Derek Burnett
Derek Burnett is a Contributing Writer at Bottom Line Personal, where he writes frequently on health and wellness. He is also a contributing editor with Reader’s Digest magazine.
Often, when people think of a financial advisor, they imagine an ivory-tower expert collaborating with a high-net-worth individual who is already well versed in the world of finance. Such mundane considerations as household budgeting, this thinking goes, are beneath the sophisticated advisors who run in the rarified world of high finance. That stereotype is both incorrect and damaging, since it could interfere with someone getting the help they most need. The fact is, many financial advisors not only can help you establish a household budget, but explicitly rely on a collaboratively developed budget as the basis on which to build a comprehensive financial plan.
As you probably know, a budget is a running accounting of how much money you have coming in versus how much money you have going out. By tracking your income and expenses carefully, you can adjust your expenditures (and possibly your income) in order to make sure that you’re able to afford your lifestyle and meet your long-term goals. Most people operate by monthly budgets, since the typical billing cycle of most household bills is monthly.
A budget and a financial plan are not the same. The financial plan is the overarching strategy for handling all of the aspects of your financial life in order to meet your long-term goals. The budget is simply the month-by-month accounting of money in versus money out. While a budget might not be as glamorous as a financial plan, it is the workhorse without which your financial plan could fail.
If you operate your household finances without the benefit of a budget, you’re essentially winging it. While you may have a good sense of how much money you earn each month, it’s easy to lose track of your spending. That difficulty tracking expenditures may be due to mindless spending, to poor communication between spouses, to an inability to predict unexpected costs, or to a failure to account for “background” expenses that are paid automatically or unconsciously.
Without a budget, people often feel frustrated at their inability to save money or meet their financial goals. Demoralized, they may easily enter a downward spiral of mindless spending and give up on their financial dreams altogether, living paycheck to paycheck as best they can. A reasonable analogy might be someone who sets an ambitious long-term weight-loss goal without ever stopping to make meal plans or figure out how they’ll achieve a caloric deficit each day. Eventually, they decide that losing significant weight is impossible, and give up.
If you struggle managing your income against your expenses, then guidance on household budgeting is arguably the most valuable service a financial advisor can provide you with. No comprehensive financial planner worth their salt, when tasked with helping you establish a financial plan, will start out by recommending investments or insurance products. Instead, they will almost certainly begin by carefully examining your monthly bills and income, while learning as much as they can about your short-, medium-, and long-term goals.
Together, you will scrutinize your finances, producing the most detailed possible accounting of where your money goes. Before any talk of investing, you will figure out how you can get your bills paid each month while building a rainy-day fund and saving for vacations, a down payment on a house, or other priorities.
Budgets must change when life changes, and you and your advisor will revisit yours periodically to make sure it accurately reflects the realities of your life. For your advisor, your household budget will be the foundation from which they are able to guide you. On an ongoing basis, they’ll be able to see how much you can realistically afford to invest and how you’re doing on your long-term goals.
A common objection to hiring a financial advisor for budgeting is that no outsider can possibly understand your financial realities as well as you do. While it may be true that a third party lacks an intimate understanding of your emotional relationship to money and spending, the harsh reality about money is that it is black and white, mathematical. Although you might feel that you can somehow, magically, squeeze in another expense without having to make sacrifices elsewhere in your budget, the numbers don’t lie. An advisor, being objective, can help you see the stark reality of the implications of your decisions. That objectivity, rather than being a reason not to hire an advisor to help with budgeting, is one of the strongest reasons in favor of doing so.
And although you know your own financial realities very well, your financial situation is probably the only one you’ve ever studied up close. An advisor, however, has been around the block again and again, has helped people in a myriad of situations, and can bring that breadth of experience to bear in helping you. An advisor will know what questions to ask you to help you ferret out all your expenses, even the ones you might be most likely to overlook. Advisors are also great at anticipating and estimating future expenses to help you keep your budget on track. And they tend to possess lots of practical knowledge around such things as budgeting software, spending strategies, account management and debt reduction.
Finally, an advisor is a wonderful accountability partner. If your struggles with budgeting stem from a lack of discipline, it can be very helpful to know that you have someone “looking over your shoulder,” someone to whom you’ll need to justify what you know deep down are poor decisions. Even absent the need for that kind of accountability, a good planner will remind you to revisit your budget periodically, something you might otherwise forget to do if left to your own devices.
Several different kinds of advisors can help you with budgeting. Certified Financial Planners, Chartered Financial Consultants, financial therapists, finance coaches and Registered Investment Advisors all can help with budgeting. Credit counselors, too, may get you off on your way by helping you establish an initial budget, although you probably won’t have the same kind of long-term, one-on-one relationship with a credit counselor as you would with other types of advisors. Key words to look for in searching for a financial advisor to help with budgeting are “full-service” or “comprehensive.” Once you’ve found an advisor to interview, ask them about budgeting head-on: “Getting help with household budgeting is a top priority for me; is that something you regularly offer? How do you help in that area?” Getting the right answers to those questions could be the key to finally unlocking your financial potential.
