What kind of financial professional do I need?
July 14, 2018 7:44 AM   Subscribe

Our household income recently took a sizeable jump, and we have a new set of questions as a result. Who do I need to be talking to?

My spouse just took a new job that nearly doubled their compensation. This is of course a godsend. At the same time, we have questions about handling this income that we never had before. Neither of us grew up in families with money, so our financial literacy about this stuff is not great. Anything I know came from Suze Orman or MetaFilter.We are not sure whether the person we need is an accountant, a financial adviser, a financial planner or what.

And an important note is that despite this jump, we're still well below the really high-earning household category of US $250K up. We aren't talking about getting into the stock market or anything like that. We just want to be sure we don't waste this opportunity to take better care of our future; we don't want to blow it by getting seduced into increasing our spending or living standard. So who do we talk to that will help us manage our surplus income for the best financial security, despite the fact that we're probably considered small-potatoes in the financial industry world?

Relevant details:
-We're in our 40s.
-We have a small amount of retirement savings, like $50K right now.
-Our household expenses are based on our earlier, much smaller income and don't really need to increase right now, so the new money can go toward increasing our financial stability in whatever the best way is. I'd like help figuring out what that way is.
-We have a small amount of emergency savings and will plan on building it to a better cushion of 6 months expenses.
-We don't own a home or any other major assets; we may not want to become homeowners due to the mobility of our professions (but I'd love help with a better analysis of that decision)
-no consumer debt
-no stocks
-no kids
-no expectation of inheriting anything (probably the opposite, we'll probably have support expenses for our families)
-we have a relatively complex tax situation. My spouse is self-employed and pays their own taxes. They are also currently a student in a graduate program that will take several years. I have a FT job income and also miscellaneous consulting income and income from freelance work that I do in the arts. We both have small home offices that meet IRS requirements and a fair amount of business and travel expenses for work. My spouse has significant medical expenses for a chronic condition. We have been using TurboTax but I suspect we are not optimizing our tax advantages on all these fronts.

So my question is, what kind of financial professional helps you sort through all this to determine the best use of money, and will they laugh us out of the place because we're not higher earners? And will it cost a whole lot to use their services, and how do you know whether it's worth the investment to use them?

Thanks for pointing us in any direction! We appreciate the help.
posted by anonymous to Work & Money (12 answers total) 5 users marked this as a favorite
Congratulations! I think the most important thing in your situation is to make sure that you are saving enough money in tax-advantaged retirement accounts, and invest anything else in low-cost index funds. It can be tough to find independent financial advice, but what you want to look for is a fee-only planner. You probably don't want to be paying fee based on your "assets under management". I would avoid the big, local financial management names: Edward Jones, Ameriprise, etc. They will steer you towards expensive, poor-performing investments, and probably try to sell you unnecessary insurance products since they get paid a lot to do so.

You mentioned that you are not interested in getting into the stock market, and I think what you mean is getting into stock picking or day trading. Your instincts are 100% correct there--you don't want to waste your time pawing through individual stocks trying to get lucky. You *do* want to participate in the stock market, though, through low-cost index funds that buy the entire market. You are young enough to take advantage of many years of compounded gains. You can do this yourself, by opening an IRA on Vanguard, Fidelity, or Charles Schwab. IRAs have a fairly low contribution limit, but once you have maxed those out, you will probably want to open a taxable brokerage account to invest the remainder.

I would recommend a couple of things, specifically: check out the Bogleheads wiki and associated forum. There are a lot of very helpful people there who have a good handle on the details of index investing for people in your situation. If you don't want to do it yourself, the Vanguard Personal Advisory Service, Fidelity Go, or the Betterment robo-advisor would all be fairly good, low-cost options.

Personally, I have a local, top-notch accountant that I work with for my tax needs, and then I use the Vanguard Personal Advisory Services to handle my ongoing investments, rebalancing, etc. I interviewed the financial advisors associated with my tax accountants, but they were very expensive (1.3% versus 0.30%), so I went with Vanguard.
posted by tybstar at 8:01 AM on July 14, 2018 [10 favorites]

I'm going to gently challenge you and ask you to consider whether you guys would be willing to educate yourselves or do you want to solely rest your financial decisions on a paid third party. If the answer is you want to educate yourselves, there a lots of great resources online. You can start with r/personalfinance on reddit.

