The need to organize finances for the purposes of reaching a financial target or goal has become a natural aspect of an increasingly complex financial world. Organizing your finances and getting financial advice can be split up into two major categories – financial planning software and certified financial planners. With financial planning software there is a multitude of subcategories based on price, ability, comprehensiveness etc. The same can be said for certified financial planners.
Some work based on commission while others work with a set annual percentage of your assets. Some that work within firms will even utilize the advice of other agents with specific expertise in certain areas. Which is the better option; the automated computing power of financial planning software or the experienced judgment of a credentialed financial planner?
There are quite a few variables to consider when determining whether having a personal financial planner or using financial planning software is the most suitable approach to handling your finances. By going through these variables you can determine what your financial needs are and be better informed for making the decision between either adviser or software.
How prepared are you to manage your own finances?
It is important to answer this question honestly and accurately. Some people can be intimidated or overwhelmed with the idea of managing their own finances. Do not sell yourself short, it may not be as complicated as you think. On the other hand, it is also important to recognize your limits. While you might be able to get by handling your own finances, there also is the possibility that you are coming up short in areas where having a more thorough grasp of things could benefit you substantially.
Are you disciplined enough to stick to your plan without having a coach?
You know yourself better than anyone else and, again, you would do yourself no courtesy by lying to yourself in answering this question. If you know you will not follow through with plans set by the most efficient financial planning software, having someone in the decision making process that will ensure you stick to your goals might be necessary for your financial plans to be successful.
How complex is your financial situation and what level of help can you afford?
This is a more quantifiable question. Financial planning software can cost anywhere between $0 and $1300. Financial advisers working on either commissions or a set fee will generally charge between .5% – 2% of your assets. Often the larger financial adviser firms will require a minimum of $500,000 in assets to take on a client. If you fall below that line chances are greater that you do not yet require a financial adviser. However, it might behoove you to employ an adviser even on a temporary basis if you find the complications of your financial life are considerable, for instance if you are dealing with a death or a divorce, a looming retirement, own a business or real estate, have a special needs dependent, and/or some other complication.
If you decide to go the route of a financial adviser it would probably be a good idea to have it set up as a strict nondiscretionary account, meaning that the adviser will require your input for any alterations of your portfolio, your debt management, or any other aspect of your financial world. The alternative is a set allocation program that allows your adviser to manipulate certain aspects without your consent. This can be good for minor changes but any major changes, if not all changes, should involve you as it is ultimately your money that is at risk.
Other than that the general rule for financial advisers should be similar to that of a software program. Determine the current state of your assets and where you want to go with them. Determine what your risk tolerance is so you know exactly what your limitations are for achieving your financial targets. Finally, devise and execute an effective strategy for getting there and make sure to stick to that strategy.
The answer to the question of whether a financial adviser or financial planning software is the best option depends on from what position the question is asked. If money were not a consideration the answer would always be to attain the services of a financial adviser. Oftentimes financial advisers will use financial planning software in assisting their clients. However the costs involved are necessarily a concern considering the very nature of the subject. The whole point of financial management is to free up additional finances, whether for retirement or some other financial goal. The first step in managing your finances is to determine how great a financial investment to commit to protecting and growing your existing financial investments.
In the complex financial world today organizing your finances is essential. Certified financial planner or financial planning software can both help you greatly in managing your finances, but there are some differences you should know before deciding on which to take.