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A financial plan is a strategy you set in order to be able to attain your goals. With a financial plan, you can effectively manage your cash inflow and outflow and other recurring financial responsibilities with the aim of putting you in a better financial position to attain your set financial goals. A good financial plan should include provisions for your debts, income, insurance, savings, investments, and other things that make up your financial life.

Mistakes You Should Avoid When Selecting a Financial Planner

Hiring A Financial Planner Based on Referral Only

In this case, what is good for the goose may not be good for the gander, and in that case, you should base your hiring a financial planner solely on the fact that your friend has good things to say about him. For one, financial situations are peculiar situations, and a financial planner may not be well equipped to handle all kinds of financial situations. Make sure you do your vetting using your criteria and not what your friend tells you.

Hiring A Financial Planner on Sentiment

When you hire a financial planner because of an existing relationship with them, then you might be making a big mistake. You should hire a financial planner based on your current and future financial needs. Also, you must ensure that such a person is absolutely qualified to handle your financial needs.

Using Past Performances

When you only consider the past achievement of a financial planner as a criterion of hiring such a person, then you may be making a mistake. The past performance of a financial planner does not guarantee future success or a better plan going forward. Once you notice your financial planner is not adapting your finances to your current financial situations for a better long-term financial position, then it may be time to make a change.

Not Conducting a Thorough Research

When hiring a financial planner, there are a lot of things you must consider. Such a person must tick as many boxes as possible of what you want in a financial planner. You should vet the credentials of the financial planner, if possible, interview his clients to know how he handles different financial situations that may be similar to your financial situation. Also, try and interview multiple financial advisors to know the different personalities and investment styles to be able to pick the best.

Getting Carried Away by Promises

Yes, we want the best financial planner but that does not mean a financial planner that promises heaven and earth is the best. Most of the time, a sweet talker is not the best at what they do. The same goes for financial planners. You should ensure that your financial planner is not only concerned about choosing the most profitable investment and exploring the market. These are usually for their ego. Go for a financial planner that has your long-term financial position at heart. They usually make the best decisions at every turn.

Tips On Having an Effective Financial Plan

Set Your Goals

A financial plan is mostly about having something for a rainy day and how to manage your current financial situation to be able to achieve that. Therefore, it is good to outline what you are saving for. You should be exact on why you have a plan and why you are saving for it.

Have A Budget

This is for you to better manage your cash inflow. You should outline your bills, debts, and other necessary financial obligations. Yes, you can spoil yourself once in a while, but that should not get in the way of what you are setting aside for your goals.

Sort Your Taxes

Taxes are inevitable but there are better ways to go about it that will ensure you save as much as you can on your taxes and enjoy tax deductions. This will give you a better cushion for your financial plan.

Be Ready for Emergencies

Life has a way of throwing us a curveball. Of course, things won’t always go according to plan, which is why it is important to include an emergency fund in your financial plan to enable you to deal with unforeseen circumstances and expenses. This is where insurance also comes in handy. Have a good insurance plan to help you deal with emergencies.

Don’t Swim in Debt

Achieving your financial goals doesn’t mean you should go committing yourself to every financial aid that will drown you in debt. Debt is one of the banes to an effective financial plan. Ensure that you manage your debt effectively so you can achieve your goals.

Be Ready for Retirement Taxes

Most financial plans get you ready for when you are no longer active. So, your retirement goals and plans should take the forefront of your financial plan.

Multiple Investments

The only way to multiply your savings is to invest in different portfolios that will bring you both short-term and long-term profit.

Have An Estate Plan

Lastly, have an estate plan that will help you make important financial decisions when you can no longer make them yourself. Having an estate plan is not only for the rich.

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A recent study, Understanding and Managing the Risks of Retirement, by the Society of Actuaries has shown that only 52% of pre-retirees and only 44% of retirees are consulting a Financial Advisor. That means that roughly half of the population is seeking financial advice outside of a financial professional, whether that be friends, family, colleagues, or Google. We live in a time where we turn to technology for everything. We can quickly search anything we want to know, and as a result, we are inundated with information. When it comes to dealing with our finances, this approach can be confusing and overwhelming. By making your financial advisor your first point of contact, you know that you are being provided with knowledge that is relevant to your financial situation.

What you Need to Know

Working regularly with your financial advisor can bring incredible value to your financial plan. A study by Morningstar found that investors who consistently work with an advisor generate returns that are 1.82% higher than those who do not. Their research also found that investors that actively seek out advice from their advisor accumulate 29% more wealth for retirement than those investors who do not.

A Financial advisor can provide you with the kind of expertise and guidance you deserve. You work hard for your money, and while seeking advice from the internet or advice from friends can be convenient, you can’t always trust that it is accurate or relevant. Every investor has specific needs, and there is no one size fits all when it comes to investing. Inaccurate or irrelevant information can lead you to make costly decisions. By talking to your advisor, they can act as a sounding board for the information you read or hear about. An advisor can offer guidance on whether a new concept or product could benefit your portfolio, or if it’s just a trend that offers you no value.

One of the greatest risks to your financial plan is making uninformed decisions during a downturn in the markets. In bearish markets, we are flooded with market information and down-right bad news. Before turning to potentially unreliable sources, consult with your advisor first. Research by the Investment Fund Institute of Canada has shown that individuals who have worked with a financial advisor and have a customized plan are twice as likely to rebalance appropriately during a downturn. Making your advisor you first contact will allow you to filter out the panic and allow you to see the facts, therefore keeping your goals on track!

The Bottom Line

By getting in the habit of talking to your financial advisor before looking for advice elsewhere, you can reduce the risk of falling prey to inaccurate and irrelevant information. If you trust in the expertise that your advisor can provide, you can reap the benefits of higher returns and higher level of wealth in retirement. In other words, you can reach your financial potential!

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