Do I need a financial advisor to achieve financial freedom?

Nearly everyone has financial goals they’re looking to achieve. Whether it’s saving for retirement, buying a house or paying for your children’s education, we all have big financial events that we need to plan for over the course of our lives.

Achieving these goals on your own can be a challenge, and that’s where a financial advisor can be a big help. Financial advisors can work with you to develop a plan around your goals and then keep you on track as you work towards them. Even during times of high inflation and talk of economic slowdowns, financial advisors can help ease your stress and make sure your long-term goals are intact.

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What is financial freedom?

Financial freedom refers to a point where someone feels they have enough money in savings and investments to retire or pursue any career they’d like. The exact amount of money someone needs to achieve financial freedom will vary from person to person depending on their spending habits and lifestyle.

Americans said they’d need to earn about $233,000 a year on average to be comfortable with their finances, a recent Bankrate survey found. In order to be rich and achieve financial freedom, Americans said they’d need to earn about $483,000, on average.

Financial freedom statistics

What is a financial advisor?

A financial advisor is someone who helps clients with various aspects of their financial lives. Financial advisors help develop overall financial plans, assist with budgeting, retirement planning, tax strategies and even estate planning.

If you’re not sure how to manage your finances or are just looking for an expert to help you navigate the complex financial world, a financial advisor can be a great resource. There are different financial advisors to choose from, but a key decision will be whether you want to go with a robo-advisor or a traditional human financial advisor.

Robo-advisors are good fits for people who are looking for help managing their investments. A robo-advisor will help you build an investment portfolio based on your goals and risk tolerance. A key advantage of using a robo-advisor is that the fees are well below that of a traditional advisor. You can expect to pay an advisory fee of around 0.25 percent annually for a robo-advisor, compared to 1 percent or more for a human advisor.

However human financial advisors still make sense for a lot of individuals, particularly those with more complicated financial circumstances, or those with significant wealth. When hiring a financial advisor, look for someone who is a fiduciary, which means they’re required to put your interests before their own or those of their firm. Many advisors hold the certified financial planner (CFP) designation, which requires them to act as fiduciaries.

How can a financial advisor help in achieving financial freedom?

A financial advisor will help you work towards your financial goals, whether that’s achieving financial freedom or not, by developing an overall financial strategy. The strategy will be based on your unique circumstances and the realities of your financial situation.

About 52 percent of Americans say that money has a negative impact on their mental health, according to a recent Bankrate survey. Hiring a financial advisor can help mitigate that by knowing what your plan is and working towards it. The stress can come from not knowing if you’re on the right track, which financial advisors can help with.

A Bankrate survey has found differences in how men and women feel about financial security, as well as differences by race.

• 29 percent of American women say they don’t think they’ll ever be financially secure, compared to 23 percent of American men.
• 31 percent of white Americans say they are completely financially secure, compared to 21 percent of Black Americans and 22 percent of Hispanic Americans.

Financial advisors may be able to help close these gaps by developing a financial plan and helping clients stick to it, even when it’s hard.

How to select a financial advisor

Choosing a financial advisor ultimately comes down to finding someone you trust will do what’s best for you at a reasonable cost. You’ll want someone who listens to your goals and attitudes about risk in order to develop the right plan for you. Many people claiming to be financial advisors are really just salespeople in disguise.

Here are some things to look for when hiring a financial advisor:

• Find a fiduciary: A financial advisor who’s a fiduciary is required to act in their clients’ best interest. Make sure to ask if your financial advisor is a fiduciary.
• Check credentials: Pay attention to the education and training an advisor has. Seek out advisors with well-respected professional designations, such as chartered financial analyst (CFA) and certified financial planner (CFP).
• Ask how they get paid: Knowing how your advisor gets paid is critical before agreeing to become a client. You don’t want the advisor to have an incentive to sell you products that aren’t right for you.
• Communication is key: Financial advisors should be able to communicate clearly with their clients and explain financial topics in simple terms. Be sure to ask any questions you have about various investments or other issues.
• They’ll keep you on track: Good financial advisors help their clients stay on track over the long-term. It’s easy to sign up new clients and forget about them, but an advisor earns their fee when they provide good counsel through difficult or challenging times.

How much do financial advisors cost?

Financial advisor fees can vary from one advisor to another, but they typically charge clients either a flat or hourly rate, or a fee based on assets under management. For example, an advisor might charge $300 an hour for time spent on your account and meetings you have with them, or they may charge you a flat rate of around $6,000 a year.

A percentage fee based on your assets with the firm is the most common type of fee arrangement for financial advisors. You can expect to pay around 1 percent annually of your assets with the firm, so if you have $500,000 with an advisor, you’d pay $5,000 a year. But the fee will grow alongside your portfolio over time.

If you decide to use a robo-advisor, you’ll pay substantially less in fees, but won’t get the same hands-on experience as you would with a human advisor. Fees have a big impact on your portfolio over time, so be sure to understand all the fees you’ll be paying before hiring an advisor.

Create realistic financial goals

When you’re thinking of your financial goals, it’s important for them to be realistic. If the goals are outlandish and unlikely to ever be achieved, it might be more likely that you’ll stray from your plan.

Americans say they’d need nearly $500,000 in annual income on average in order to achieve financial freedom, a far cry from average annual income which is closer to $75,000, according to Census Bureau data.

Social media may play a role in fueling unrealistic expectations for people’s finances. About 20 percent of users say they’ve felt negatively about their financial situation after seeing posts from others on social media, according to a recent Bankrate survey.

It’s okay to have big financial goals, but they should be grounded in a sense of reality to help increase your chances of achieving them.

Frequently asked questions

• Is it worth paying for a financial advisor?

  Whether or not it’s worth it to pay for a financial advisor will depend on each individual’s circumstances. Some people are comfortable managing their own finances and will be able to save money by avoiding financial advisor fees.
  
  However, if you aren’t comfortable with financial topics, a financial advisor can be a great resource and well worth the fees you’ll pay over time. Having a plan and sticking to it is extremely valuable, and financial advisors can help you adjust your plan as your circumstances change.
  

• Should I get a financial advisor?

  The decision to hire a financial advisor is a personal one. Financial advisors can help you develop a financial plan that is organized around your individual goals. Financial advisors often provide guidance on saving for retirement and other long-term goals, but they can also help you in other areas of your financial life as well.
  

• What type of financial advisor do I need?

  You’ll want to decide whether to hire a robo-advisor or a traditional human financial advisor. Robo-advisors are good options if you’re mostly looking for help with your investment portfolio. They’ll help you build a portfolio based on your goals and risk tolerance at a lower cost than a human advisor.
  
  Human advisors tend to offer a broader array of services such as budgeting, tax strategy, investments, estate planning and more. You’ll pay higher fees than with a robo-advisor, however.
  

• What is needed for financial freedom?

  The amount of money you need for financial freedom will vary from person to person. Someone who can live on $70,000 a year will need to amass a lot less than someone who needs $500,000. If financial freedom is important to you, look for ways to reduce your spending. It will help you save more and reduce the amount you need to live on.