Learn financial basics before seeking help from professionals

People often ask me how to find financial advisers they can trust. As the discussions continue, it becomes clear that many are looking for someone to guide them through even the most basic issues.  

While developing a financial advisory team is a key part of any plan, it’s important to point out that you have primary responsibility for managing your financial affairs. You need to develop sufficient knowledge about the world of money to successfully manage what I call “financial planning 101.” Once you know the basics, you’ll be in a position to seek counsel from professional advisers. 

Financial planning 101

With that said, we have a problem. Americans receive failing marks when it comes to their knowledge of personal finance. In a recent Harris poll, 41 percent of Americans gave themselves a grade of C, D, or F when asked their overall knowledge of money matters. Only 43 percent of Americans keep close track of their spending. A third (33 percent) of adults have no savings, and more than a quarter of Americans don’t pay their bills on time. 

Proverbs 27:23 says, “Take good care of your flocks, give careful attention to your herds.” While describing an agricultural society, the wisdom in that proverb is timeless as it describes the responsibility we have to manage the resources God has entrusted to us. Make sure you have the knowledge to manage these basics: 

◗ Learn what a balance sheet is. Know how to compile one, and recognize how assets, liabilities, and net worth need to change over the years in order to meet your responsibilities. 

◗ Understand how to put together an annual cash flow plan that effectively sets saving and spending priorities. 

◗ Grow in awareness of what Scripture says about debt. Learn how to distinguish between productive and unproductive debt. Have a long term plan that only utilizes debt in a productive manner. 

◗ Learn how to build savings into your annual cash flow plan for longer term obligations, including retirement, college, car replacement, home improvements, weddings, etc. 

Expert analysis

Once you’ve got the basics of “financial planning 101” covered, you’ll be in a position to make good use of professional advisers. How you make use of such advisers will depend on your net worth, income and the complexity of your affairs. For those with sufficient resources, it will make sense to establish a relationship with a certified financial planner who will become your financial “coach.” He or she will help you pull together and analyze your overall plan. The planner can also refer you to other financial professionals, such as investment advisers, tax planners, insurance agents/brokers and lawyers. If you already have relationships with such specialists, the certified financial planner will be happy to work with them. 

What can you expect by way of fees from specialist advisers? Certified financial planners and investment advisers often charge as a percentage of assets managed. One percent is a typical annual fee — and it’s incurred even when your investments lose money. Insurance agents and brokers are compensated via commission on products sold — make sure you only buy what you need. Finally, certified public accountants and lawyers will normally bill hourly rates. A normal range of rates would be $150-$400 per hour.  

As you can see, professional counsel is very expensive. It’s important to have qualified professionals available, but it’s also important that you minimize the time you need from them to keep costs down. That means learning the basics and building recurring time into your schedule to manage your personal finances well.  

One final note. Remember that your most important financial counselors should be the Lord and your spouse. God love you. 

Phil Lenahan is the president of Veritas Financial Ministries (VeritasFinancialMinistries.com) and the author of “7 Steps to Becoming Financially Free” (OSV, $19.95). Submit questions for columns to askphil@osv.com.