Managing your finances can be challenging, especially if you lack sufficient financial knowledge. Money management involves setting financial goals, knowing how to minimize your taxes, saving for emergencies and your retirement, creating an estate plan to ensure your wishes are carried out after your demise, and more. All of this requires intricate financial planning knowledge.
A financial advisor can help you devise a suitable financial plan based on your unique needs and goals. The financial advisor can address any concerns and guide you through how to best manage your money. If you wish to work towards securing your financial future, saving for retirement, or accumulating wealth, consider consulting with a professional financial advisor who can advise you on the same.
This article explores who a financial advisor is, what they do, and how to find a suitable advisor that best matches your needs.
Who is a financial advisor?
A financial advisor is a professional who evaluates your financial needs and provides exhaustive financial guidance based on your future goals and requirements. Financial advisors help you save time, lower financial risks that you may be exposed to, and build wealth in the long term. In addition, they offer several financial services, such as investment management, retirement planning, tax management, wealth management, estate planning, debt management, budgeting, insurance planning, and more.
That said, a financial advisor is a broad term that includes several kinds of professionals - retirement planners, investment advisors, financial planners, tax planners, wealth managers, etc. These professionals offer specialized or generalized financial planning services based on their credentials, certifications, and licenses. It is essential that you first assess each professional and determine if they are qualified to provide the services and financial advice that you are looking for.
What does a financial advisor do?
Financial advisors are skilled professionals with years of training, education, and experience in money matters, personal finances, and investments.
A few of the common services that they offer are as follows:
1. Financial advisors help devise a suitable budget as per your specific financial needs
An effective and realistic budget can set the foundation for your future financial plans. A financial advisor can help create an infallible budget that will allow you to save more and attain your financial goals, such as buying a house, establishing a business, or building a retirement fund to live comfortably in the golden years of your life. The advisor helps create a budget that enables you to save money without compromising your current lifestyle. They help you set achievable savings targets considering your present income, financial liabilities, and dependents. In addition, the advisor helps you spend wisely and optimize your savings by allocating money for your non-discretionary and discretionary expenses. The former includes rent, groceries, utilities, gas, etc., while the latter involves money spent on online subscriptions, eating out, etc.
2. Financial advisors help create a diversified investment portfolio suited to your needs and goals
It is important to manage your investments and diversify your portfolio effectively. A financial advisor can help you choose investments that reflect your monetary goals, risk tolerance, and capacity. In addition, they can help create a sound investment plan that focuses on lowering risk, maximizing returns, and optimizing asset allocation. This will allow you to accumulate wealth in the long run. The advisor can assist in restructuring your investment portfolio if you undergo any major life changes, such as marriage, divorce, retirement, etc. Suppose you are five years away from retirement. In this situation, your advisor may suggest you switch your objective to capital preservation rather than capital appreciation. They could help you reduce your investment in stocks and invest in securities that offer stabilized returns at low risks, such as municipal bonds or annuities that serve as a steady income stream in retirement. Financial advisors offer additional services, such as monitoring the portfolio's performance and minimizing the effect of market fluctuations on your investments.
3. Financial advisors help create a foolproof retirement plan to enable you to live comfortably in retirement
A financial advisor can help create an infallible retirement plan that considers your current income, years left to retire, the number of dependents, financial liabilities, expected standard of living, etc., to ensure you live comfortably in retirement. They can advise you on which retirement plans (401ks, traditional IRAs, Roth IRAs, etc.) to invest in and how to manage, make withdrawals, minimize taxes, and maximize your contributions to these accounts without incurring a penalty. In addition, the advisor can help identify additional sources of income that can support your retirement, such as Social Security benefits, pensions, freelance or part-time work, etc.
4. Financial advisors help manage your debt
Before retirement, ensure that you pay off your debt to avoid the interest eating into your savings. High-interest debt can also be a hurdle in attaining your financial goals and may prevent you from securing your financial future. Hiring a competent financial advisor can aid you in lowering your interest burden and identifying new income sources to ensure you remain debt-free.
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5. Financial advisors help manage your taxes and lower your tax burden
A financial advisor can help you create an effective tax strategy that lowers your tax burden by creating trusts, making donations, sponsoring the education of your children and grandchildren, and more. The advisor can also help you identify tax-saving instruments and use tax-loss harvesting strategies and capital gain offsetting mechanisms to minimize your taxes. In addition, the advisor can also help reduce any tax implications that may arise due to receiving an inheritance or gift of high value.
6. Financial advisors can help design an effective estate plan that facilitates the transfer of your estate to your heirs
A financial advisor can help you create a foolproof estate plan that ensures your wishes are carried out after your demise. The advisor can help draft a will, map estate assets, make funeral arrangements, name executors and beneficiaries, set up trusts, make charitable donations to limit estate taxes, and more. In addition, the advisor can monitor your estate assets and guide you if you wish to assign a power of attorney, write down any health directives, and ensure that your assets are passed down to your heirs without incurring hefty estate taxes and penalties.
7. Financial advisors can help manage your wealth
Wealth management is an investment advisory service that combines several financial services, such as investment management, accounting, tax management, estate planning, retirement planning, and more, to cater to the needs of high-net-worth individuals (someone with liquid assets of at least $1 million or more). An advisor can work with you to create a customized plan to maintain and increase your wealth based on your unique financial situation, goals, and risk appetite. Additionally, they can also help you manage your investments and risk, lower your tax burden, and create a foolproof estate plan per your needs.
8. Financial advisors can help suggest suitable healthcare and long-term care plans based on your needs
Ensuring adequate health coverage for your medical needs is essential, especially in retirement. A competent financial advisor can help create an exhaustive healthcare plan that covers your medical expenses and long-term care risks without dipping into your savings. The advisor can help you choose between different options, such as a Health Savings Account (HSA), Medicaid, COBRA (Consolidated Omnibus Budget Reconciliation Act), Medicare, etc., to ensure you have the right health coverage.
9. Financial advisors can help plan for your child’s higher education and select the right plan to invest in
A college education is expensive and requires careful planning and investing to ensure your child receives a quality education that can lay the foundation for your child’s future success. A financial advisor can help plan for your child’s education, ensuring all expenses are covered without you having to dip into your retirement savings. The advisor can help you choose the right education plans to invest in, such as a 529 plan, to ensure your child’s higher education costs are covered.
To conclude
Selecting a financial advisor can be a pivotal decision in shaping your financial future. It is important to choose an advisor you have faith in and one that possesses the essential qualifications and expertise to adeptly oversee your financial matters. If you're looking for a qualified financial advisor to help you manage and grow your finances, use the free advisor match service. Answer a few questions about your financial needs, and our matching tool can connect you with 2 to 3 advisors who are best suited to help you.