Over the last several weeks, we've gone in-depth with three different fictional families—the Spendy Spellmans, Balanced Bennetts, and Frugal Franklins—and examined how vastly different a family's financial foundation can be despite having the exact same circumstances as their peers.
To refresh, here's what we've covered through the first four parts:
There were many variables at play for each of our fictional families, some of which may not apply to your situation. Regardless of which family you may most closely align with, there are five lessons we can draw from our fictional example.
As we saw with the Spellmans, Bennetts, and Franklins, the same level of income resulted in three very different financial situations at retirement. Being considered a high-earner doesn’t automatically mean you’ll be wealthy in 35 years.
Ultimately, wealth boils down to how much you spend versus how much you save. While our example covered three families making substantial amounts of money, it bears saying that you don’t need to make $300,000 a year to generate wealth, especially if you have a sound financial plan.
If you can commit to these three things, you'll be well on your way to building your own wealth.
We fast-forwarded 35 years in our example because it can take the passage of time to truly see the impact of various lifestyle and financial habits. There will be differences between each of the three families at one year, five years, and 10 years, but those differences are far more pronounced by the time they retire.
The same holds for building wealth, generally speaking. Your net worth will be different in one year, five years, and 10 years. It will take time for that net worth to grow. It all stems from having a solid financial plan and committing to it over a long period before you reach the ultimate payoff.
Trying to fully understand something, like retirement, that is decades in the future, can be challenging. And for something so far in the future, it's easy to put off changes when they may not affect you here and now. One of the key benefits of working with a financial advisor who engages in comprehensive financial planning is their ability to help you visualize retirement through modeling and analysis. If you need to make changes, a financial planner can demonstrate the various scenarios—like what took place in "A Tale of Three Families"—and provide more exactness to what can be a fuzzy picture.
It’s hard to imagine a scenario where failing to have a plan or making changes earlier in life would result in a worse financial outcome. As the saying goes, failing to plan is planning to fail.
Now, you may not necessarily fail by investing on your own. And you may do well without a comprehensive financial plan. But these fictional examples are meant to illustrate the overarching theme that getting a start sooner will make things easier later. Even if you simply start investing in retirement sooner (like with the kids’ Roth IRAs), the compound interest over the extra time can have a profound impact.
In our examples, we baked into the equation the presence of a solid investment manager. But what if all three families were DIY investors with an average personal finance background? Though working with a financial professional doesn’t guarantee better financial outcomes, there are many other benefits to working with a financial advisor beyond dollars and cents. And right at the top of that list is peace of mind, knowing someone is looking out for you, your hard-earned savings, and your best interests.
Yes, the Bennetts and the Franklins would have lived comfortably had they never made the step to working with someone providing both investment management and financial planning. But for years, they worried and felt unsure about what might happen at retirement. Unknowns can create a lot of negative feelings. One of the great benefits of partnering with a financial advisor you trust is that you receive guidance and reassurance that you’re on the right path. If you stray from that path, you have someone who spots the deviation and works to get you back on track. Yes, having more money in your accounts is great, don’t get me wrong. But lifting the weight of worry off your shoulders is an incredible benefit.
On that subject, two of the most common benefits I hear from my clients are:
For the sake of explaining things clearly, I referred to all three families working with an investment manager. In reality, the investment manager may refer to themselves as a financial advisor, too.
As you’re considering partnering with a financial advisor, it’s important to understand the differences between them and the services they provide. There are "financial advisors" who sell insurance and/or get paid for the products in which they invest for clients. There are also financial advisors who must adhere to the fiduciary standard and only get paid through a fee. Yet, they all may use the "financial advisor" title. Because there's very little governance of the title, the onus is on you as the consumer to do your due diligence.
If you have questions about any of the topics I covered in this piece or would like guidance on your own financial future, don’t hesitate to reach out to me or schedule a free consultation.
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About the author
Carla Adams is a CERTIFIED FINANCIAL PLANNER® practitioner who specializes in helping women build strong financial plans around their equity compensation, including Restricted Stock Units (RSUs) and company stock options. With over 15 years of experience in financial services, Carla has in-depth knowledge and expertise geared toward helping clients with complex financial situations. She enjoys boiling down complicated scenarios through practical examples and down-to-earth conversations.