Secondly, "we're still well below the really high-earning household category of US $250K up. We aren't talking about getting into the stock market or anything like that. We just want to be sure we don't waste this opportunity to take better care of our future; we don't want to blow tit by getting seduced into increasing our spending or living standard"

Ok so, you dont need to make 250k and up to get into the stock market/invest. At all.

And you already know what to do reading the rest of that paragraph ("we don't want to blow tit by getting seduced into increasing our spending or living standard"). Don't blindly and irrationally increase your spending or living standard unless its a fully conscious decision that directly has a positive impact in your lives in some way. You have to figure out what's really of value to you that would merit any increase in spending/living standard. Obviously if it's everything though, this raise/increase won't mean anything.

If you know generally where your money is going and WHY you'll have a better understanding of your financial life. So if you're already tracking your spending thats great, if not, start. Note, tracking spending is not the same as budgeting.

Personally, in your situation, I'd look to increase retirement savings immediately. If one or both of you have a 401k and there's a match, at the barest minimum, you need to contribute to get the match. If you dont have a 401k, get to maxing out a Roth IRA ASAP, every single year. Between the two you, that's 11k a year. Otherwise, do both and get that 401k money in and get the IRA money in.
posted by driedmango at 8:02 AM on July 14, 2018 [3 favorites]

I was in a similar situation, and while I agree that it’s best to educate oneself, I had a lot of anxiety about that method and the fee-only financial planner I found helped me a lot. It was helpful to have someone take a comprehensive look at my personal financial situation and teach me what I should be doing, and give perspective on what other people do. Memail me if you want the name of my person; it was a bit expensive at first but worth the education and I’m sure it saved me thousands in the long run.
posted by stellaluna at 8:28 AM on July 14, 2018

My financial planner I got by looking in my community for who was donating g money and time to public good in significant amounts to (non-mainstream) causes I believe in. That indicated to me that our values were in alignment. As mentioned by others, a lot can be self-taught, but professional guidance is very helpful. So in your initial meeting bring that up as something you want - active, informed participation. The upfront cost may be higher, but I think the long-term payoffs are better.
posted by saucysault at 8:34 AM on July 14, 2018

Put a good percentage into your 401k automatically before you get used to the income and inflate your lifestyle. Because you will inflate your lifestyle.
posted by oceanjesse at 8:56 AM on July 14, 2018 [3 favorites]

Just to add on to the great advice you're getting - i usually make under 50000 a year. Sometimes significantly under. It is really important for me to be in the stock market because savings alone willl not generate enough for me to retire. Get that sweet sweet compound interest, yo!
posted by stray at 9:10 AM on July 14, 2018

The basics:
-Have enough taken out pre-tax to max out the allowed yearly amount.
-Have enough taken out post-tax to max out your Roth
(the limit for these, together, is 18,500, I think)
-put the above in vanguard 20xx funds, where xx is the year you plan to retire. Low administration fees.
-Pay off all credit cards.
-fill up an emergency savings account to at least cover 6 months expenses.
posted by notsnot at 9:29 AM on July 14, 2018 [1 favorite]

Honestly, it sounds like the two of you between you ought to be competent enough to handle dealing with this level of income. It's not particularly complex--in fact, anyone who is trying to sell you complexity is almost certainly ripping you off in one way or another. It's just that part of financial planning is trying to guess the future, which is not actually possible. People here will make varying suggestions, but you'll see that they mostly consist of the same components, just rearranged a bit in terms of personal priorities/sense of what the future is likely to bring.

