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Just like a gym coach helps you reach your fitness goals, a financial advisor guides you toward your financial goals. It really can be that simple!
You can certainly go it alone; however, hiring a professional is not mandatory. However, without expert guidance, you may end up making mistakes, lacking confidence, or even developing overconfidence. Some of your mistakes could cost you money, while others could cost you your peace of mind. Additionally, managing your finances effectively requires investing significant time in learning, researching, and staying up-to-date.
But a financial advisor can step in, lighten the load, and help you make smarter, more confident decisions. How can they make things easier? Let’s break it down in this article!
Below are several ways financial advisors can help attain your financial goals:
1. Financial advisors can turn your dreams into actionable plans that lead you to your goals
Are you manifesting a dream home? Do you have a vision board full of beach houses?
Or, you may be dreaming of becoming financially independent, retiring early, paying off debt, or building a passive income stream that generates revenue while you sleep.
All wonderful dreams!
But the real question is –
How do you get there?
- What should you prioritize?
- Where should you invest?
- How much should you invest?
- What about taxes, debt, or emergencies?
A good financial advisor can break down your goals into actionable steps. You can set goals for every financial advisor you work with. Based on your goals, they can help you determine exactly how much you need to earn, how much to save, and where to invest it, all while considering your timeline and risk comfort.
Let’s say your goal is to buy a house in seven years. Your financial advisor might tell you:
- First, find a job or side hustle that helps you hit the income target needed to save up for your down payment.
- Next, set up an automatic savings plan, say, 30% of your income.
- Then, park this in suitable instruments to beat inflation.
- You stay consistent, even if the market dips here and there. You stick to the plan.
When seven years are up, guess what?
You have the down payment ready. And because your financial plan also included a buffer for fees and interiors (thanks to the professional advice from your advisor), you can turn your vision board into reality.
Now, this is just one example.
The goal could be anything. A world trip. A wedding. A second income. Retirement at 45. Paying off a loan. Whatever it is, you don't have to guess your way through it; you can work with a financial advisor.
2. Financial advisors help you diversify your portfolio to suit your goals and maintain the risk profile you prefer
Imagine you are hosting a birthday party for your child. You go all out and order their favorite cupcakes and pizzas, rent a giant bouncing castle, and deck the place out in their favorite color. Everything is tailored to your child’s preferences. They are over the moon.
And then the guests arrive.
Two of the kids are lactose intolerant and can’t touch the cupcakes. Three more are gluten-intolerant and steer clear of the pizza. A few others are bored with the bouncing castle after five minutes and are now just sitting around, looking miserable, throwing tantrums.
Suddenly, your perfect plan is no longer so ideal. The party's energy wanes, and you struggle to please everyone.
Now, imagine if you had thought about the bigger picture. Say you had added some gluten-free sandwiches, lactose-free milkshakes, maybe a clown show or a reptile petting corner. Something for everyone. That party? A hit!
This, dear friend, is the magic of diversification. Your investment portfolio needs the same kind of thoughtful planning.
When you pour all your money into a single type of investment, such as stocks from a specific industry or only real estate, it may work beautifully for a while, until an unexpected situation arises and everything goes topsy-turvy. One bad market phase, and suddenly your entire financial portfolio could be in trouble.
However, if you diversify your portfolio and spread your investments across different sectors, asset classes, market capitalizations, and risk levels, you can create a more balanced approach. You can give yourself more options. And, you can reduce the chance of everything falling apart at once.
A financial advisor plays a key role here.
They understand your goals, whether it is retirement, buying a home, funding your child’s education, and they also understand your comfort with risk. Perhaps you prefer playing it safe, or maybe you're willing to take calculated risks.
Either way, your financial advisor can build a portfolio that reflects your needs and stands the test of time. They can help you combine instruments that behave differently in different market conditions. These may include stocks from various companies, bonds, mutual funds, gold, maybe even a sprinkling of international exposure or cryptocurrencies. Each will potentially react differently to economic changes. So, when one goes down, another might be holding steady or even locking in profits.
Diversification helps you in both ideal and non-ideal situations. Whether the market is playing nice or throwing a tantrum like one of your child’s friends at their party, diversification keeps things steady!
3. Financial advisors can prepare you for and guide you through significant life events
What does a financial advisor have to do with significant life events? Isn’t that more about emotions or personal decisions?
Your finances and life events are deeply connected. The moment you reach a milestone, whether positive or negative, your financial situation is likely to be impacted as well.
