, you should verify the advisor you select is a fiduciary – which simply means he/she is bound by law to act only in your best interests and no one else’s. It may be surprising to know that there are many client contracts with financial firms that state otherwise. Interview several advisors and ask specific questions to determine what their emphasis is and if there is a good fit, such as:
- How do you get paid for your services – is it through fees, commission, or a combination of both?
- How frequently do you meet with clients?
- How many clients do you have?
The number of clients a financial advisor engages with may be an indication of the amount of time they spend developing relationships with each one. Developing a long-term relationship with your advisor is beneficial to your long-term financial wellness, just as it is with ensuring your long-term health with a doctor. Changing practitioners continually, whether medical or financial, increases the possibility of miscommunication and confusion about your goals.
