The Real Cost of DIY Finances

Personal Finances | Invest in Yourself

 Plancorp Team By: Plancorp Team

With a few practical skills and knowledge, DIY projects in your home or car can save you money. Financial planning, however, isn't the same as painting a room or replacing a headlight. In fact, DIY financial planning can cost you more than you think compared to the cost of professional help.

Let's break it down.

What to Know About DIY Finances

Are you managing your own investments or planning to? You're not alone—over 30% of Americans choose DIY financial planning. But those individuals may not be aware of the hidden costs of DIY finances, especially as your net worth grows.

Investments, tax planning, and retirement planning can be tricky. You could make costly mistakes without experience and up-to-date knowledge of current rules and laws. Many mistakes seem simple, such as not diversifying your portfolio or ignoring asset location strategy, but require regular attention.

Not understanding investment risks compared to your investment goals or tax-efficient investing can also have serious implications for your portfolio. Then there's the problem of emotion — many investment moves are made based on sentiment rather than facts. FOMO (fear of missing out) often plays a big part in DIY finances and can lead to costly mistakes or missed opportunities that an objective third party can help address.

One of the most important factors to consider is that DIY financial planning requires considerable time and research to be successful. If you don’t have the time or interest to devote yourself to managing your portfolio, you may be doing a disservice to your financial future. It can also be stressful to determine if there's anything you’ve missed or whether laws have recently changed.

Compared to the risks, what does financial advising cost? Financial advisors typically charge fees at or below 1% of your investable assets. In return, you benefit from a dedicated wealth manager who will help you avoid financial oversights and misjudgments. When vetting a possible advisor, be sure to dig in on the fiduciary standard and how dual-registration is making it harder to find truly independent financial advice.

DIY Financial Planning Tips

If you do decide that you'd like to handle your own finances, defining your goals is the first step to ensuring that DIY financial planning has a strong chance of success. Without short-and, long-term goals, it's almost impossible to plan, devise strategies, or evaluate progress. Consider the following tips as a financial planning guideline:

Develop a Budget for Investing

You need to know how much cash you can reasonably set aside for investment every month. Calculate your fixed expenses and your discretionary expenses. Then you can better determine how much you have available for your investment goals.

Create an Emergency Fund

Sometimes things happen in life that you didn’t plan for. With an emergency fund, you have a better chance of being adequately prepared. Preparedness will enable you to continue your financial plan with few missteps.

Remember to Plan for Tax Credits and Deductions

Knowing tax laws and how credits and deductions can affect your portfolio will help you save money each year.

Plan for Retirement

Even if your retirement is a long way off, starting a retirement plan when you're young will benefit you later.

Of course, many detailed steps are involved in creating a robust and effective investment plan. So, what does financial advising cost when you consider the experience and advice of a knowledgeable wealth manager?

Costs of Creating Your Own Financial Plan

Working with a financial planner, advisor, or wealth manager to put together a financial plan costs money. There's no denying that. Understandably, you want to save money, but what does financial advising cost when you weigh the expense against the time you spend becoming the expert on top of the possibility of making a misstep, falling into tax traps, and failing to meet your goals?

The cost of DIY investment management can impact your wallet, portfolio, spare time, and peace of mind. Additionally, if you're a business owner or a high-net-worth individual, you also have to consider the cost of potential litigation.

As your assets grow and retirement approaches, complexity increases, and the benefit of having your own wealth advisor far outweighs the cost of DIY financial planning. 

If the cost-benefit analysis still isn't making sense for you, DIY can still be a great option. In fact, a DIY financial plan isn’t necessarily a bad idea if you're just beginning to chart your financial future. Earlier on, personal finance tips and guidance can make a big impact to build a foundation that a professional can help build on down the road. Working with a wealth manager in the early stages doesn't always make sense. However, over time, you’ll benefit from the wisdom, knowledge, and experience a financial advisor brings to the table. 

Things to Consider for DIY Money

It's easy to get stuck in a short-term mindset when you're just starting to think about finances. Shifting focus from the short-term savings to the long-term benefits of working with a professional is invaluable. Consider what you hope to achieve with your finances over time and the time and expertise it would take to manage your changing financial plan through different market conditions, regulations, and technology.

In Conclusion

Whether you're leaning toward doing it yourself or tapping a professional, our financial analysis is a great place to start. You’ll learn more about whether you're making the right decisions with your money today. The evaluation will also help you discover areas to focus on, such as tax planning or retirement savings. Start your analysis today and see how you can improve your finances.

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Plancorp started with a unique philosophy: Always put your clients’ interests ahead of your own, and you’ll build a successful business. That was in 1983, but the sentiment still drives every decision we make. After 40 years of helping individuals, families and business owners plan for financial independence, our commitment to serving as financial life advocates is stronger than ever. More »