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Why Individuals Need A Financial Advisor


Many people think you need lots of money to need a financial advisor.  It’s not always easy to see how a financial advisor can help you when not only do you have limited cash reserves, but you actually have significant debt.  However, that’s really the time you need one the most.   Here’s the connection:


The Role of Debt for Consumers – Research used by the Federal Reserve for 2009 and compared with Census data draws the following conclusions about individual finances:


1.   Every adult in the U.S. currently has an average consumer debt (this does not include mortgages) of over $10,000. 


2.   1 in every 35 households in the U.S. filed for bankruptcy in 2007 alone.


3.   Currently 1 in 4 people have a credit score below 599, making it much harder for them to get jobs, housing or emergency loans.


What this all means is that for most individuals, money problems stem from difficulties in appropriately managing money, largely because they have no role models to take a good example from.  The more organized and detailed (and of course, positive) your financial information is, the better.  But where do you start?


An individual’s number one focus in the early stages of financial knowledge is maintaining steady income…this means rarely allotting time to data-keeping, reserve-building or investing.  After a very short period of success, it’s easy to get behind on the paperwork and recordkeeping, which most people find daunting to begin with.  A good financial advisor can help get your personal accounting procedures started, and provide auditing and compiling services on a regular basis to determine what the numbers mean.  But that’s just the start.


A financial advisor can help to flesh out your personal financial plan.   Most individuals start out with a very informal strategy of how they plan to be financially comfortable.  Here’s how that works out, according to the Employee Benefits Research Institute:


Only 43% of all workers have calculated how much they need to retire.  In a surprising similarity, 43% of people over 75 are living on less than $20,000 a year.


The connection here is simple:  Fail to plan = Plan to fail.


A well done personal financial plan can help to secure your retirement and invite new opportunities to increase your standard of living.   While an individual can create a basic plan on their own, the best recommendation is to hire a professional, and a good financial advisor can either do this for you or point you in the right direction.  Once the financial plan and initial recordkeeping procedures are in place, is there still a need for ongoing financial advice?  Of course!  Just as in a business, our personal lives can veer off track financially very easily.  A continuous relationship with a financial advisor can be used to examine upcoming expenditures, whether or not to add/reduce debt, planning and executing work/business strategies, negotiating for purchases or refunds, and many more items that will continue to come up. 


Even the best financial advisors will have limitations, but they should point an individual in the right direction if they see a need that they can’t satisfy.  A good financial advisor will most likely have a network of people they can connect to the individual for their needs.  For example, there may be a legal or tax concern that the advisor is aware of, but one that actually needs an attorney or CPA to correctly circumnavigate.  They can encourage an individual to start a small business or discuss ways their existing small business could be tweaked, and perhaps they can suggest a marketing tools as well.


Finally, a good financial advisor brings a level of objectivity to the individual that they themselves cannot.  They can suggest directions that may sometimes be initially uncomfortable, but in the long run will provide stability and security. 


Financial advisors are not just useful to individuals; they are a critical factor to success. 


P.S.  There are, unfortunately, a large number of people out there calling themselves Financial Advisors, or Financial Consultants, or Financial Planners, who primarily align themselves with selling Mutual Funds and Insurance.  When I speak about Financial Advisors, I am talking about fee-based professionals who make it their goal to help those around them succeed financially with whatever tools are most appropriate…that may include mutual funds and insurance, but it’s certainly not limited to these.

Written by Benjamin J. Miller, Copyright 2010, all rights reserved.  




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