Financial Advisor: How They Can Help You Make the Right Decisions and Avoid Financial Mistakes

Question: By the end of 2022, I will have earned $350,000 before taxes as the sole breadwinner and head of my household. It’s a great starting point and I’m very aware of how lucky we are to be in this position, but I’m always looking to improve. I currently have $88,000 left in student loans (originally almost $150,000) and very little credit card debt (less than $2,000 with over $25,000 available). I have two car loans totaling $170,000 for two electric vehicles at 5% interest.

I was recently offered a $200,000 HELOC at 9%, which would help me lower some of my monthly payments and make some small home repairs and improvements, but I want to make the right decisions. And I was also introduced to a few long-term real estate investment opportunities that are out-of-state rental properties that are currently earning them a 10-12% ROI. But my biggest concern is that after taxes, 401(k) contributions, bills, savings, and mortgage ($4,500), on paper I’m paycheck to paycheck. I would like to use this HELOC to consolidate debt while participating in some of these investment opportunities. I’m the first in my generation to own a home and the first to make this much money every year and I don’t want to screw it up. Concretely, how can a financial advisor help me? (Are you also looking for a new financial advisor? This tool can help you find an advisor who might meet your needs.)

Answer: You have a few questions to cover here, so let’s take it one by one. The first being the HELOC. Yes, HELOCs can be a good way to consolidate debt, but the rate you are offered is not favorable, as average HELOC rates are just over 6%. “I would ask if 9% is the best rate you can get, because it seems a little high,” says Chris Chen, a certified financial planner at Insight Financial Strategists. Additionally, “I would like you to consider the potential impact of Fed policy and inflation on interest rates, as HELOCs generally have variable interest rates and we are in an environment of rising rate. You can start at 9% and end up much higher,” says Chen.

Plus, your student loans, car loans, and mortgage are all likely below 9%, so consolidating through a HELOC is unlikely to save you money. “You may want to start with a different method, such as the snowball method, where you focus on one loan, usually the smallest, and devote all your resources to paying off that loan while maintaining payments on others” , explains Chen. This method could work for finalizing your student loans and maybe one of your car loans, for starters.

Have a problem with your financial advisor or have questions about hiring a new one? Send an e-mail to contact@leblogfinance.fr.

As for these real estate investments, what do you really know about these returns? “As for real estate investments, I assume the 10-12% ROI you are talking about is the income you would get from the investment. If so, it’s very high and often when you’re getting a significantly higher return than the norm, there’s something else going on that makes the investment less desirable. Be careful,” Chen says. (Are you also looking for a new financial advisor? This tool can help you find an advisor who might meet your needs.)

Certified financial planner Kaleb Paddock says you may want to work with a financial coach before working with a financial advisor. While a financial advisor helps develop investment strategies and long-term financial plans, a financial coach provides a more educational experience and focuses on short-term goals when it comes to financial management. “A financial coach will help you pay off all your debt, maximize your cash flow, and create systems and processes to proactively direct your money,” says Paddock.

While having a high income is a good thing, there is a concept called Parkinson’s Law, which essentially states that your expenses will always increase to match your income, no matter how much that income increases, explains Paddock. “Working with a financial coach will help you beat Parkinson’s Law, eliminate your debt, and then supercharge your investments and life planning with a financial advisor,” says Paddock.

A financial advisor could also help, and Danielle Harrison, certified financial planner at Harrison Financial Planning, advises looking for someone who does comprehensive financial planning and can help you create a more holistic plan for your money. “They can help you set short-term and long-term goals and then assist you with advice on financial decisions and opportunities available to you,” says Harrison.

A financial advisor will also help you take a long-term approach to your money and create a spending plan where you won’t feel like you’re living paycheck to paycheck on a $350 salary. 000 $. “Everyone has blind spots when it comes to their finances, so finding a knowledgeable financial partner can be invaluable,” says Harrison. (Are you also looking for a new financial advisor? This tool can help you find an advisor who might meet your needs.)

Have a problem with your financial advisor or have questions about hiring a new one? Send an e-mail to contact@leblogfinance.fr.

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