The Value of Having a Certified Financial Planner (CFP)

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Today, I wanted to pose the question, “Is having a CFP right for you?” When I first graduated from dental school, I was absolutely lost. Along with the feelings of excitement and pride with my recent accomplishments came a subtle (but over-powering) dread, and a very heavy, invisible weight. I knew I needed guidance, but did not know who to reach out to. I did not exactly have adults in my life who could act as good financial role models (my long historical relationship with money detailed here), and there are very few people I know (outside of my fellow graduates) who really had the problem of paying down half a million dollars in student debt at 26 years old. So I reached out to Andrew Davis, the CFP behind SeamlessFP, who happened to be the husband of a dental classmate, and whose work focused on guiding newly-graduated dental students, specifically. I think it was the best decision we ever made.

On the flip side, there are people who would argue that CFPs are a waste of money, and that money could be used elsewhere. Which is a fair argument. I myself am a big fan of avoiding outsourcing tasks as much as possible. It will take a bit of work, but handling your own finances is totally a doable thing! However, it requires time, which I have value over money. Delving into research isn’t such a scary thought for me, but spending all my free time learning the nuances of taxes, S corporations, estate planning, investments, and more is NOT an enticing thought. So what I want to discuss today is the value of having a CFP to us, and then I leave the decisions to you.

The value of having a CFP

The list of pros for having a CFP versus not having one is quite long, which is a good thing!

  • Pro: Outsource financial planning to free up time, in order to pursue interests, hobbies, work, etc.

As mentioned before, outsourcing financial planning frees up a lot of our time. Time is a resource scarcer than money in the modern world. People seem to always be running out of it, but are still quick to occupy it with tasks, necessary or otherwise. When you think about how much your time is worth, in dollars, can you really put a price to it? Time is the one thing you are constantly running out of, and will never be able to replenish, making it an extremely valuable resource. Being intentional with the tasks I choose to occupy my time is very important to me. Spiritual uplifting, emotional replenishing, mental healing, these are the things that matter and make it a life worth living. NOT constantly worrying, thinking, and dealing with money.

  • Pro: Peace of mind that we are hitting our financial goals in a very step-by-step (and legal) manner.

This is for the DIYers out there. I am a lover of DIY projects and take pride in my ability to be self-sufficient. However, no matter how much of my free time I put into studying the nuances of finances, I cannot possibly keep up to date with the ever-changing rules and regulations. Mike used to do his own taxes with TurboTax and that worked sufficiently well, but once we got married, added in an S-Corporation with its own separate payrolls, well things got too complicated. We started asking ourselves, “How do we know we are following all the rules? How do we know about the fine-print clauses that benefit us? Who will be flagging our attention with every change?” A financial planner gives us peace of mind, knowing that we are on track to hit our goals in a efficient (and legal) manner. There are many minute details that one could miss, but it makes us feel better knowing that we have someone else helping us with that.

  • Pro: Keep up to date with new changes.

The new Tax Bill that passed last year is a great example of this. Even now, nothing is quite set in stone as to how these changes will apply to us. By having a financial planner, we were alerted to the possible beneficial change for S Corporations in the upcoming year, something we would never have known, but definitely can impact our financial plan.

  • Pro: A resource for learning more.

This, by far, is the most beneficial to me. Andrew has been instrumental in educating us about our finances and different paths we can take to achieve financial freedom. He has recommended books, blogs, podcasts, and other resources. He was actually the one who introduced us to the FI community: a community dedicated to reaching financial independence by using life optimization “hacks”. We would not have gone so far on our financial road to freedom without life hacks such as co-housing, travel hacking, YNAB, and more!

Financial planning VS Investment Planning – What’s the difference?

