When you are a child, money is pretty straightforward. You earn money so you can spend your money on the things you want and need. But as you get older money becomes a more and more complicated idea. Whether you are planning for retirement, saving for your kids’ college fund, or just trying to balance your daily budget, money management can be a bit overwhelming. So how do you know when it’s time to seek financial advice, and how do you decide which advisor is best for you?
A financial advisor is a professional who helps their client with different parts of their financial lives. Advisors can look at your financial health and help you to meet whatever goals you would like to set. They are essentially your partners in managing your finances and investments. Financial advisors may help you with any or all of the following:
If you have debts that you are trying to pay back, financial advisors can help you develop strategies and execute a plan. They can also assist in creating and maintaining a budget so that you do not have a problem in the future.
Financial advisors are experts in investing. They can help advise you on what type of investments are best for you based on your income, goals, and risk tolerance.
Planning for retirement is essential nowadays. Advisors can help you develop a long term goal to retire based on your income and expenses.
If you are trying to save for your kids’ education fund or for another large purchase, financial advisors can help you plan.
Financial advisors can help you to prepare your taxes and maximize your tax deductions.
It’s important to have plans in place for when you are no longer here, and a financial advisor can help sort out your estate when that time comes.
An accountant is a financial expert who specializes in taxes specifically. They have a much narrower focus, and instead of helping with all aspects of your finances they can assist you with tracking your transactions and filing your taxes. If you own a business or are self-employed, an accountant is an essential role that can help you with your business statements as well as your business taxes.
A financial advisor has a much broader role than an accountant and can assist you with many facets of your finances. You will typically meet with a financial advisor much more regularly than an accountant, whom you would typically only meet with around tax season. Financial advisors and accountants hold different certifications as well. Financial advisors usually hold a certified financial planner (CFP) title or a chartered financial analyst (CFA) title. Accountants on the other hand will usually have a certified public accountant (CPA) title.
While these services are incredibly important, they can be a significant investment. Financial advisors earn money in a few different ways. Some advisors earn commissions based on the products they sell to their clients, typically around 1% of the client’s annual earnings. Some advisors work on a fee-based model, charging an hourly rate for their services. These fees can range from $100 an hour to over $300 an hour based on the advisor’s experience.
There is also a range for how much an accountant may charge you. If an accountant is handling your taxes they will charge you based on how long your return taxes are to file and how complicated it is. A recent study by the National Society of Accountants found that a simple federal and state return with no deductions cost about $220, while an itemized tax return would cost about $320. The cost increased to $457 when a Schedule C form was required.
If you need to hire an accountant for other yearly services (if you own a business, for instance), the rate is typically hourly and/or project based.
You should consider hiring a financial planner if any of the following apply to you.
You want to start planning for retirement.
You want to start investing but don’t know where to start.
You have investments but are losing money.
You want to make an estate plan.
If a financial advisor is out of your budget, you may qualify for pro bono assistance with the Financial Planning Assistance Association. You may also consider using a robo-advisor such as Betterment or Wealthfront. These services are much more affordable and do not require as much money to get started.
You should consider hiring an accountant if any of the following apply to you.
Your taxes are becoming increasingly complicated and time-consuming.
You own your own business.
You need help evaluating your business structure and financial health.
If your taxes are pretty straightforward with minimal deductions, an accountant may not be worth it. You may be fine to DIY your taxes or use software to file. But as your taxes become more complicated there is more risk when it comes to doing it yourself. A tax professional can help you maximize your returns and avoid any issues with the IRS. A good CPA will ensure you are compliant with tax law while also saving you as much money as possible.
If you have a particularly complicated financial situation, it may be valuable to have both an accountant and a financial advisor. While a financial advisor can help you file your taxes, an accountant specializes in taxes and may be more beneficial to you.
Money gets more complicated as we get older and sometimes it's a good idea to call in the professionals. When it comes to money management, an advisor and/or accountant can be an investment in your own financial health and wellbeing.
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