When I started my career, my manager said something profound during a presentation that stuck with me throughout my whole life: “The decisions people make with their money determine their quality of life and that of their family.” Though he later forgot he ever said that, those words got me thinking, and eventually they became a key part of my motivation to remain in this field, helping people make those decisions more effectively. Understanding what that sentence meant helped me grasp why having a financial advisor (or financial planner) is so important, and that is what I’d like to share with you today.
Financial Decisions are Life Decisions
The first step in understanding why financial decisions determine one’s quality of life is to understand what financial decisions are. At its core, every financial decision is a decision to either enjoy life now, or to deprive oneself today in exchange for either some benefit in the future or to eliminate a worry. It is you and your family, deciding what they will be able to do and how they will be able to live, both today and in the future.
That RRSP you are investing in today isn’t just a product you’re buying: it is a decision to improve your retirement lifestyle, at the expense of your current lifestyle today. It is you, deciding that you are willing to live in a smaller house, buy a cheaper car or go out less frequently to the restaurant today, in exchange for being able to live in a nicer house, buy a better car and go on more outings and trips in the future. The life or disability insurance you just bought is not just something that shows you’re a responsible adult: it is a decision to deprive your family of one, small pleasure each month, in exchange for a guarantee that if your family were deprived of your income, they would be taken care of and not left to fend for themselves alone. The mortgage you just signed for isn’t just a means to own your home: every dollar you spend on that mortgage is a dollar you could have spent on something else, but didn’t, to live where you wanted to live. That RESP you’re contributing to for your daughter is you, offering her a quality education when she’s 18 without having to do into massive debt, instead of taking her to Disneyworld every year like she may be asking you. What all these decisions have in common then, is that they improve your future at the expense of your enjoyment of the present. Which is your priority?
Emotions and Perspective
One thing we humans are not very good at is looking at the Big Picture rationally. Instead, we become fixated on specific problems or situations we are emotionally attached to and ignore other things; as the saying goes: we miss the forest for the trees. A financial advisor can help you get a full overview of your situation, and identify issues you have been ignoring, dismissing or were not aware of. For example: your main concern might be saving for retirement, but a complete financial analysis discovers that your disability insurance is inadequate and, if you were to become sick or injured yourself for an extended period of time, your entire plan – and your family’s financial well-being – would be ruined. A disciplined financial planner can often uncover threats – and opportunities – that we have yet to see for ourselves before it is too late.
Options and Value
Another thing an advisor brings to the table, assuming they are a broker who deals with multiple companies and not just a salesperson for one particular bank or firm, is the ability to shop around. The financial services industry can be confusing; with so many choices and companies out there one could be forgiven for giving up and going to their usual bank. However, that is usually a mistake. As we discussed above, every decision is a tradeoff between what your family can do today and what it will be able to do in the future. Selecting a product that is overpriced or that doesn’t provide as much benefit means you – and your family – are giving up more than they should today, and receiving less than they should in the future. These decisions can impact a family for many years: when you consider that an interest rate difference of as little as 0.1% on a 5-year fixed-rate mortgage of $200,000 will cost your family close to $1,000 in additional interest over that period, it pays to shop around! What about that $5 per month difference on your 25-year term life insurance? $1,500 could have paid for a small vacation! Don’t even get me started on GICs!
Planning and Peace of Mind
Finally, understanding what is going on in your finances and defining objectives to work towards just takes one more thing off your mind. A financial advisor can help you to make sense of your situation, shop around for the best value products, monitor your progress and become a great resource for any questions you may have on a variety of topics. In such a confusing, emotional yet important field, it pays to have an expert on your side that can guide you through the process, rather than go it alone.