Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
- Working with a financial planner has saved me a lot of stress over the years. It has also helped me save a substantial amount of money.
- For about $3,000, my financial planner put together an investment plan that has returned that money several times over. I manage the investments myself, but she helped me get set up and choose my funds.
- She also helps me with my taxes and showed me how to take all the deductions I’m legally entitled to as a small-business owner.
- A financial planner can help you grow your money. Use SmartAsset’s free tool to connect with a qualified professional today »
I have run my own business for most of my adult life and, because of that, I have a DIY attitude about my finances.
I probably would have continued to do my own taxes and muddle through my own financial management for many years longer if my next door neighbor hadn’t started her own business as a financial planner.
I knew her and trusted her, so I gave her my taxes to do, and got her help with investing a few years later.
Getting skilled, professional help with my money is one of the smartest decisions I have ever made. Here are the two most important lessons I learned from my financial planner.
Lesson 1: Deduct everything
I thought I was saving money by doing my taxes myself with TurboTax. I had a small business, but I was a sole proprietor and my returns were not complicated. And, a few years before, I’d paid someone to do my tax return and she had botched it, causing me to overpay and get money back. I could do better than that.
However, I lived in fear of the IRS. Since I did my own accounting by the seat of my pants, I was terrified of getting audited. As a result, I didn’t claim all the deductions I was legally entitled to for my home-based business. Biggest of those was the deduction for business use of my home, which I feared would trigger an audit.
The first year I handed my taxes back to a professional preparer, she advised me to deduct everything I was entitled to, including my home office and production studio. She told me to take photos of my workspace every year, so I’d have proof of the use of the space in case I ever got audited.
The chances of that, I learned, were slim. The IRS had developed questions that help people determine whether their home office is deductible. Because of this, the deduction is no longer a red flag for auditors.
During the years when I didn’t declare all my business expenses, I probably didn’t give myself any protection from an audit. But I did overpay my taxes and cost myself money.
Initially, I felt anxious about spending money to pay someone to prepare my taxes when I had been doing it myself for almost nothing. I discovered almost immediately that it was a good investment, however. The money I saved by properly deducting my business expenses more than offset the fee I paid for tax preparation.
Lesson 2: Invest everything you can
Several years ago, I took over management of some accounts from my parents. I turned to my financial planner to help me invest the money.
My parents had invested their savings in money market and CD accounts. In addition, they had a large amount sitting in their personal checking account. As a result, they were earning very little interest on the money they had saved.
My financial planner created an investment plan that balanced growth with security. She charged a one-time fee for her planning services and left the implementation of the plan up to me.
It cost about $3,000 to get a professional investment plan. It seemed like a lot of money to me at the time, but the investments have returned that money many times over.
Under her guidance, these and other funds have had an average growth rate of over 10% in the last year. Looking back over the last five years, the return on investment has still been very healthy at almost 6%. It has been satisfying to watch the accounts grow over time.
That’s why I was willing to listen to my financial adviser when she told me not to keep too much money in my rainy-day savings account, but to transfer that to an investment account when it got over $5,000-$10,000.
I like the immediateness of having funds on hand in case of emergency, but the money in an investment account can usually be transferred to my bank in less than a week if it’s needed.
As I’ve watched the expenses pile up for my elderly parents’ care, I want to squeeze the most out of every dollar I can put aside. I know I’ll need it after I retire. I continue to go back to my financial planner every few years to get an investment tune-up. That helps me keep investing money where it will bring the greatest return while managing my risk.
Bonus lesson: Work with a financial planner
There’s an old saying that an attorney who represents himself in court has a fool for a lawyer. I think the same is true of financial management. Being cheap about getting financial planning help actually cost me money. Professional help with my finances is an investment that pays off.
You don’t have to have a lot of money to get professional help. Many financial planners are finding ways to help clients who don’t have a lot of money to invest. It’s never too early to start investing.