As we embark on our working lives, we start earning a salary. At the beginning, it feels liberating that you are earning your own keep and not depending on allowances anymore. However, with great (earning) power, comes responsibility (bills, savings, investments) as well. Just like everything else which we are responsible for, it is generally a good idea to have a plan to get there, whether for a short-term goal like saving for a bucket list trip to Santorini in the next couple of years or a long-term goal like retiring comfortably 35 years down the road.
Professional advice costs money (whether as a standalone fee, or embedded), so how does one decide if it would be “worth” the fees to get professional advice, or if there is even a need to spend such money at the current life stage? I share my personal thought process below.
You probably do not need it (yet)…
With a certain degree of self-discipline, there are areas which we can establish on our own, without the help of a professional.
• High-interest debts
Credit card companies charge an average of 24% p.a. on credit card debts. When banks are only offering 0.25% (base interest rate) to 3% (with many hoops to jump through) for our savings account, it does not make sense to pay 24% p.a. interest for our credit card debts. If we are only paying off the interest, the money will be gone forever from our accounts and we are still left with the principal to pay. Therefore, even before considering professional wealth advice, we should ensure we pay our credit card bills in full by the due date.
Recent graduates might have study loans (interest rates of about 4-5.5% p.a.). While study loans repayment can stretch up to 20 years, it is not advisable to do so because the interest incurred would be huge. Therefore, it would be prudent to clear one’s student loan as quickly as it is practical.
In general, it would be a good idea to clear all high-interest debts first before considering professional wealth advice.
• Rainy day funds
Having an emergency fund (6 to 12 months of living expenses) should serve as the very foundation of your wealth plan. Without this reserve, any slight disturbance (inability to find a new job, retrenchment, medical illness, unforeseen spending needs) would easily knock you off course from your journey to attain your financial goals.
Some may ask if having professional advice could help with the above areas mentioned. While that might be true, it is probably not the best use of your money. Many advisers are commission-based and since paying off your debts and saving up for your emergency fund will not yield any commission, you might be hard-pressed to find a commission-based adviser to serve you. On the other hand, there are fee-only advisers (like Providend), but would you want to pay a fee for advice just to pay off your high-interest debts and to have an emergency fund? Probably not. You should make your advisers work harder to earn their keeps.
So, you are ready, what’s next?
If you do not have high-interest debts and have already set aside your emergency fund, you may then like to consider the qualitative aspects of whether you should engage a professional wealth adviser and assess the additional value you can get.
• Perceptions over money-related matters.
A few years ago, we held a birthday celebration for our firstborn. We booked the buffet line (because people needed to be fed) and a dessert table (because the wife likes it) separately. One observation I had was that the buffet line was about 12m long and could feed 30-40 hungry guests comfortably for their lunch while the dessert table was about 2m long (absolutely pretty though!) and could probably afford each guest one cupcake and half a macaroon each. Coincidently, both set-ups cost almost the same.
Both my wife and I were happy with how the event turned out and found our money well-spent (the wife on the dessert table and me on the buffet line). However, the vice versa might not hold true because we both could hold different views on the “value of money and what we each value”.
My wife was looking at “feeding the eyes and the #gram” while the practical boring man was looking at “filling the stomachs at a reasonable cost”. What seemed rational to you might seem irrational to another. There is no right or wrong, it is just who we are.
Our views on value, money, and wealth planning are shaped by our upbringing, family, friends and peers, and many other factors. This buffet/dessert table is an example of how differently each of us views and values the same things. It is a small issue in the grand scheme of things, but if we are unable to align on said small matters, aligning on macro-financial matters could be even more difficult.
This is where a professional could come in as an independent third party to bring both parties to a middle ground on wealth planning. For some couples, engaging a professional adviser could also help engage your other half, who might otherwise not be interested in wealth planning, to come on board as well.
• You are always thinking about money and worrying about not having enough.
In a much-needed recent trip to Perth, we relied heavily on Google Maps to bring us to our Airbnbs and tourist attractions. On the bottom left screen of the GPS, it shows the time and distance we need to cover to reach our destination and they are automatically updated if we make a wrong turn or stop for a while. This information is important to us so that we know we are making progress towards our destination.
