When it comes to your money management, the best financial advisors don’t give you simply advice. They give you guidance. This is an important distinction: One’s a lot more likely to help you stay on track for your long-term financial goals. What is the difference?
Advice involves a to-do checklist, which is fine as a start. Guidance helps you see a range of suitable options, usually unrelated to a specific product. The latter shows you the route and path to where you want to go, and points out interesting aspects you might not notice otherwise. Emerging fully informed, you are involved in the decision-making.
Many seem to confuse the two approaches and just default into using an advisor solely for specific instruction. Trouble is, you can easily ignore such advice.
A guide keeps that monkey of responsibility on your back. It’s harder to ignore suggestions and guidance when you retain ownership of the steps you need to take to get to reach your goal.
Talking and doing are of course different things. A recent survey, for instance, points out how members of Gen X (ages 35 to 49) are “high on financial concerns and low on optimism and action. The study found that of the four generations surveyed, Gen X has the poorest financial habits. In addition to comprising the majority of informal planners, Gen X has more spenders than savers compared [with] other generations and is the least likely to have more savings than debt.”
Two out of three Gen X respondents admit that their financial planning needs improvement, yet a third don’t know how much income they need to retire and nearly half don’t talk about retirement planning with anyone.
Advice, acknowledged and unheeded, falls away during the day-to-day journey. Life is an odyssey; journeys (financial and otherwise) take you from where you are to where you want to get to.
Seize the time to get there. Focus frequently on important parts of your life that are not everyday. Review your finances every couple of years simply to keep your previous decisions in line with changes that possibly occurred in your life.
This process focuses on you; don’t tolerate a dispenser of advice who claims otherwise. Where do you want your bridge to take you on your financial journey? What’s your destination or goal? Retirement? A new home? A college education?
Everyone wants to concentrate on the cables that make up the bridge (i.e., financial products), yet the cables don’t go up until after you design your bridge for a specific purpose.
When you talk to some advisors, you want to hear a familiar story that you agree with. Often investing tales are appealing but false, parroted so often that you start to believe them (your fund manager can predict the economy and markets, for example).
A guide tells a story that you never considered before, and is familiar with the terrain on the way to your financial goals and doesn’t claim to know all the answers – and honestly admits that).
Guidance might mean you work harder. It can also make your wealth odyssey more enlightening and enjoyable.
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Larry R. Frank Sr., CFP, is a Registered Investment Advisor (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning. http://blog.betterfinancialeducation.com/.
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