Many people operate under the misconception that all financial advisors do is manage your investment portfolio. That may have been true in the past (and is still true for some people who call themselves advisors). But for true wealth managers, investing’s just the tip of the financial advice iceberg. Their job should be to make sure you’re strong in every area of your financial life: You have a solid budget, your household balance sheet is under control, you’re prepared for the unexpected, the building of your nest egg is on track, and much more.
Managing Your Spending & Debt Levels
First off, do you maintain a budget in your household? If not, do you really know where your money’s going? Early on in my work with you, I’d build a picture of the last 12 months, inflows and outflows. We’ll spot the categories where you can make adjustments that will free up the flexibility you need to do all the things that come out of the rest of the financial planning process.
Financial advice on debt is just as important as advice on investments. Too much debt eats into your cash flow and can increase stress and anxiety. You may not think of paying off debt as a form of investment but doing so is effectively the same thing as buying an investment with a guaranteed return equal to the interest rate you’ve been paying. I can help you determine whether your debt level’s appropriate (and what you can do about it if it isn’t!). In the meantime, there are simple benchmarks you can use to gauge whether your debt load is out of line. One rule of thumb: Try to keep your total monthly debt payments and housing costs at or below 36% of your gross salary.
Protecting Against the Unexpected
There’s a large collection of protections you should have in place that I’d put under this heading. You need financial advice on this too!
Emergency Fund
Everyone should have cash in the bank to get them through a large, unexpected expense in the near term, whether it’s medical-related or something else. But according to a federal study, in 2021 over 30% of Americans said they’d be unable to meet even a $400 emergency expense—and that despite the substantial COVID-related stimulus checks.1 With the stimulus support greatly reduced in 2022, this percentage may be higher today. So as a society, we have work to do in this area.
The general benchmark is that you should hold 3-6 months of discretionary expenses—your expenses excluding “wants”—in a rainy-day cash fund. What’s prudent for you depends on your industry of employment, the terms of your disability policy (assuming you have one!), and other factors. You could need more in certain circumstances (for example, if you’re starting a business).
Insurance Coverage & Estate Planning
I’m a defense-minded wealth manager. My thinking is: Protect what you have first, then focus on growing what you have. We have many risks to protect against, but insurance and estate planning can help you take control back from fate or bad luck:
The risk of dying early
Life insurance protects against the loss of the future earnings your family may depend on. And estate planning ensures your wishes are carried out and your vision for your family’s future remains supported.
The risk of getting hurt or sick
Disability insurance protects against the loss of income due to injury or poor health.
The risk of accidents or disasters
Auto and home/renter’s insurance policies protect our property from catastrophic loss.
The risk of legal judgments
Personal liability insurance policies protect your earnings and assets from lawsuits in an increasingly litigious society.
You’re understandably not an expert in the various forms of insurance and preparing estate documents. Even if you think you’re covered in each area, your preparations may be insufficient. For example, many people are grossly underinsured when it comes to life insurance. Too few have their estate in order either because they’re putting off uncomfortable contemplations of death or they think it’s only for the ultrawealthy. And having worked earlier in the year with a nonprofit assisting wildfire disaster survivors, it’s clear to me now that property insurers commonly underinsure their clients’ homes (sometimes significantly). So without a wealth manager on your side, the only one truly looking out for you is you.
Checking all your coverage levels against your likely insurance need is a priority in my financial planning process. I can also educate you on the estate planning solutions available and connect you with a trusted legal professional in my network. If there are any deficiencies, I’ll identify them. Then we’ll work together over the months and years to strengthen the protections you have in place—before you need them.
Take A Financial Health Quiz
Are you wondering how your own financial health stacks up? I’ve developed a short, anonymous 10-question quiz that can help you get a good idea of whether you’re on track.
Come for the Portfolio, Stay for the Holistic Financial Advice
Just like you shouldn’t represent yourself in court, I don’t think you should go it alone when managing your finances. Outsource some of your worry to me and gain the peace of mind that comes with knowing all these areas of your financial life are taken care of. Wealth managers like me at Hesperian Wealth can help you with a lot more than just your portfolio. I could argue the rest of the financial advice iceberg is even more important because it sets the foundation for everything else you can achieve.
Eric R. Figueroa, CFP®
I am a Folsom, CA, fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.