I thought we should spend some time talking about a very important relationship. You and your advisor. A good advisor is worth their weight in gold – literally – to you! Working with your advisor is an important part of catching F.I.R.E.
A good advisor does several very important things for you.
Finding your Path
First, they show you a path to run on. A path to your financial success.
Second, they help keep you on that path. Occasionally you may want to buy something that may be better in a different form. Buying that brand new, shiny car isn’t just the cost of the car. It cost what the car cost, the interest on the loan cost, and the money that could have been invested to grow for early retirement had you purchased a less expensive vehicle. Not all my clients took my advice. When your advisor gives you advice they are trying to keep you on track. Whether you follow it or not is your decision and should make no difference in your relationship with your advisor.
Third, remember your advisor looks at your life largely from a financial point of view. It is your life, your money, your time and your decisions. Your advisor only wants the best for you and your family. But decisions are ultimately yours.
Financial Products to Achieve your Financial Independence
Fourth, your advisor sells financial products. That is how they make a living. What you buy is entirely up to you. What you buy should fit in your financial plan. Remember that any product can look like the best thing on earth today and not quite as good in hindsight. Your advisor will tell you how each investment/product or idea works. Conversely, a product that doesn’t look like it fits today can be a wonderful thing tomorrow.
A perfect example is the regular IRA vs. the Roth IRA. The regular IRA is great today. It saves money on your taxes. But tomorrow you will have to pay taxes on every withdrawal. (To withdraw a dollar to spend, you must withdraw about a dollar thirty, if your taxes are the same in the future as they are today.) There is no capital gain treatment, and all withdrawals are ordinary income. The Roth on the other hand while not helping today will be a great help tomorrow. You don’t have to give taxes a second thought provided you are 59 ½, regardless of how much you withdraw.
Always ask your advisor questions about their proposals: how does this help me? When does this help me? What does this cost? What are all the internal and external expenses? What are my risks? Can I lose money? What is the history of this investment? What is the worst that can happen? What is the best that can happen? Your advisor will not have any problem going over every part of an idea, or a plan.
Fifth, you and your advisor are a team. You are as important to him or her as he or she is to you. A team has more than one person. You need to participate fully, take a deep interest in your future. After-all it is “YOUR FUTURE.”
I always enjoyed my toughest clients. The ones that said: “Why should I do this?” or “How will this help me?” I enjoyed the clients who participated most in the process. Clients who just went along blindly and didn’t ask the tough questions are setting themselves and their advisors up for disappointment.
Creating a Financial Plan
A financial plan, while having a basis in numbers changes every moment you keep it: the market, an event in your life, inflation, taxes, your family, your plans, and the list grows each minute. That is why you need your advisor. They are trained to review, revamp, reload, and redo your financial plan regularly. Don’t ever leave yourself out of the process. You and your advisor work best then you work together.
Sixth, don’t be the only person in your family who works on your plan. If you are single, then it’s just you and your advisor. If you are married, you need to include your spouse. Even when he or she says: “Oh, you do it, that doesn’t interest me.” “I don’t have the time.” If you do something without your spouse somewhere down the road, you will hear: “Why on earth did you do that?” Better explained before than after.
If you have children, don’t leave them out. Teach them about finances. Give them an allowance but make them do something for it. No work, no allowance. Yes, that takes time and effort on your part. But teaching savings, and spending to a 5 or 6-year-old is far easier than trying to drill money and savings into the head of a teenager. Believe me, I know. To a 5 or 6-year-old that allowance is a neat gift even if they do have to make their bed with you while they are learning. That trip to the bank is time spent with Daddy or Mommy and they get to feel like a “grown-up.” Now try that with your 16-year old.
Make your plan a family matter. Work with your spouse, teach your children to save and to invest. You will be teaching your children to be successful. Work with your advisor to create a plan for your whole family.
Finally, your plan is not a sprint, it is not a marathon, it is a journey. The same as your life. Your plan will change, grow, shrink, adapt, adjust, and move from one purpose and idea to another as your life changes. It is a living, breathing document that starts with a budget. Don’t short change your ideas, or your feelings or those of your advisor. Work with your family and your advisor to become Financially Independent and Retire Early.