It is important to differentiate between financial planning and investment planning. We do financial planning, which requires a long-term life plan, created by the marriage between our financial past and our dream futures. Our first meeting with Andrew was not something we expected to have. It began with a meeting dedicated wholly to gaining a deep understanding of our personalities, goals, and dreams. It almost felt like a therapy session, with questions such as, “If you knew you were going to die tomorrow, what would you spend your time doing today?” Don’t let that deter you. I think that first meeting was essential to setting the foundation on which we created our entire plan. The process continues to be a constant reassessment of life. Initially, we listed our priorities as traveling, buying a house, yoga subscriptions, guitar lessons, sticking with loan repayment program, and working until we were 65 years old. Now our life still includes travel, but our goals have shifted to standard repayment, renting for the next few years, working less hours, being a blogger, opening a coffee shop, and early retirement from our lines of work, which would possibly lead us to newer lines of work. In this respect, Andrew acts as more than just a financial planner. He is a psychologist, therapist, educator, mediator between spouses, confidant, & friend. This is NOT to be confused with investment planning, where someone advises you where to invest your money. That is included with financial planning, but not the other way around.

The importance of being a fiduciary

A fiduciary requires that someone acts in the best interests of a client. It is important that your CFP is a fiduciary in all aspects. Conflicts arise when CFPs have affiliations with third parties that may sway their advice towards promoting something that benefits them. For example, a person can receive a profit for selling an affiliate insurance. The insurance may be great, however, that person has a motivating factor that would make him want to promote that particular insurance. Even though it can be beneficial for you to sign up with that insurance company, the decision was not completely unbiased. We did not even realize the importance of being a fiduciary until we learned the concept from Andrew himself. 

If you are not sure whether your CFP is a fiduciary, ask! Try to find a fiduciary in all aspects. You want to ensure that you are being treated fairly at all times. Do not be afraid to ask how they get compensated, so that you can truly see where they are getting their money. It may seem awkward to inquire about it, but it is your finances on the line.

What a CFP has done for us, so far

  • Budgeting Help: Our CFP introduced us to budgeting, setting up our YNAB budgeting tool, and helped us develop good budgeting habits. 
  • Analysis between two potential jobs: When Mike was considering making the move from one company to another, we needed help analyzing whether it was a reasonable financial move. It was not simply a comparison between the two different income, but also required factoring in 401k investment matching, health benefit options, life insurances, difference in commute, and level of interest in the line of work.
  • Investment Planning: He has given us advice on how to manage our 401k portfolios as well as given us other investment tips when we reach out for help. We retain full autonomy as to where we want to invest and how much, but having a third person to go over the pros and cons at each step has been helpful. 
  • Health Benefits: We needed help deciding on a health plan, and have chosen one that works well for us thanks to Andrew’s help. After an analysis of our options, an HSA option was also open to us, and we decided to take advantage of that privilege.
  • Renter’s Insurance: Prior to our new place, we did not have renter’s insurance. After seeing the benefits of having that extra coverage at a small monthly cost, we decided to sign up for one right away!
  • Connection to a CPA: Taxes for SCorps can be a bit tricky. A CPA is advised so as not to miss a thing. Initially, I was going to go with the same person my parents have used for years. But after an hour-long interview with him, it became clear to me that he did not know much about taxes as they applied to dentists specifically. He did not even know about the different student loan forgiveness programs, or how an SCorp can be used for tax deductions. It was useful to be referred to a CPA who frequently does taxes for dentists specifically.
  • Set up my SCORP: This was so beneficial to me! It is possible to create a corporation easily online, however, he walked me through the pros and cons of having an SCORP so that I could make an informed decision as to whether this is something I wanted to do. The application for the SCORP was easy but we did meet some humps along the way that he quickly helped me to resolve. 
  • Setting up Gusto and ways to automate my SCORP: Once the SCORP was set up, our CFP took care of creating an automated payroll for me. We use Gusto to manage my payroll, and once it was set up, he easily walked me through the different ways that we can keep track of the payroll via my SCORP. All I have to do is wait for my payments, the system takes care of the rest!
  • Introduction to financial life hacks: I learned tricks such as travel hacking from Andrew and it was he who introduced us to the FIRE and FI communities.
  • Analysis of student loan repayment options: This is the part about our finances that has most affected our lifestyle. He walked us through the different student loan forgiveness programs that we qualified for. After a thorough explanation of each, he created an extrapolation of our financial futures under each repayment option. By using physical numbers, we were able to predict the lifestyle changes associated with each student loan option. Once we had our budgeting in order, he brought to our attention that we were able to pay down student loans without the forgiveness program, thus saving us more than $100,000 in the long run, as well as buying our freedom 15 years earlier than planned. That decision itself was so life-altering for the better, and we would have never gotten to that point on our own. 

