Great Money Advice Your Financial Advisor Won’t Recommend

Home/Financial Freedom, Investing/Great Money Advice Your Financial Advisor Won’t Recommend

Financial and investment advisors can be very valuable resources in certain situations. Even so, there are great financial tips that you’ll rarely hear them suggest. Here is the great money advice your financial advisor probably hasn’t recommended.

Great Money Advice Your Financial Advisor Won't Recommend

 

Financial Advisors & Investment Advisors

These two terms frequently overlap because often both financial advisors and investment advisors focus most of their time on investments. Not only do they focus on investments, but their compensation models are often tied into how much money you have invested with them.

If you are thinking about working with an advisor you should consider the pros and cons listed out in the post Are Financial Advisors Worth The Cost?. If you already have an advisor please make sure you know the answers to these three important questions in an advisor relationship:

  1. How do you charge, and how much?
  2. How much did you make off my account last year?
  3. Are you acting as a fiduciary for me?

There aren’t solid right and wrong answers, but as a paying client you should definitely understand these important parts of the relationship.

Since advisor compensation is often tied to the size of your investment account, there are a few things you’ll rarely hear your advisor suggest:

1. Have a fully-funded emergency fund

An emergency fund should be held in a very safe, very liquid account. This usually means a savings or money market account.

A fully-funded emergency fund is typically between three and six months’ worth of living expenses. If you aren’t sure how large yours specifically should be, check out this post that helps explain it: How big should YOUR fully-funded emergency fund be?

Money held in a savings or bank money market account is less money that is in your investing account. Suggesting you liquidate some investments, or defer investing for a while, to build your emergency fund means less pay for your advisor.

But an emergency fund is key to lowering your personal finance risk. More than half of Americans couldn’t handle an unexpected $500 expense without going into debt. That’s just $500. Think of a job change, medical situation, major car repair, etc. Having a fully-funded emergency fund can really be a (financial) life-saver!


RELATED POST:
The Starter Emergency Fund


2. Get out of debt, and stay out of debt

Debt management is rarely an area in which financial advisors are trained. Because of that we can’t blame them for avoiding the topic.

Even if they were skilled in this area, money spent to pay down debt is money that isn’t invested.

Sometimes the math argument for taking on low-interest debt to invest instead can feel compelling. Why spend $30,000 on a car when the dealership is offering a 4% interest rate loan. Isn’t it better to invest that money?

No. That 4% is a guaranteed expense to you. And it’s an expense added to a product that is rapidly losing value. Your investments might or might not do well over any particular five year period. It is much less risky to skip the loan and pay cash. Plus the additional monthly cash flow that would have been put toward a payment can go to higher priority financial goals.


RELATED POST:
This is How You Achieve Financial Freedom


3. Invest in yourself

Investing in yourself can pay off HUGE. I already shared the story of how investing in a career change made me millions. Spending money on training, or a certification, or total career shift can pay off year after year.

Another way to invest in yourself would be to start a business. It could be a small part-time side-hustle – which is a great way to bring in extra income. Or it could be a full-fledged startup with massive potential. Most commonly it would start as a side-hustle and grow into the larger venture. That’s what happened when I started a business.

Financial advisors aren’t career coaches. They also aren’t business advisors. They know what they know, and it usually doesn’t include these topics.


RELATED POST:
7 actionable tips to improve your career situation


4. Pay off your mortgage

But it’s “good debt”, right? And it helps lower taxes – right?

Debt is debt – it isn’t good or bad. Debt of any kind creates risk, and studies show most people would prefer to lower the risk levels in their personal finances.

About the tax break… first off, you only save about a quarter of the amount you pay in interest. Let’s say, for example, you are in the 25% income tax bracket. Paying $10,000 in interest payments would provide you with a $2,500 lower tax bill. You’re still out-of-pocket $7,500. Doesn’t sound like that great of a deal.

Also, the mortgage interest deduction has shown up on the chopping block congressional tax plans multiple times – even recently. If a plan gets passed that lowers or removes that tax deduction, there’s nothing you can do about it.

We downsized in 2014 to accelerate our early retirement. As part of that process we sold our big beautiful waterfront home. The equity we had in the house allowed us to pay cash for a much smaller townhouse. Now we have no mortgage payment – or debt of any kind. We haven’t had a single regret. Living in a house that is owned 100% without a bank involved is very liberating. I highly recommend it!


RELATED POST:
Should you pay off your mortgage early?


5. Retire Early

When someone goes into retirement mode, they generally stop contributing to their investment account. That means your investment advisor’s future earnings growth drastically slows – or stops.

Not only that, but most people in retirement start to drawdown their funds. Retirees need this money to live from so generally make regular planned withdraws. When this happens your balance will likely reduce over time – meaning less income for your advisor.

Love your job? Great for you! Continue doing it for sure if there isn’t anything you’d rather be doing. Even in that case though you might consider early retirement so you could work part-time and have a lot more flexible of a schedule. Or perhaps you could start your own business doing what you already do, but working for yourself. Another thought would be to do consulting in the same field you’re in.

Early retirement means options. It doesn’t mean sitting around being bored or doing nothing. You work hard for 20+ years, wouldn’t you like at least the option to scale back when you’re still young enough to enjoy it?

