Budgeting and investing are the centers for establishing your personal finances. Wouldn’t you like to become wealthy and live out your biggest dreams? Let me ask you a question. What would your ideal lifestyle be like if your where wealthy? What ever it is with budgeting and investing this brings you closer to your dreams. When budgeting and investing should you go at it alone or hire a financial advisor? These are all questions I will answer in this article.
This article will cover the follow:
-Budgeting
-Investing
-To hire or not to hire a financial advisor?
Budgeting and investing relates to wealth creation and to get a more in depth understanding check out this guide to wealth creation here.
Budgeting
Budgeting is simply allowing a certain amount of money into a budget. For example, let say a person is has 3 priorities over other items which are their rent, car payment, and retirement account. If a person brings in lets say $2500 a month in wages after taxes then their budget may look something like this
- $200 Investment contribution
- $300 Car payment
- $800 Rent
The remaining amount of cash left over is $1200 but for the purpose of this article the three prior examples where just to give insight into how a budget may look like. Typically, you may see more things on the list then what was presented above. Budgeting is not hard if you know what to do. If you are wondering how to start budgeting, consider doing the following in steps to start budgeting in your own way.
Step One- Take a piece of paper out or get a notebook and write at the top of the page what you are budgeting for. So, if I am doing a personal budget at the top of the page it would read something like this: “Personal Budget for April 2020”
Step Two- Go two spaces down from where you wrote what you’re budgeting for then write Expenses. List all the things that you are currently paying under expenses for such as rent, car payment, cell phone bill, etc.
Step Three- Go down two spaces and write income or salary. Next write out what your full monthly income is or at least an estimate of what you think you will make according to previous paycheck amount history.
Step Four- From the income you wrote down minus all the expense from the income and what the remainder is and label it cash left over.
Step Five- (Optional) Alter the expenses based on what you are prioritizing then recalculate the numbers of what cash is left over.
The example provided is a general approach to budgeting. I would recommend adding into the expense section a set amount of money that will be used to invest so that way each month you have your set amount your committed to investing.
Investing:
Investing is for the purpose of expending money in expectation of making profits. With all this information out here, it is an overload for most people looking to get started. When deciding where to invest in first start by doing everything outlined below:
- Define investment goals: Short-term investing or long-term investing? Set goals with the exact amount of money you want to accumulate and by what specific deadline or day that is reasonable enough for the amount you are aiming to accumulate
- Take a risk tolerance assessment to discover what your risk level is so that you can later match your risk level to investments. You can take the risk tolerance assessment here.
- Explore investment options by researching general investments. Go to google and type in “list of investments” and write down any where from 5 to 10 of those options
- Spend a few minutes looking up each investment option then decide on at least one to focus on before trying to do more then one
- The investment you choose now search in google “ways to invest in (your chosen investment)”
Lets say you chose index funds now you find mutual find companies or a broker to begin the process of setting up an investment account and then allocating money to your investment accounts. Then repeat the process when ready to move on and explore different investments. The richest and wealthiest people are the people who spend most of their time doing due diligence before investing their money. I mentioned to spend a few minutes exploring investments, but this was a glimpse of getting started with investing. Understand that the more time you put into studying investments the higher the probability you will make the right choice for yourself and financial future.
Beginner investors normally start out investing through platforms or investment accounts like:
-Acorns
-Their company’s 401(k) plan
-Traditional IRA
-Roth IRA
-Stash
Check out these resources and pick one to focus on then make plans to create an account and begin investing.
To hire or not to hire a financial advisor?
Financial advisors can be very helpful or they can be the opposite of that. Financial advisors have several task or duties they perform from their client’s money. Hiring a financial advisor’s often help clients develop plans for diminishing financial risk and creating wealth in a long-term manner.
Financial advisors lay a foundation for their clients through a blueprint that is designed to fit their clients’ needs, situation, and financial goals. Financial advisors may cover multiple areas but not limited to debt management, estate planning, insurance planning, health care planning, etc. When deciding to hire or not hire a financial advisor ask yourself these questions.
Do I want to take on the responsibility of making and implementing my own financial plans?
Do I have time to research and select my own investments?
Am I competent or willing to become competent to make my personal financial plans?
Is letting financial professionals control my decisions for my financial future best for me at this current time in my life?
Is the financial advisor compensation worth the services they provide?
Is my personal financial situation going to allow me to afford a financial advisor?
Based on how you answer these questions depends on whether you should hire a financial advisor or not. Lets walk through cases of when it might be best for a person to hire or not hire a financial advisor.
Case 1
Lets say a person name John, age 33, has a family of two kids and a wife. The couple makes $45,000 each. John is focused more on his career and does not want to create a financial plan for himself but knows it is smart to at least have one.
He has time to research investments but often don’t because he is a workaholic and prefers working on career advancement activities. He is not competent enough nor does he want to become competent. At this point in his life he thinks it may be best for a financial professional to handle his financial plans so he can work on other things.
The financial advisor he has consulted with charges a on time fee of $1500 for a complete financial plan package and report that address John’s concerns and priorities that is in alignment with John financial goals.
John is a saver and has about $20,000 in savings and prefers a one-time charge and not a ongoing fee for management of money. In this situation, it would best for John to hire a financial professional.
Case 2
A guy name Larry, age 23, no kids and straight out of community college. Larry hasn’t found a job yet and has only $300 in savings. Larry is not sure what career path he wants to take and is still exploring career options. Larry likes the idea of controlling his own finances even if he had more then $300 in his savings. In his spare time outside of job-hunting Larry researches personal finances tips and ways to plan for his own future. Larry is not competent for planning his on future, but he is willing to learn on his own and become competent simply by reading books and educational material on personal finance, which anyone can do in their spare time.
Larry is not considering hiring a financial advisor, but he does look into it and finds advisors that charge both a flat rate and a management fee of ongoing management of money. He understands that either option is not in his budget to pay for but he is not discourage because he knows that with reading personal finance information he can take control his own finances without a financial advisor’s help.
Larry then begins reading and making his own financial plans step by step until he is where he wants to be financially. The purpose of the case studies was to give examples of when it may or may not be a good idea to hire a financial advisor.
Conclusion:
Altogether, learning how to budget, invest, and deciding to hire a financial advisor can impact where your finances end up. The best decision makers in personal finance usually ends up living either comfortably or in abundance. Budgeting and investing is a skill that can be learned and if you take these areas of your life serious then you will achieve much success in life.
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