Take having a child, for example. It is a beautiful, life-changing experience. You welcome those tiny toes and toothless smiles, but they also bring hospital bills, diapers, clothes, vaccinations, and eventually, school and college fees. If you do not plan ahead, your savings can take a hit.
A financial advisor can help you during such times.
- Planning to get married? A financial advisor can help you set a realistic wedding budget and help you consolidate your assets and debts.
- Thinking of buying a home? They can help you decide how much you can truly afford and what kind of loan will not derail your future goals.
- Going through a divorce? A financial advisor can help you protect your assets in this financially complicated situation.
- Dreaming about retirement? They can help you start early and plan for the kind of retirement you want.
And then there are the things you can’t plan for, but still need to be ready for anyway.
- What if you lose your job unexpectedly or your business slows down?
- What if there is a major illness or injury in the family?
- What if the market dips and your investments suddenly lose value?
- What if your home gets damaged in a flood or fire?
These moments can throw life completely off track. But a financial advisor can help you build a plan to deal with these blows. Financial advisors can employ a combination of strategies, such as emergency funds, insurance strategies, and tactical asset allocation, to protect you and your money when the unexpected occurs.
4. Financial advisors can help you manage debt, be smart about your liabilities, and get rid of them as soon as possible
Going through life without incurring any debt is quite rare. For most people, borrowing becomes necessary at some point in their lives. It could be student loans. Or a home loan. It may be credit card debt from an emergency or a personal loan to cover medical bills.
Now, debt in itself is not always a bad thing. It can help you earn a degree, which will ultimately lead to a job and the ability to support yourself financially. It may help you buy a house, which can be a profitable real estate asset down the line. It may also help you launch a business, enabling you to achieve financial independence and pursue your passions.
But mismanaged debt?
That is where the problems start.
A financial advisor can help manage your debt in multiple ways. For instance, your first-year financial advisor goals could be to clarify whether you even need to take on debt at all. For example, suppose you are thinking about a student loan. In that case, an advisor might point you toward scholarships, grants like Free Application for Federal Student Aid (FAFSA), or even suggest a part-time job that could help you avoid borrowing too much. If you are looking to take on a mortgage, they can help you assess whether it aligns with your long-term financial goals.
Next, work on what to do after you have already taken on debt. In this case, the advisor can help you build a strategy to pay it off, without sacrificing all your other goals in the process. You shouldn't have to give up investing, saving, or enjoying life just because you owe money.
An advisor can help you find balance. They can help you structure your repayment plan, recommend that you tackle high-interest debt first, or guide you on improving your credit score.
Speaking of credit scores, debt does not just impact your wallet. It can affect your ability to take future loans, buy a car, get a home, and in some cases, even land a job.
Debt is tricky.
It can help you grow or hold you back. However, with proper financial guidance, you can ensure that you use it wisely.
5. Financial advisors can guide you so that you can retire comfortably with sufficient funds, tax-efficient planning, and peace of mind
One of the primary goals and objectives of a financial advisor is to help clients achieve a comfortable retirement. Financial planning, as a journey, may begin with steps such as budgeting, saving, managing debt, and investing wisely.
But retirement is the final stretch. It is the summit after a long, steady climb. And once you get there, you should be able to sit back, take a deep breath, and enjoy the view.
A financial advisor helps make that happen.
They work with you to understand your retirement goals, and whatever these may be, your advisor will help you determine how to achieve them. They can help you choose the right retirement accounts for your situation, such as a traditional 401(k) or Roth 401(k) or a traditional or Roth Individual Retirement Account (IRA).
Your advisor can help you make your retirement tax-efficient. For example, Roth accounts let you withdraw money tax-free in retirement, while traditional accounts give you tax breaks now. They can help you determine which mix works best for your income level, timeline, and long-term goals.
They may also recommend annuity plans or other insurance-backed investments. Additionally, a financial advisor can help you plan for long-term care, health insurance, and even life insurance if needed, so you are not caught off guard later.
Do you feel like hiring a financial advisor?
After reading this article, is it time to bring a financial advisor on board?
If so, you are on the right track. Hiring a professional can make a massive difference in how effectively you plan, save, invest, and ultimately achieve your financial goals.
The professional goals of a financial advisor are simple. They are meant to help you reach your financial targets in the best and most hassle-free way. If you are ready to take that step, use our free advisor match tool to find someone who fits your needs, and start working toward your goals today.