There comes a time in many people’s lives when they need to begin assembling a team of professionals to help them manage the finer points of their financial lives. It may depend on how much money you make, if you’re about to retire, or a host of other lifestyle needs.
That particular time in your life is different for everyone, but it’s a threshold that often needs to be crossed particularly when it comes to financial planners and tax planners.
Both are complicated fields, and having one or both on your team has the potential to free up your time, your energy and your mind to concentrate on other matters.
Is it Time to Hire a Financial Planner?
A financial planner is a trained professional who can help you to create various financial vehicles and set up proper allocations that will help you to grow and protect your money for any purpose you deem worthwhile.
This person could be a CPA, an attorney, or a certified financial planner. He or she will have thorough knowledge of the investment vehicles, the legal ramifications of having them, and even a good bit about tax implications.
When should you hire a financial planner?
Your income reaches six figures. Financial planning is important regardless of income, but it takes on greater importance as your income grows. Once you pass the six figure threshold on income, properly managing it becomes even more important. The idea with income is always to keep as much of it as you can, that way your financial situation will improve with time. That takes solid planning to make sure that you’re saving a sufficient amount and investing what you save in the best combination of investment vehicles. In addition, a financial planner serves as something of a professional accountability partner, making sure that your financial plans stay on track. Without that kind of oversight, you may not ever reach your financial goals.
Your financial assets reach six figures. This is similar to the situation with hitting the six figure income mark. As your investment worth increases, you suddenly find that you have something to lose, and protecting it becomes just as important as growing it. At this point, you’ll need to consider adding adequate insurance to your investment mix, as well as coming up with strategies that will protect your portfolio from non-financial threats, like creditors and lawsuits. This is also where you should begin working estate planning into your finances, if you haven’t do so already.
Financial planning isn’t your thing. We all have different skills and abilities, and let’s face it, financial planning is a discipline all its own. That means most of us aren’t experts at it, or even proficient. It’s best to admit to your limitations and bring in an expert to do for you what you can’t do for yourself.
It’s better to spend your time elsewhere. What can be more important than properly allocating your investments and planning for your financial future? How about making money to fund it all? It’s a fact that some people are better at making money than they are at managing it, and if that describes you, then you should concentrate your time and efforts on doing what you do best — earning money — and let a paid professional handle the financial planning for you.
Is it Time to Hire a Tax Planner?
A tax planner is typically a CPA or tax attorney who spends most of his or her time dealing in tax preparation and planning. They have knowledge of tax law that is well above average, and certainly beyond that of chain income tax prep firms and DIY tax preparers.
They can create and recommend income tax minimization plans, and even represent you before the IRS in an audit.
When should you hire a tax planner?
Your income reaches six figures. When you reach this income level your marginal income tax rates begin to rise, on taxes at the federal or state level or both. As it rises, taxation becomes an increasingly important issue, reducing your net income even as your gross income rises. This is when it’s best to leave the chain tax preparation services and even your DIY tax prep software behind, and seek the advantages of comprehensive tax planning that will help you not only to minimize your taxes, but also how to structure your finances to maximize tax savings. This will become even more important as your income continues to rise beyond $100,000.
You become self-employed. Income taxes become infinitely more complicated when you become self-employed. Some expenses are deductible, some aren’t, some purchases can be expenses while others need to be depreciated, and you’ll almost certainly need to set up your own retirement program. All of that requires a higher level of expertise that a seasoned tax planner can provide. In addition, when you start a business, you need to concentrate on running it and making it as successful and profitable as possible. In order to do that, you’ll need to turn all tax related concerns over to someone who knows what they’re all about.
You’re paying too much in taxes. OK, nearly everyone feels like they’re paying too much in taxes, but for some that’s a completely legitimate concern. If minimizing your tax burden looks increasingly like the key to improving your cash flow, it’s time to bring in a tax planner to help make it happen.
Your tax situation keeps you awake at night. Some people have the ability to file their income taxes then move on to other pursuits. If you’re not one of them — if you have nagging concerns about your tax situation, even after filing your returns — it’s time to bring in serious help. Often, coming to peaceful terms with your tax situation is mostly about finding the right professional to give you that sense of confidence that your taxes are in good hands. You shouldn’t be worrying about your income taxes. If you are, you need to turn that entire aspect of your existence over to a competent professional, and get back to living your life.
The Bottom Line
You spent a lot of time and effort making your money so why not hire a professional to help you manage it properly. If you feel like you have better ways to spend your time, or don’t have an interest in learning the basics, it’s time to hire a financial or tax planner to do it for you.
It’s still important to check-in on your money and ensure it’s helping you reach your goals, but there comes a time when adding an expert to your team is vital for building wealth.