What does financial planning mean to you? For most it is a periodic visit from a pushy life insurance salesman who never knows when to leave or an occasional visit from a relative, friend or classmate who seems to get out of the business as quickly as he got in. How has that worked out for you?
Well here are three things you should expect from a good financial advisor. And if you don’t get these things, you could be making the most expensive mistakes of your life!
1. System of Financial Planning
Your advisor should have a system of financial planning, a philosophy that he uses to direct his actions and guide yours. How else are you going to gauge your success or his?Now this system should be explicit, researched, supportable by data and make sense to you. It is NOT the sales training that a financial representative gets from his company. If that is all your advisor knows, then you will certainly be sold a lot of products, but will rarely know why.
Some ways to find out if your advisor has a financial planning system are:
A. Ask: “What system or process do you use to assess my financial health?” Or more to the point: “What is your financial planning philosophy?” If it sounds like he’s making it up as he goes along, he probably is!
B. Ask what books he’s read in the past year related to economics or financial planning. Or what books he recommends that comport with his vision. If he stammers, look out.
C. Look for a systematic evaluation process. We call ours a “Financial Report Card”.
2. Macro-economic Outlook
What impact does one financial decision have on another? How does each financial choice you make effect your entire plan?These are macro-economic questions and they are critical to your success. Each time you make a money decision, the BIG PICTURE should be discussed and addressed. While it is not possible to avoid every negative potentiality in every decision, you need to be aware of the competing interests to make the best decision for you.
If your advisor fails at #1 above, it is very unlikely that he will succeed here. In truth, if you have a sound system of financial planning, most financial decisions will become pretty clear. On the other hand, trying to solve your financial problems by buying products is akin to trying to shoot a lower golf score by getting a new set of clubs. It’s possible, but highly unlikely.
3. Paying Yourself First
A rule for financial success that appears repeatedly in the good literature is: Pay Yourself First. Another way to say the same thing is SAVE, SAVE, SAVE.
Saving (and spending less than you make) is the surest way to economic freedom. If you want to do away with advisors altogether then follow this rule assiduously and you will do fine. However, my experience has been that most people need an advisor to constantly remind them of this rule, encourage them to follow it and insist on saving for savings sake.
Following the rules set out above, the best advisors seek out a system that will account for the macro-economic issues while forcing you to save, save, save. The rest is really up to you. After all, you earn the money so how do you want to use it?