Today, we turn the tables on Paula as Patty asks the questions SHE wants to know about financial planning, including:
Paula dives into each of these questions, as well as other topics you should know when you get into investing for your future.
For more, visit Paula's website, PaulaChristine.com, and check out her Making Money Matter course!
Paula: Welcome to Beyond the Paycheck. I'm Paula Christine. Living paycheck to paycheck and struggling to get ahead really sucks, but you can take control of your money and live the life that you dream about with knowledge and commitment. I'll provide you with the knowledge. It's up to you to make the commitment today.
We're gonna change it up a little bit. I've gotten a couple questions from some of the people that have been taking my course. I've asked Patty to join us, and she's gonna ask some of the questions that she would like answers to. So welcome Patty.
Patty: Hi Paula. Thanks for having me today.
Paula: Oh, no, thank you. Thank you for joining us. So what is your first question?
Patty: So Paula I'm in my thirties. And I have most of my money saved up in my savings account and when it comes to managing my finances to plan for the future, where should I start?
Paula: Okay. So that's a great question. When we talk about managing money or managing your finances, the first place that I would say to start would be learning where your money is going.
So how much money you have coming in and how much money you have going out. So the best way to do that is to create a budget. And a tracking system. Now, if you're talking about investing, then I would say that you would wanna start meeting with a financial planner or you can visit my website, PaulaChristine.com and check out my Making Money Matter financial course, which covers both of these topics. So next question.
Patty: So when it comes to managing finances, what is the financial planner's role?
Paula: So what a financial planner does is help you manage your money to reach your long term financial goals. So they'll work with you to build a comprehensive financial plan, taking into consideration your income, your current situation and your long term goals, they'll look at your insurance needs.
Look at your investment objectives, tech strategies, and estate planning, or they can just advise you on one. So when you work with a planner, they can do an overall plan for you, or they can just advise you on one section of the things that we just mentioned. It all depends on what role you would like them to play for you. Next question.
Patty: So how does a financial planner help me invest?
Paula: So when you sit down to meet with a financial planner, they will review, your current portfolio and they will help you manage the asset allocation to make sure that it fits your goals and your risk tolerance, and then they'll make recommendations.
They're also there to hold your hand to advise you when to make adjustments. So lemme give you an example. Let's just say if your goal is to retire in 30 or 35 years and all your money is basically invested in cash. So you're not likely to reach that goal because of inflation and taxation. So the role of the planner will be to work with you to build a portfolio, to move from cash to other investments that will give you a better chance to reach your goals.
So that will be helping you manage your portfolio allocations and your expectations along with holding your hand so that if things happen, you have someone that can support you.
Patty: When you say invested in cash, what do you mean by cash? Is that something that's in your savings account or are we talking 401k?
Paula: No, you'd be surprised at the number of people that when they're given their 401ks to enroll, they're afraid to pick an investment option. They're afraid to be too aggressive and they're afraid to be too conservative. So they don't pick anything. So a lot of them are invested in just cash. So I just use that as an example and how a financial planner can help you.
Does that answer your question?
Patty: Yes. So how does a financial planner get paid? Is there a monthly fee? Is there a weekly fee? Is there a yearly fee? How does it work?
Paula: So how a financial planner gets paid, they get paid in a couple of different ways. So when you work with a planner, you can just have that financial retirement plan built.
They can charge you a one time planning fee, give you the recommendations, and then you can implement them yourself, or you can hire them to manage your financial plan and your portfolio. And they'll usually charge you a percentage of that portfolio as a fee for that management. And typically it's about 1%, depending on your portfolio size.
Patty: Would you recommend that I hire somebody to manage a portfolio for me or should I build my own and manage it?
Paula: So it really depends on if you wanna take the time to do all the research and to manage your own investments, or would you like to hire someone that will do that for you? I've told people in the past that if you wanna go out and vacation and have fun and not pay attention to your 401k on a daily basis or your other investments, then I would hire someone to take care of it because a lot of people just ignore it.
So you wanna make sure that you have somebody overseeing it. But again, you can do it yourself. If that's what you choose to do.
Patty: Okay. How do I know if I'm saving enough money for retirement?
Paula: The only way that I can answer that question is to say, have a retirement plan created, which will take into consideration when you wanna retire, how much income you will need.
We'll look at inflation and taxes, how social security's gonna play into it, your current assets and savings that plan will tell you if you're on track or not. And if you're not, it's great to make the changes now to get you on track. Because you wanna do that sooner than later. So my answer to that would be actually to sit down with a financial planner and have that plan put together.
Patty: So what if the markets down, should I panic? Should I continuously look at my 401k? What do you recommend that I do?
Paula: I guess if you wanna drive yourself crazy. But the answer to that would be no, don't panic. Don't react emotionally. You wanna make logical decision. So let's just say that you decided to sell in a down market and you said, okay, I'm gonna sell and I'm gonna wait for it to recover. And then I'm gonna hop back in.
I can pretty much guarantee you're gonna pick the wrong time to get back in. If you are investing for the long term, historically, the market has recovered and investors that hung in recouped their funds. If you're panicking because you need the money next month or next year or in three years, then it shouldn't have been in the market in the first place.
So don't panic. Just take a deep breath. And that's another reason to work with a financial planner because they are there to hold your hand. They're there to help you make decisions about when to get in, when to get out, when to make changes.
Patty: That makes sense.
Paula: So, Patty, can I ask you a question?
Patty: Of course you can.
Paula: So based on your questions, I hear that you're concerned about if you're saving enough for retirement and if you should consider hiring a financial planner, isn't that correct?
Patty: Yes.
Paula: Okay. So I would suggest that you set up a meeting with three different financial planners and how you can find them is by asking your family and friends who they're using and if they like them and if they've responsive to them.
So are they calling them when the market is down? Are they keeping in touch with them and then go sit down and meet with them? And ask them their investment philosophy, ask them how they get paid. Make sure that they're gonna educate you and not just tell you what to do. You also wanna be educated. So the important thing is just to get started. So Patty, do you have any other questions for me?
Patty: No, Paula, thank you. You've answered everything. I think I have a good foundation and I think I know where I'm gonna start.
Paula: I really, really appreciate you being on the show today. If anybody would like to reach out to me, if you have any more questions about how to hire a financial planner, you can reach me@paulaatpaulachristinedotcom or you can check out my website at PaulaChristine.com. Thanks again, Patty for joining us today.
Patty: You're welcome, Paula. Thank you so much for having me.