Likewise, in our personal wealth management, it is important to know how far along we are from attaining our goals. Some people keep thinking about money because they do not know how much they need to attain the lifestyle they desire (destination). When you do not know your destinations (life goals), you do not know how far off you are to reaching them (or if it is even possible) and therefore you keep obsessing about money. In this aspect, engaging a professional could help provide a roadmap on how you can go about achieving your goals and at the same time, set your mind at ease.
• The fear of the unknown and its inertia.
In a way related to the previous point, we are sometimes afraid of what we do not know. Saving for our children’s education that is 18 years away seems so far and abstract. Saving for our retirement in 35 years’ time is such a mind-boggling time horizon that it is simply easier to leave it to a later date to plan.
At the back of our heads, we probably already suspect that the amount needed for our retirement would seem staggering as compared to our current income (especially for a younger person). In such situations, the easier (and commonly taken) route would be to put off thinking about our financial needs.
It takes courage to peer into the future and start preparing for it. It is important to know the earlier we start, the more runway we can afford to save up for our goals because of compounding returns.
Engaging a professional adviser early to provide you with a game plan that could help you achieve your financial goals is especially helpful. The more we know, the less we fear.
• You do not know your expenses/cash flow.
Most families have one or two income flows so it is relatively easy to know your inflows. However, our expenses (outflows) are more complicated and difficult to track since there are many avenues. If you do not know your expenses, you would probably also not know your saving rate. A typical adult has about 30-35 years of productive earning years. With longer life expectancy, that could mean we are looking at 25-30 plus retirement years where we do not earn an income and need to draw down from our savings. Therefore, it is important for you to know how much you can (or need) to save now to attain your financial goals.
Putting your expenses under the spotlight forces you to assess if you should really be spending money on that premium latte or streaming subscription. You will probably not discuss your expenses with your adviser, but with your other half or self-assess instead. In such a situation, your adviser could act more like a “coach” to ensure that you are doing the proper exercise (more on this later) because small leaks (unnecessary expenses) can sink a great ship (your financial goals).
• Knowing is Not Doing.
It’s Sunday night, we all know we should sleep early and turn up for work tomorrow, but how many of us actually do that? We know regular exercise will do us good but how many of us exercise regularly?
Likewise, when it comes to our finances, you may know (or think) you are not saving enough or spending too much but simply lack the willpower to correct your behaviour. We have friends who pay good money to engage CrossFit trainers or sign up for spinning classes, not because they do not know how to do CrossFit or ride a stationary bike. They do so because of the discipline that it instils, whether it is turning up for gym or spinning classes. It helps to keep them accountable. Getting a professional trainer could also help correct our form, prevent injuries and avoid a potentially long layoff if we get injured. In finance speak, a good adviser can point out potential gaps (saving too little, life protection needs, etc.) in your financial situation so you are able to rectify them in a timely manner.
You may think it is strange to pay people money to keep yourself accountable, but if it results in good returns and allows you to attain your goals, it might be worth a try after all. Engaging a professional and meeting for regular check-ins could instil discipline and ensure you are doing it correctly and on track to attain your financial goals.
• The value of professional advice.
An honest and professional adviser can also help provide clarity for life’s big decisions. If you are contemplating a mid-career switch or deciding if one parent could stop work and care for the kids at home, a professional adviser will be able to help plan out the said scenarios. You can then decide if you are comfortable with the outcomes. While not foolproof, having a data-backed extrapolation can help you better envision and manage your expectations.
As a conclusion
There is a cost to getting professional wealth advice, whether upfront or embedded. The value you can get from engaging an adviser would also depend on your situation and in general, the more “ready” you are, the more value you can gain from engaging one.
P.S. Notwithstanding the above, there are special circumstances in which we should seek professional advice regardless. For example, when you are presented with a complex, unexpected situation in which you have no experience or lack the expertise like receiving a large inheritance and you want to safeguard it well, or if you are going overseas for work and you are unsure of their tax systems/laws.
This is an original article written by Andrew Chia, Associate Adviser at Providend, Singapore’s First Fee-Only Wealth Advisory Firm.
For more related resources, check out:
1. Complex vs Simple Wealth Solutions
2. The Heart of the Matter Is the Matter of the Heart
3. Are You Getting the Best Value from Your Wealth Adviser?
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