We personally benefit from SeamlessFP

Andrew Davis is the CFP behind SeamlessFP. He focuses on helping newly graduated dentists create a financial plan. He does work with non-dentists occasionally, or dentists who have been practicing for a long time. I only know this because we have referred people in those categories who now are working with him too.

There are multiple options one can choose when working with SeamlessFP. A person can do a one-time consultation in order to gain help on a particular goal or project, or they can choose the full life-planning package. We chose to do the latter option. I did not want help with simply setting up an SCORP. I wanted a more thorough analysis of all of our financial details. I was determined to tackle as many aspects as possible to optimize our financial situation. After every meeting, he will upload a list of tasks via an online portal to be completed. This is helpful for people who need someone to hold them accountable to ensure that they continue moving forward with their financial path. Together, we re-analyze continually to see what we can change to optimize even further. A yearly re-cap meeting is held as well, where we go over our dreams and goals for the future (5, 10, 25 years out) so that we aren’t dully following a pre-set path. Besides, a lot changes in a year!

What I like most is that he is eager to help clients learn more about their financial options and situations. It is clear that having his clients make their own decisions (given the facts) is important to him. I can ask him one question, and we will go over the entire topic in detail, prior to him answering my question just so that I know the reasoning behind his answer. It’s scarce to find that these days, and I wholly appreciate it.He may give suggestions but he really makes sure you know that ultimately, the choices are still completely yours to make. It’s easy to see that his goal is to help his clients find the happiness they seek, by eliminating financial stress from the equation. It also helps that he is very accessible via email or text. Typically, responses occur within one day. Additionally, if you choose the latter option, there is unlimited access. Anyone who knows me will easily tell you that I am the type to ask multiple questions, always in search of a deeper understanding of all things. So a CFP who embraces that is gold. Off course, you want to make sure that the CFP you choose is right for you, if it’s right at all. If you have any interest in learning more about our friend Andrew, you can easily set up a one-hour phone call to speak with him and see what services he can offer you and which package is best for what you are trying to achieve.

Overall, I just wanted to shed light on how a CFP has changed our life in this blog post. As always, you do you.

 

The First 5 Steps to Getting Our Finances in Order

Right after I graduated from dental school, I knew I wanted to get our finances in order. We were six months away from swearing eternity to each other, and I wanted to be clear about what our current financial status was and where we want to go from there. They say that finances are one of the biggest stressors in a relationship, and I knew I wanted to nip that one in the bud and move on to living happy eternal lives.

There were a few key steps that, on paper, seem super elementary, but I guarantee that the majority of the people do not have these five steps down. I am not saying these are the first five steps everyone should take, but they were the first that we took and it worked out really well for us! If you are looking to get your finances in order but aren’t sure where to start, hopefully one (or all!) of these will give you the boost you were looking for.

