Are You Ready For A CFP®?

Benjamin Haas |

Are you just starting your financial life and wanting to get your foundation in place? Or do you think you’ve reached the point that you have your basics in check (living within your means and automating savings) and now need some extra help now that your financial life is getting more complicated? It’s important to know that you don’t need to pay a professional for the basics so here’s a checklist of things you can do on your own before looking to hire a CFP®.

Very few things in life are free so if your employer offers some type of “matching benefit” within a workplace retirement plan, contribute to it! For instance, if your employer offers a 3% match in your 401(k), contribute at least 3% to receive that free money. 

Next, having an adequate cash reserve is probably the most important savings vehicle to have in check before considering investing anywhere else besides getting that employer match. What’s considered adequate? The rule of thumb is 3-6 months' worth of expenses that should be in cash that is easily accessible.
If the 3-6 months’ worth of expenses is unclear, try and start budgeting to make sure you have enough in your reserve. There are budgeting tools out there, for instance handy websites like, spreadsheets, or the old-fashioned way of writing them down on a monthly basis to track. The key is to make sure you have a good sense of your monthly spending so your cash reserve can meet any unforeseen expenses in the short-term. 

Two of the most common financial mistakes we see people make are racking up credit card debt to cover their expenses (and sometimes their wants) or having to pull money out prematurely from their retirement accounts. There are always exceptions and special circumstances that warrant these actions, but it should always be a last resort! Credit cards typically have extremely high interest rates so it’s key to try and pay the balance off every month. Having a high balance can also negatively impact your credit score. A lower credit score may mean not being approved for a loan, or having to pay much more in interest. Pulling from a pre-tax retirement account prematurely means you’ll have to pay ordinary income tax PLUS a 10% penalty for taking money out before reaching the magic age of 59 ½. This is why it’s important to have an adequate cash reserve so hopefully you won’t have to turn to these methods to cover bills and other expenses you may have. 

This is where it can get a little more complicated and not as straightforward. One of your first options is increasing your contributions to your employer plan above the match. However, if you’re just looking for an investment vehicle that can earn greater interest than at the bank and don’t care about having it earmarked specifically for retirement, consider opening a non-retirement account. The key difference with this kind of account is that you won’t get the tax deferral benefit like you would if you contributed to a 401(k) or Traditional IRA. 

If you’re looking to continue saving for retirement and don’t have access to a company match, consider contributing to a Roth IRA. The Roth IRA does have some income restrictions that won’t allow you to save there if married income is over $208,000. As long as you’re below this threshold, you’ll be eligible to contribute. One thing to note is that you can’t deduct this contribution from your income but it grows tax-free, which will help add flexibility from a tax perspective later in life. If you’d like some more ideas on where to save, click here (pages 21-23)!

People who have mastered all the building blocks to a strong financial foundation will typically be at a good spot to hire a professional when they’re either preparing for a life transition, such as preparing for retirement, or when their financial life gets too complicated to manage on their own. Some people may also be looking for investment advice or what they could be doing better to help them accomplish their goals. Hiring a professional, specifically a Certified Financial Planner, also known as a CFP®, will ensure that you will be given objective advice that is best for your situation because they’re a fiduciary. What makes them so important to people is any advice they give is specific for the client and best for their life, compared to someone with a suitability obligation which means their recommendations COULD work for your specific situation, but may not be the best solution. A CFP® will be able to put all the puzzle pieces of your financial life together in a way that will help show you which goals are possible or if there are any potential tradeoffs to prioritizing one over another. 

This is for general information only and not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. 

Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.

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