A fee-only financial planner--NOT some guy from your bank or insurance company, someone you actually write a check to for their time as their sole compensation for talking to you--may help you understand the varying risks and benefits of the various options available to you, and how they relate to your plans and values. A couple of sessions should not be crazy expensive. Your sense that you should increase savings preemptively to avoid inappropriate lifestyle inflation is right on. Let me suggest that you add the sense that, as a general matter, you should be paying as little as possible to other people for the opportunity to potentially make more money. That's the main way people in your situation get hustled by the financial industry: high fees.
posted by praemunire at 10:34 AM on July 14, 2018 [1 favorite]

Nthing fee-only. Anyone making a commission from selling you something or getting a percentage of your wealth is going to be taking advantage of you given your needs.

And maybe an accountant, given your tax situation.
posted by Candleman at 10:51 AM on July 14, 2018

Definitely check out this page on /r/personalfinance. There's a flowchart that lays it all out in a very straightforward fashion.

It is unlikely you need a financial planner, but a good accountant is helpful to talk through tax ramifications and tax sheltered retirement savings.
posted by so fucking future at 11:11 AM on July 14, 2018 [4 favorites]

The following is a list of things that helped us after we had paid off our unsecured debt and wanted to get on a better financial footing. It is in addition to the above advice, and definitely YMMV:
- we used a financial planner (recommended by a trusted friend who had already used him) to create projections for us (just to save us time) of where we wanted to be in the future and how long it would take us to get there based on different approaches and scenarios
- we established "every pay" automated transfers to get a chunk of funds out of reach (i.e., different on-line banks, 401k, etc.) which helps to build toward goals and reduce impulse spending
- we got the Amex Charge Card (not Credit Card) which must be paid each month, and we swore to never use their pay over time option, although we are qualified to do so
- the old "envelope" system is disparaged by many, but we use a kind of spreadsheet system to "earmark" money in our various on-line and local bank savings accounts (i.e., so much for vacation, so much for home improvement, emergency, etc. and the amounts may change over time as we near goals or see new needs in the future)
- we DO NOT make significant purchases unless we already have money in our earmark system.

I would also suggest reading the Wikipedia article on The Millionaire Next Door both for the insights and the criticisms of different approaches to dealing with wealth.

posted by forthright at 4:47 PM on July 14, 2018 [2 favorites]

I would echo the comments to go to the reddit forum r/personalfinance. Mostly great forum about personal finance and spending.

My personal tips are:

1) Read Elizabeth Warren's All Your Worth: The Ultimate Lifetime Money Plan, which is a very readable, personable book on spending, saving, and personal finances. Her ideas about personal finance are aimed at the average person, and lays out several basic philosophies that are simple and helpful in thinking about money that I use even to this day. (FYI this is the same Elizabeth Warren as The Elizabeth Warren The Senator).

2) Record all your spending. I use an app (Toshl) which I sync with my husband. We know exactly where all our money goes.

3) If you know what your spending patterns are, you can predict your cashflow for the rest of your life with some accuracy, baring any adverse changes of course. Here's where the fancy stuff comes in! Like saving, investing, and planning for retirement.

If seems rather boring and abstract to you, then think about this like this. Let's say you know your family spends $30,000/ year on average. To retire, you need 25 times* this number: $30,000 x 25 = $750,000 savings pot to retire. And that's it**.

4) There are a lot of financial blogs and books out there, and they definitely apply to you, even if you are, as you say, sub-$250,000/year earners, which is still a high number. I know it feels a lot more safe to trust your financial planning to a third-party, but you will feel much more in control and confident if you learn financial planning and budgeting yourselves. Good luck!

*Everytime I bring up this, there will be some ultra-risk-adverse person here who would debate the logic and validity of the 4% SWR. Look, anything will have a failure rate. You just got to take your chances. 1% SWR is better but then you end up 100 years old, having worked your entire life. Obviously, there is a lot of discussion about the right number, but I have read enough to say that 4% is the right amount for my risk tolerance and 95% of people out there. YMMV. If you like more reading, please click here, and here, and here.

** Obviously, this is not really it. There is a lot more learning about savings and investing to do. I am just illustrating a teaser to get people interested in personal finance.

posted by moiraine at 5:53 AM on July 16, 2018

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