While the letters CFP may just look like some letters thrown on a business card, it actually symbolizes a very accomplished financial advisor. A Certified Financial Planner or CFP undergoes many years of experience and education in order to commit to being the best in the industry. Certification is granted to those who have completed the four E’s: Education, Experience, Exam, and Ethics.
Studies have shown that a comprehensive financial plan can actually benefit people at all income levels, not just people who have so much money they have no clue what to do with it. According to the 2012 Household Financial Planning Survey that was directed by the Certified Financial Planner Board of Standards, a small 31% of families prepared a comprehensive financial plan for their household.
When you reach the point where your daily life consists of working hard to cover your living expenses, paying off student loans, and all of the costs that come with being a parent (if you have children); it seems like you’re making just enough to cover the necessities so what can a certified financial planner possibly help with when there’s little to spare? Let’s find out.
1. Setting financial goals.
Most certified financial planners will start your plan by asking questions about your financial objectives. If you’re married, doing this initial phase alone is sufficient to get the two of you on the same page. Just like you would plan a family party or even a vacation, take the time to plan your future.
2. It can help give you a reality check according to your timeline.
Once you’ve gone over your goals, the next step is to see how to help you reach them and how long that’s going to take. Understanding the variety of investments you can partake in and how much you should save, will be a part of your planning. Your CFP can do a cost-benefit analysis and help you determine whether your goals are attainable according to your timeline.
3. It can help keep you grounded and live well within your means.
Once you’ve mapped out your financial path and know how much time it will take you to reach there, it’s time to check your cash flow and see if you’re overspending by looking at your expenses vs. your income. If it turns out you have negative cash flow, it’s going to be difficult to meet your goal. The analysis may show you just how much unnecessary spending you’re racking up. You just may be surprised how much that number tallies up to.
4. It can help identify where the financial mistakes are being made.
Besides spending too much, an analysis can clarify where else financial mistakes are being made and what fixes exist to rectify it. Like paying high-interest rates to institutions where you have accounts like your bank, credit cards, and insurances.
5. It can help measure your progress towards your goals.
As soon as you have your plan in place, you’re going to have the ability to measure your goals, like putting aside a specific amount of funds towards your debt or your savings over a length of time. Then you’ll be able to look back a year later and see if you met the goal you set out for yourself and your family.
6. It can help you figure out the best ways to capitalize on your money.
When an expert looks at your entire financial situation at a glance, opportunities to save or make money can be revealed. A certified financial planner can show you where you may not be taking advantage of flexible expenses such as your health care or your taxes. Sometimes we’re paying within the wrong income brackets or listing the wrong number of dependents, and small oversights like that can be costly. Any missed saving opportunity is a loss, and a CFP can help you change that around so that you can use the extra money on an investment or to deposit into a savings account.
7. It can help identify risk you didn’t realize existed.
Looking at risk capacity is a part of a financial plan. For example, what would the risk of you becoming disabled and unable to produce income? What happens if you die early and leave your family with a mortgage payment that’s unmanageable without you around?
Even if you believe you are on top of your finances, analyzing your risks with a certified financial planner is wise. Especially if you are not familiar with what may happen if your spouse was to pass away and all assets were in their name alone. Depending on the state you live in, the laws may vary. For example, you may be under the assumption that your spouse’s assets would go to you automatically, and, in fact, your state laws may dictate that it goes to their parents.
8. It can make you feel more assertive with your money.
The CFP Board survey, states that 52% of people with a financial plan have a “very confident” sense about handling money, investments and savings, while only 30% of individuals who don’t have one do. Once you’ve had a CFP create a plan for you, you will feel more in control of your finances, that comes along with a great sense of self-discipline. Knowing what you need to do to achieve your goals makes you less out of control.
9. It can teach you how to form wealth.
According to the CFP Board survey, people who have a plan also have a higher amount of money saved and are more probable to settle credit card bills in full. Remarkably, it demonstrated that people who earn less than $25,000 pay their credit card bills when they have a plan than the people who make between $25,000 to $49,999 and did not have a plan in place— 41% to 26%.
10. It can show you how to live more comfortably.
Do yourself and your family a favor, and hire an outside person to create a comprehensive financial plan for you, because it will save you the time and energy it takes to sift through a bunch of “how to” articles online, and some of it may potentially be contradictory. You could also lose out on a lot of opportunities to save or invest because you don’t have the knowledge or experience that a CFP does.