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How to Fit Financial Planning into Your Budget

If you are wondering how to fit financial planning into your budget, congratulations! The fact that you have a budget means you keep track of how you spend your money and potentially make decisions around whether this spending is consistent with your values. To many people, a budget is similar to the coloring book of a three-year-old — there is structure, but there is much difficulty staying within the lines. Unlike the pages of a coloring book, though, you typically don’t hang your budget on the refrigerator. In addition, no one tells you how proud they are of the work you’ve done. But being aware of how your spending connects to your values is something about which to be proud.

A budget is always about choices. For example, you may choose to spend a bit less today to save for tomorrow or choose not to buy this so you can buy that. One of the choices for you to consider is how to fit financial planning and paying for a financial advisor into your budget.

How Financial Advisors Make Money

When you work with a CERTIFIED FINANCIAL PLANNERTM professional, you know that you will be working with someone who understands all aspects of your financial plan — cash flow, insurance, estate planning, tax planning, investment planning, debt management, leasing versus buying, as well as the trade-offs we all must make regarding those decisions.

When you engage with a financial planner, there are several different ways that you may pay your CFP® professional:

  • Commissions on products you buy
  • A fixed fee for a particular service
  • A monthly or quarterly retainer fee or subscription fee
  • A percentage of assets they manage
  • Hourly rates, or
  • A combination of the above

Also, be mindful that costs are always present in financial planning, even if some appear invisible. Fixed, retainer and hourly fees are expenses that come out of your cash flow so they are items for which you can budget. However, the company you purchase a product from may pay a commission directly to your advisor or their firm, and fees based on assets under management are often directly deducted from your investment returns.

It is important to ask your financial planner how clients pay the advisor and what costs you should expect in working with them as well as many other questions. These answers should help you determine how much you are going to spend and how you are going to spend it.

How Financial Advisors Can Help You Build Wealth

Oscar Wilde once said, “A cynic knows the price of everything and the value of nothing.” In working with your planner, don’t just focus on the price but also try to understand the value they provide. While you will have to forfeit some money to work with a financial advisor, there are many ways that they can help you build (and save) money. Many people, for example, are reluctant to file insurance claims yet have low deductibles. If that sounds like you, a financial planner may encourage you to increase your auto or homeowner’s deductible to reduce your premiums.

A CFP® professional can also help you:

  • Navigate some of the tricky areas of the tax code so you can make informed decisions around saving in Roth or traditional IRAs,
  • Use your health savings account effectively,
  • Maximize your giving strategies through concepts such as bunching your charitable deductions, and/or
  • Determine when to refinance your home or help you understand when it is effective to use debt.
  • Most importantly, your planner will not only help you set your objectives but also track your progress toward meeting them. And when your objectives change (as they often do), your plan can change with it.

    Fitting financial planning into your budget and working with a CFP® professional can help you make that picture you have of your future as colorful as you wish it to be — even if, because of life’s twist and turns, you sometimes go outside the lines.

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