This post comes to you from the NerdWallet.com team of financial bloggers and experts in helping users compare rewards credit card offers.
For a lot of people, managing finances isn’t a simple task, but even at its most basic level, personal finance is all about ensuring that you’re making more than what you’re spending, and that you’re saving enough money to hold you over after you have stopped working 40 hours a week.
Yes, it sounds easy, but there are a lot of things to calculate, like insurance, mortgages, car notes, credit cards, investments, and so on. Especially in light of the downturn of the economy, more people are beginning to seek personal financial help from advisors.
Even hiring help from the outside won’t make your personal finances a breeze, especially if you don’t truly comprehend what you’re getting into. Plus, it’s not cheap. [Kevin] There’s also the issue of conflict of interest depending on how they’re compensated, and what they’re compensated for. Before you decide to shell out money for someone else to do your finances, you should answer a few questions on your own about your financial habits, inclinations and what you can do to keep them in line.
Try Answering Your Own Questions
A lot of folks have questions that are hard to face, but if looked at in the right light, the answers are simple to find. In order to take control of your personal finances, you must first analyze your income and personal daily expenses. Your bank statements may look uninviting, but they are a great way to figure out your personal cash flow and how to maximize it.
You can also use free financial web sites like Mint.com and cheap ones like Quicken to help you get a better picture of your finances. You’ll be able to see transactions from your charge cards, which are recorded automatically. You’ll be able to read simple-to-read charts and graphs that show you how much you’re spending on shops and restaurants monthly. Without the proof right in front of us, we tend to underestimate how much we’re really spending. You can also opt to have your bills paid online, giving you more control of the money that’s coming in and out.
[Kevin] I personally use a mix of spreadsheets and the free software GnuCash. I agree that looking through the expenses helps one get an idea, and one also has to think about how they’re spending their cash, too.
Since credit cards issue monthly detailed statements, you can use them as a way to keep an eye on your spending habits. There are categories showing where your money is going inside of quarterly and semi-annually statements. For instance, at American Express, customers are offered online tools that help them to keep an eye on their spending habits and better control them.
You can even use this data to optimize the money you get back from cash back credit cards by understanding where you swipe most often. For instance, if you are using your credit card at restaurants, you can get a Costco Amex or Citi Forward as a main credit card, which will allow you to earn bonuses for your purchases. On the other hand, if you spend a lot of money on gas, you can get a gas credit card like PenFed Platinum Cashback, which offers 5% rebates.
In the end, knowing your spending habits can really pay off. It will also give you a better understanding of your personal spending and what unnecessary expenses can be eliminated. You’ll also be able to ensure that you’re receiving the best rebates and discounts for your necessary expenses.
One More Thing to Consider Before Hiring Financial Advisor
Finding out your spending habits is good, but isn’t always easy to fix. Making the necessary changes will require you to understand your own weaknesses and inclinations, and getting assistance when it is necessary.
You can purchase various types of financial help books that will help you with overcoming your own psychology, like I Will Teach You To Be Rich, by Ramit Sethi. Or you can use pseudo advisors like Dave Ramsey and Suze Orman. These types of gurus are well-known and respected because they have plans that have proven to help eliminate debt, control spending and saving money. You can also communicate with many others who are just like you, who will help to encourage you and share stories, which is what a financial advisor is paid to do. At least with this route, you are saving money and you’re in complete control.
This was a guest post by NerdWallet.com.
[Kevin] What are your thoughts on financial advisors? I don’t doubt that they may be trying to help, but the conflict of interest is always an issue. Even if the advisor is not on commission, a company is still trying to push certain products because they are more profitable. A couple years back, a friend of my girlfriend’s who recently found a job at an investment bank convinced her to invest a small bit of money into some back-ended mutual funds. Although she didn’t know about how these back-ended loads worked until later, I’m not sure that her friend even knew what she was selling or why it was an inferior product.
After someone close to me became a financial advisor I (and the friend) became very disillusion with the system. He got into it because he felt he could help people. The company had their agenda and the products he had to push and if he didn’t he didn’t make money because it was a commission based position.
I also have an acquaintance whose been in the business for over 30 years. She says the business has radically changed. She started out helping newly divorced women get back on there feet. She told me in the last 10 years with all the product push it’s harder and harder to actually get her clients what she feels they need. She just retired.
My belief is you do need to take the extra time and get involved where your investment money is going.
I wonder if this is getting worse. I just don’t have too much trust or faith in these guys personally since I know that they are trying to sell me something. Some people might get lucky and hit a few home runs, and that’s what keeps them in business as people seek them out, trying to hit another one.
I agree with the suggestion to read Sethi’s book. It is a quick read and covers most of what you need to know. Also read blogs like this one on a regular basis. Put the money you save into a good all market, low expense index fund:)
Thanks for the props! Reading these books is really recommended for anyone starting out; going to the advisors can be like walking into a snake pit; sometimes a couch potato strategy really does work.
I’ve got no use for a Financial Planner. I love to learn about things and DIY. The MER you pay a FP is ridiculous and you pay it annually. If you have the time and inclination handle your own personal finances. It isn’t that hard to:
– call a lawyer and draw up a willing
– secure your own life and disability insurance
– to open a questrade trading account for your RRSP, TFSA and non registered accounts
– to follow a couch potato strategy
etc etc etc
I agree. They probably do have their place, but like fire, best to use them with caution. I think that sitting down and reading a good book, and then acting on what you learned is a good way to get an education, too.
I think most people would benefit more from an accountant than they would a dedicated financial planner. Budgeting, saving, etc is really quite simple, it is how to best allocate and use these funds in a tax-advantaged way that is most difficult.
That’s actually a pretty good point. I am personally not up to date on the best ways to do this, so I will probably need to consult an accountant at some point myself, especially now that I am building up “passive” income it gets a bit more complicated!
One of the advantages of using a CPA to prepare my taxes is I can ask him questions during the year for free. There are exceptions, but he will answer questions for free. I used him for over twenty-five years so he does not charge much either. Do I take advantage of this free advice? Not very often, but it is available.
Eh, that’s a pretty good CPA that you have there!
Great guest post. It is really tough finding someone you can work well with and that will work well for you. I came from that world of generating client lists and financial products. I thought that with my Master’s Degree in Financial Planning, my years as an associate that I could over come a large broker dealers agenda and still do the right thing for people. I did for a while but it took way to much energy. Eventually I realized I would do better for myself and for people having none of those “push” pressures. That’s where the inspiration my financial coaching firm and my blog came from. Helping people make the right decisions for themselves -decisions they will act on not me- is what I love doing and I can absolutely appreciate how hard it is to get to that point. Being honest with yourself is def one of the biggest first steps.
You are doing the honorable thing by helping people make the best decisions that is right for them. It should always be about satisfying the customer in the end… it’s funny how so many people and so many companies intentionally don’t get this right but that is what creates opportunities!
We tried talking to a financial planner. The major put off was he was not interested in talking to us thinking as we were young we won’t have any money. He kept telling us at this age we should be concentrating on paying our debt off. We don’t have any debt. He didn’t even bother to look over our financials. I don’t know whether we picked a bad planner or all planners are like that. I like DIY financial anyway. We were just curious what we are missing by doing it all on our own.
Sounds like that guy was a total waste of time. I guess he didn’t sense blood in the water…