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A financial planner can offer a helpful second opinion on your savings strategy. The author is not pictured.
As a personal finance writer and expert, I'm not used to asking for input when it comes to my money. If advice needs to be dispensed, I prefer to be on the giving end.
Believe it or not, that's exactly the reason I decided to seek the services of a financial planner.
I realized that it's all too easy for experts to have blind spots, and I didn't want my family's finances to suffer because of my pride. So in late 2018, I bit the bullet and scheduled a meeting with a certified financial planner. Here's what I learned.
Recommendation #1: Increase our emergency fund
My financial planner began our meeting by asking about our emergency fund. Since my husband and I are both self-employed, we already had a pretty large emergency fund - but apparently not large enough.
The financial planner explained that while three months' worth of expenses was adequate for most, self-employed people really need closer to six months' worth.
Even though our freelance work has been steady in the last four years, there's no guarantee it will remain that way. He suggested adding between $5,000 and $10,000 to our basic emergency fund.
He also suggested setting up several savings accounts for future expenses that we would otherwise tap our emergency fund for. For example, my husband and I bought a house last year, so we now have a separate savings account for any home repairs.
Recommendation #2: Consolidate retirement accounts
Before we met with the financial planner, my husband and I had four retirement accounts in total. We each had IRAs at Vanguard and Charles Schwab, as well as our own accounts with two different robo-advisers.
My financial planner argued that there was no need to have so many accounts, because it made our finances more confusing to manage without adding any significant value. He recommended moving the funds in our robo-adviser accounts to our IRAs at Vanguard and Charles Schwab.
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Recommendation #3: Simplify our investing strategy
I was a major investor in Real Estate Investment Trust (REIT) funds before I spoke with a financial planner. REITs are funds that invest in real estate properties, such as malls, office complexes, and apartment buildings.
I'd heard that REITs could have larger returns than index funds, so REITs made up about 25% of my portfolio. My financial planner said that REITs aren't something I should invest in right now because they're too risky.
He recommended the following setup:
- 70% in a broad stock fund
- 20% in an international stock fund
- 10% in a bond fund
This is a setup used by many investing professionals, so I agreed to follow his plan after doing some research of my own. It's good to embrace a little risk as a young investor, but too much can set your portfolio up for disaster.
Recommendation #4: Save more for retirement
Before I met with my financial planner, I felt pretty confident in how much my husband and I were saving for retirement. We've been stashing away about 12% of our gross income for several years, after saving closer to 5-6% for the first few years after we graduated college.
The planner suggested we increase that rate if we hope to retire by 60, which is one of our main financial goals. He explained that we need to make up for those post-college years, recommending a 15% savings rate. That amount should allow us to retire by 60 without slashing expenses drastically.
The bottom line
I haven't seen my financial planner since that meeting over a year ago, but I've followed his advice to the letter. I consolidated our accounts into two IRAs and follow the three-fund portfolio strategy he suggested. Every month, my husband and I save 15% of our gross salary in our retirement accounts. According to basic retirement calculators, we should have enough to retire in 30 years.
We also save for short- and long-term goals, like vacations, home remodeling, and car repairs. Any time we decide on a new long-term goal, we set up a sinking fund for it.
These days, I recommend that everyone meet with a financial planner. Having an objective third party review your finances is crucial, even for so-called financial experts. Now that my ego has recovered, I may even set up a second appointment.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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