While working with a financial adviser isn’t for everyone, hiring a professional to manage your money can pay off in more ways than one. With a financial adviser in your corner, you’ll gain access to professional expertise and insights you can’t get elsewhere. And if you hire a true professional, they’ll help boost your returns with strategies you don’t even know about.
But, are financial advisers perfect? Not by a long shot.
While financial planners are trained to improve your long-term investing returns (and they often earn more money when they do), traditional investing will always be their main focus. But, as you’re likely well aware, there’s a lot more to your financial picture than the size of your portfolio.
When it comes to common sense wealth-building strategies that have little to do with the investing world, you may be on your own. Here are seven ways to build wealth you should consider no matter what:
1. Get out of Debt & Stay Out
Financial advisers are charged with helping you maximize your investments while minimizing risk. This often means they won’t counsel you to pay down credit card debt or car loans, especially if your investing goals are on track. It’s not that your financial adviser doesn’t care; it’s just that debt management isn’t in their wheelhouse. (See how debt affects your finances with a free credit report snapshot on Credit.com.)
But, should you pay off debt regardless? According to Colorado financial planner Josh Cumrine of Total Wealth Managers, the answer is almost always yes.
“Paying off debt can be one of the best wealth building tactics that can be utilized,” says Cumrine. After all, your ability to retire won’t be based only on the size of your nest egg; it will also hinge on how much money you need to live. By paying down unsecured debts, you can lower your monthly living expenses and reach retirement that much faster.
2. Invest in Your Personal Growth
While financial advisers can serve as a great resource when it comes to getting answers to your investing questions and concerns, they aren’t career counselors. They may be unaware of the personal investments you could make that could boost your earnings or improve your job prospects. Their job is making the most of your investments, not helping you earn more.
That’s why personal growth is one area where you need to do some digging on your own.
“Investing in your own personal and professional growth will pay a lifetime of dividends that will not only enhance your life but the lives of those around you,” says Massachusetts financial adviser Eric Jansen of AspenCross Wealth Management.
Imagine you could earn a certification or advanced degree that would boost your income by 20%. While you may not receive this advice from your financial adviser, it’s important nonetheless.
3. Build an Adequate Emergency Fund
As Kansas City financial planner Clint Haynes explains, most families need an adequate emergency fund in place – even if they don’t receive this advice from their financial professional. With a fully-funded emergency fund, you can spend a lot less time stressing over money since you’ll know you are prepared for any emergency that comes your way.
“Keeping a cushion of cash is an extremely important wealth building tool – especially when unexpected events occur,” notes San Diego financial adviser Taylor Schulte. “If you lose your job or the economy takes a hit, you can tap into your cash reserves instead of swiping your credit card.”
4. Focus on Tax Efficiency
Not all financial planners will go through the trouble to review your tax returns to check for efficiency. Unfortunately, this is one of area where your financial adviser has the power to leave you worse off.
“An adviser who only manages your investments may not have the expertise or inclination to analyze your tax situation to maximize your income and value of your assets,” says Virginia financial adviser Nora L. Hartquist.
You should also make sure your financial adviser is advising you on diversifying your tax load – both today and tomorrow, says Arizona financial planner Charles C. Scott.
“If the only advice you get from your adviser is to put your investments in tax-deferred investments like (individual retirement accounts) and 401Ks because you’ll be in a lower tax bracket in retirement than you are today, you better make sure you take the time to understand what that might mean to you,” he says.
“When I entered the working world the top tax rate was 70%,” says Scott. If you take the time to look at the history of tax rates in this country, you will see that they seem to have bottomed out.
5. Pay off Your House
Financial advisers who charge a fixed percentage of your assets want your investment portfolio to be as big as possible. That way, he or she can be paid more. This means the adviser may advise you to keep more of your money invested in the stock market – and under their management.
As San Diego fee-only financial planner Jon Luskin notes, however, there are many times it can make sense to pre-pay your debt. This can include things like your house, your car notes, or a business loan.
“It depends on a myriad of things, like risk tolerance, investment allocation, and the term and interest rate of the debt,” says Luskin. Unfortunately, your financial adviser may never tell you to pay off your large debts like your house since doing so would impact their own bottom line.
6. Hire a Fee-only Financial Adviser Who Is a Fiduciary
While many financial advisers are honest individuals who take pride in their work, there will always be those who line their pockets at your expense. One way to ensure you’re hiring a financial adviser who will put your interests first is to hire a “fiduciary” – a type of investment professional who is legally required to put your interests above their own.
Fiduciaries are also paid a flat fee that ensures they never earn a commission for selling you an investment. If you want to make sure your financial adviser is always on your side and never letting commissions dictate their advice, consider replacing your current adviser with a fiduciary.
7. Learn to Be Happy With What You Have
While it’s a financial adviser’s job to ensure your investments are growing, it’s not their job to help you become happy and content. The thing is, becoming happy with what you have is one of the best ways to ensure a relaxing and happy retirement. And, isn’t that the goal?
Another piece of the puzzle is learning to be generous with what you have, notes Ohio financial adviser Don Roork of AssetDynamics Wealth Management.
“When we grip our money tightly and are close-fisted, we are letting our money control us,” says Roork. “Being generous and developing a plan for giving breaks the control and power of money in our lives.”
The greatest joy in giving is seeing the fruit of the gift, notes Roork. “Giving roots out selfishness and greed in our hearts, and conversely, it helps us make better financial decisions.