Has the explosion of digital money tools got you contemplating a DIY approach to financial planning? With all the websites, software, apps, seminars, podcasts, and bestsellers at your fingertips, why pay someone else to help you handle your money…right?
A plethora of information doesn’t guarantee you’ll be able to find the guidance you need to meet your personal financial goals. Before you dive into DIY, consider:
1. You don’t know what you don’t know.
Financial planners invest significant time and effort to meet certification requirements and keep up with continuing education. It’s their job to get and remain familiar with subject areas known only to those who spend years honing their craft. Can your DIY tools match that level of expertise?
Before you go it alone, remember that recovering from financial mistakes can take years to accomplish—years during which you’ll be making up for lost assets as opposed to moving forward toward your goals.
2. More isn’t necessarily merrier.
A common pitfall of DIY financial planning is analysis paralysis. Endless options and complex terms can overwhelm DIY investors, cause them to fear making the wrong decision, and paralyze them into inaction.
Similarly, gathering information about the tools and strategies that worked well for all your neighbors, friends, and family won’t necessarily get you closer to what’s going to work for you. All the advice in the world means little if it doesn’t speak to your situation (see #3).
3. Financial planning is not one size fits all.
You have unique and specific needs and circumstances that affect the right financial strategy for you. When you use a tool created for many consumers, you tend to get a generic approach and the advice that goes with it. As comprehensive as DIY financial planning tools claim to be, they’re unlikely to capture all the nuances needed to create the best plan for you:
- Who are you? An app will analyze an allocation based on generic questions and timeframes, not your specific past behaviors and future bandwidth for risk taking.
- What’s most important to you? Software cannot walk you through the financial intimacy of a thorough “prioritization conversation” where you consider your choices and trade-offs.
- What are the underlying assumptions that serve as a solid foundation for your financial plan? Just a few examples include rates of return, tax assumptions, longevity assumptions, and cost of living for different types of expenses.
4. You won’t find emotional intelligence and tact in the latest app.
It’s enough of a challenge to sort out your own priorities, goals, and money style. When you take your partner into consideration, the situation gets more complicated. Talking to a trusted financial advisor as a couple lets the professional help the two of you establish common ground for goals and tactics. An expert third party can tactfully guide you through tough conversations, whether those take place with spouses, parents, or your newly independent kids. A knowledgeable, impartial ear is invaluable.
5. “Follow your gut” is *not* a sound financial strategy.
Too many DIYers jump into the investment game without a carefully thought out financial plan or guideposts to steer asset allocation. These people often resort to one of the most notoriously unsuccessful strategies—chasing performance. Even seasoned financial professionals find it tough to win with this approach. It frequently leads to buying high, selling low, and making other poor choices based on whether “feel right” as opposed to fitting into a carefully crafted plan.
Educating yourself about personal finance is one thing. Tackling financial complexities on your own is something quite different. Before you decide to fly solo, talk to us at FJY Financial about the advantages of having a professional on your side as you plan your financial life.