What Do You Think?

Do you have a financial or investment advisor already? If so, I’m curious if they’ve ever mentioned any of these ideas to you. Let us know in the comments below.

 

Do you have a personal financial plan?

Financial planning checklist 2018 small

Here's a free personal financial planning checklist - to make sure you have the most important financial items covered.

Get it now and start checking points off the list.

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit
Here are 5 great money tips investment advisors never recommend. You'll want to check these out!  Saving Money | Debt Free | Investing | Small Business | Mortgage Tips | Financial Freedom

16 Comments

  1. Laurie Blank October 31, 2017 at 11:52 am - Reply

    Being a former mortgage sales assistant, my coworkers and I were duped into believing how incredibly wonderful and beneficial a mortgage was and how we were “helping” people by getting them into their “dream” home. It wasn’t until I started reading PF blogs that I realized that what we were primarily doing was getting them into hundreds of thousands of dollars in debt as we happily approved them for more than they’d planned on spending. It may still be weird to be mortgage free, but we’re going for it. 🙂 Great advice here!

    • Brad Kingsley October 31, 2017 at 12:57 pm - Reply

      Thanks Laurie! We love being mortgage-free… no regrets at all!

  2. Gary @ Super Saving Tips October 31, 2017 at 2:32 pm - Reply

    There are things that an advisor can help with, but you’re right that they probably won’t address these very important financial issues. The one I’m really working on right now is shrinking my mortgage.

    • Brad Kingsley October 31, 2017 at 6:05 pm - Reply

      A small number of fee-only advisors might recommend these items, but the majority don’t unfortunately.

      That’s great Gary. I think knocking out the mortgage is awesome. The debate continues from those that would rather carry debt and invest the money, but I LOVE having no mortgage. It helps me sleep better at night.

  3. Tom @ Dividends Diversify October 31, 2017 at 3:13 pm - Reply

    Agree. It’s like any paid service provider or contractor. They advise you based on what is in their best interest, not yours In the rare times I find someone selling something and I feel they only have my best interests at heart, it is a rare but good feeling.

    • Brad Kingsley October 31, 2017 at 6:07 pm - Reply

      So true Tom. With some work people can find a fee-only advisor that eliminates (mostly) these potential conflicts-of-interest, but it does take work. Most advisors wouldn’t make these recommendations. Thanks for reading and commenting!

  4. Kathryn Gerdl, Financial Coach October 31, 2017 at 4:10 pm - Reply

    Lucky me, my advisor is on board with all these issues. This is a great article. People should be working with someone who is working for them and not just their self. If your advisor won’t answer these questions so you understand them, change advisors.

    • Brad Kingsley October 31, 2017 at 6:08 pm - Reply

      That’s great Kathryn! I’m curious if your advisor is “fee-only”? It seems to be that small percentage of advisors who are most likely to recommend these tasks.

  5. Chrsitine November 6, 2017 at 4:34 pm - Reply

    I just signed up with my first investment adviser last week (Through Personal Capital), so these were all very timely questions. We did talk about if I had an emergency fund and if I wanted to retire earlier than 65. It’s only been a week, so not much else to report yet!

    • Brad Kingsley November 6, 2017 at 7:11 pm - Reply

      Yes, it will be interesting Christine to hear if they make any of these recommendations for you. Let us know! Thanks for stopping by and commenting.

  6. Jason@WinningPersonalFinance November 7, 2017 at 8:38 pm - Reply

    I’ve always been interested in the business of financial advising. Every time I look into it and I see an AUM fee I’m more and more confused. I want somebody to evaluate my financial position and provide recurring advice. If I was expecting them to invest my money and beat the market, sure, an AUM fee would make sense. For just advice, the assets you have should have nothing to do with it!

    • Brad Kingsley November 7, 2017 at 8:47 pm - Reply

      Jason, thanks for stopping by and sharing those thoughts. I agree that the AUM model has some inherent conflicts of interest. To avoid that situation someone could work with a financial coach – or a financial planner who follows the fee-based model (generally a large one-time fee then a smaller monthly fee).

  7. Mrs. Retire to Roots November 9, 2017 at 4:42 pm - Reply

    So many financial advisors are staunchly against retiring early. When I see big financial writers, like Suze Orman, telling people they have to wait to retire until 70 it drives me crazy. If you want to work with a financial advisor, it seems incredibly important to find a fee-only financial planner whose goals and worldview align with your own. It requires a good deal of interviewing, not just signing up with the first advisor you find!

    • Brad Kingsley November 9, 2017 at 8:03 pm - Reply

      I agree Mrs RtR! Thanks for stopping by and sharing those thoughts!

  8. Erith December 20, 2017 at 9:46 am - Reply

    Good article. I retired a little early (ages 56). With hindsight, and a bit more focus, I could easily have retired earlier than that. Investing in yourself is a great idea, it made a difference to me retiring early or still being at work with a lot less cash in the bank. You’re also right – early retirement gives you options – I certainly haven’t stopped since I retired. Life has never been more interesting and varied!
    My FI must be one of a rare breed, he tells me to spend more money!

    • Brad Kingsley December 20, 2017 at 11:41 am - Reply

      Thanks Erith for stopping by and sharing those thoughts!

Leave A Comment