When Dr. Sherri Horton decided to be her own financial planner, it wasn’t because she had anything against planners. In fact, she even took the time to meet with a few.
“There are some great ones out there, and they can be very helpful,” said Horton, 30, an orthodontist in Rowlett, Texas. “At the time I didn’t want to spend the money. This is basically a frugal decision.”
While financial planners can provide a valuable service, you may still decide to manage your money yourself. It’s possible to be your own financial planner, but the decision is significant and you will be embarking on a lifelong endeavor.
“It would take a lot of motivation, organization, education and patience,” said Steve Power, a director in life sales at USAA Life Insurance Co. in San Antonio and a former bank trust officer.
Before you embark on the numbers crunching, prepare yourself emotionally to be your own personal financial adviser. Be brutally honest with yourself about your financial slipups, and commit to being vigilant about how you’re spending and saving money.
Most importantly, don’t try to do everything at once or you’ll get discouraged.
“You can let it be intimidating, or you can keep it simple,” Horton said. “I just chose to take it step by step.”
The first step is to know what you want to do with your money. Then take an inventory of how much you have in savings, investments and other assets, as well as liabilities, so you know what resources you’re working with.
After that, educate yourself about all aspects of personal finance–investments, insurance, tax planning, estate planning, and retirement and employee benefits.
A good place to start is with basic personal finance books. Because there are so many of them out there, consumers have to establish some criteria that will help them determine whether to buy a particular book.
“Pick one that seems to concentrate on the kinds of areas where you feel you need the most guidance,” said Ted Miller, editor of Kiplinger’s Personal Finance Magazine. “You’re looking for a chemistry; you’re looking for a certain approach to things that you feel comfortable with. If it’s not written in the way you can understand, you’re liable not to use it.”
Another way to narrow a book choice is to visit Amazon.com, the on-line book giant, at www.amazon.com and do a search for personal finance books. Reader reviews will often appear next to information about a book.
Magazines and Web sites concentrating on personal finance also would be helpful, because they often have good basic information about personal finance concepts.
Don’t get discouraged if you don’t understand everything immediately. “If you’re going to take this on by yourself, be patient and don’t expect to become an expert overnight,” said Christopher Johnston, a vice president and branch manager at Fidelity Investments in Dallas.
Learn the basics of how the stock market works so you’ll understand the fundamentals of why stock prices go up and down. Study up on mutual funds. And understand how to put together an asset allocation plan after, of course, learning what one is.
You’ll need a thorough understanding of how your 401(k) retirement savings plan works. Pepper your company’s benefits department with questions. Know how much you have to invest to get your employer’s matching contribution, know what investment choices you have and how long it takes before you’re vested in the plan.
And consider joining an organization such as the American Association of Individual Investors or the National Association of Investors Corp. They offer good educational programs and materials to investors and enable investors to learn from one another.
People who do their own financial planning must be willing to stick with it. It helps if they write out their financial plan, just as a planner would. When it’s set out in concrete detail, there’s a stronger incentive to carry it out.
The plan doesn’t have to be elaborate. It could be spelling out what your financial goals are, what resources you have to achieve them and what steps you will take to get there.
“For most people who have to earn a living, you want to set up a financial plan that stays as low maintenance as possible,” Miller said.
Tim Smith’s plan is one page.
“I have one page that I have written up that says, `Here are things that are important to me: Not having the anxiety each time a bill comes in, the ability to help my family in case they need it, knowing I’m on track to being able to retire comfortably,’ ” said Smith, a Houston business consultant.
But the more specific the plan, the better, because it gives you specific targets to shoot for.
Staying focused on a written plan also helps people remain objective in their money management.
Personal finance software such as Quicken and Money helps consumers keep track of their spending and determine whether they’re on the right track to reaching their goals. Ask your mutual fund company whether it offers software that helps with financial planning. For example, the Vanguard Group offers software and an on-line planner that helps investors create a financial plan.
Using personal finance software “was a decent way to get me thinking about my cash flow needs for the future,” Smith said. “Doing that really helped me realize the value of saving often and saving early.”
Don’t draw up a financial plan and then let it collect dust. A key part of financial planning is periodically reviewing the plan to see whether you’re on track or whether you need to modify it because your life circumstances have changed.
“Review it at least twice a year,” Johnston said.
Finally, realize when you’re in over your head and need help. For example, people shouldn’t tackle tax and estate planning themselves because of the complexity and the legal steps that they have to take.
“The tax laws change virtually every day, and the tax code is so detailed that everything has an exception to the exception,” said Randall Guttery, head of the Certified Financial Planner Program at the University of North Texas. “There’s just no way the average person can keep up with the tax laws. Estate planning is even more difficult because you’ve got so many issues and forms of ownership. It’s complicated and it’s a moving target.”
WHERE TO TURN FOR PLANNING HELP
– American Association of Individual Investors. The Chicago-based organization helps individuals manage their own assets better. Contact by mail: 625 N. Michigan Ave., Chicago, Ill. 60611; on-line: www.aaii.com; phone: 312-280-0170.
– National Association of Investors Corp. The association is the umbrella organization for investment clubs. Contact: 711 West Thirteen Mile Rd., Madison Heights, Mich. 48071; www.better-investing.org; 877-275-6242.
– National Association of 401(k) Investors. The non-profit organization teaches investors how to invest in 401(k) and similar plans. Contact: Box 410755, Melbourne, Fla. 32941; 407-636-5737.
– www.morningstar.net–Morningstar’s site contains a slew of good articles on aspects of mutual fund investing.
– www.vanguard.com–The Web site of the Vanguard Group does a good job of teaching you about the basics of mutual fund investing and retirement planning.
– www.fidelity.com–The Web site of Fidelity Investments offers a good mix of education about funds, stocks, bonds, annuities and insurance.
– www.strong-funds.com–Strong Funds goes beyond providing education tools on its Web site. It asks you a series of questions about your financial situation, investment needs and risk tolerance, and then recommends a fund that may be appropriate for you.
– www.financenter.com–This site contains good basic information about aspects of personal finance, such as auto loans, home loans and insurance. It also has helpful calculators.
Dallas Morning News