  1. Build up an emergency fund, and then never touching that money unless it’s a TRUE emergency. For my entire life, I knew in the back of my mind that I needed an emergency fund, but never have I had one. I assumed that there will be some money left in the bank in the case of a true emergency that I could rely on until the emergency is solved. Off course, I was underestimating the cost of my potential emergency. I assumed an emergency constitutes of a flat tire, or the need to buy something right away (this was before I became anti-consumption and was practically throwing my money out the window). In light of the recent fires in Ventura County, it is safe to say that a TRUE emergency can constitute of a fire affecting your city, so that your home burns down, along with the office that you work at, thus putting you out of a home, without belongings, and without a job. Recovery from such an emergency could take multiple months. Or an accident that could leave you with hospital bills and a disability that prevents you from going back to work. When put in that light, I never thought a true emergency could happen to me. Well, it can happen to me. Most certainly, it can happen to anybody. So one of the first things we did was build up our emergency fund. Our emergency fund is enough to last us through three months’ worth of living expenses. It sounds easy to do, but in order to find the correct number, you actually have to track your monthly living expenses. There is a tendency to underestimate the correct figure. Saying yes to dining out with friends and purchasing random items during a Target run can quickly increase that number significantly. So we started to track our finances (See item #2 below). Once we got our number, we saved up enough and then did not touch that money. It still sits in our bank accounts today, which is a great thing because that means we have been emergency free for the past year and a half! I’m not talking, “I am out of money in my bank account, let me just borrow from my emergency money.” Ideally, you don’t ever want to get to the point where you run out of money in your bank account, but we will get to that later.
  2. Track your money by budgeting. We started to track our finances with the budgeting tool called YNAB. You can use any budgeting tool alternative, such as Mint.com, or your own homemade spreadsheet. We decided to go with YNAB only because it was what our financial planner set up for us. I fell in love with budgeting! I was always interested in numbers, organizing, and planning, so this was just my cup of tea, luckily for Mike. The tool tracks money going in and money going out. By linking your bank accounts, the tracking is almost immediate. The only part you have to do is categorize your spending and income, so that you can see how much you spend on things such as rent, groceries, gas, dining out, and any other category you can think of. You can be as specific or as vague as you want. I prefer to be vague so that it makes the process a little bit easier. I was amazed at how much money we were hemorrhaging through, and that’s quite a realization since, compared to a majority of our friends, we were pretty frugal. This was the part of the process that pushed me towards minimalism and anti-consumerism. Thinking about my past habits with spending money is almost nauseating. To multiple that by the number of Americans who do the same or worse makes me want to cry and beg Mother Earth for forgiveness. To this day, we continue tracking our spending. It’s taken the guesswork out of finances, and we no longer have to think about whether we have money or not for a certain something. We always have the money, because it is already allocated for. We follow the simple envelope system, which long ago would consist of one taking their income and placing them into different envelopes based on spending categories. There would be an envelope for utilities and for auto-registration, etc. In order to pay for something, one would take the money out of the appropriate envelope. If a person tries to overspend on dining out, they can’t, because there are no physical dollar bills left in the dining out envelope. It would require for them to physically take money out of a different envelope to cover their spending, or force them not to dine out for that day. That’s the simplified version of the envelope system and it’s the categorization system that YNAB uses. Because of this, once we get our paychecks, every single dollar bill is allocated for a future expense. So that when the expense comes, the money is already there. What about in the cases of unexpected expenses? Well, that would be called an emergency, and that’s also already saved and built up from step 1. And no, there is no such thing as a shopping emergency. There is no such thing as an unexpected expense unless some drastic unforeseen natural disaster strikes in your neighborhood. The whole point of the budgeting process is to teach us that there is not one thing that we absolutely need, and those that we want, we have the time to plan ahead for and save up.
  3. Put everything on Auto Pay. Life gets hectic and busy, and sometimes we miss a payment and get charged a late fee. Ugh, those late fees kill me. It’s another way of throwing money straight down the drain. Stop that right now and put your worries to rest. Take the minimum payment for every credit card, utility bill and loan and place it on auto pay at a particular time of the month, every month. Just make sure it draws after your paycheck is deposited in your account, at a time when you know the money will be present in the bank account. The last thing you want is an overdraft fee.
  4. Start paying off your debts one by one. Since I opened my first credit card at age sixteen, I have never been debt free. The first thing I wanted to do was start our debt snowball. Credit card interest rates are insanely high, and it was crazy to think that I was throwing away so much of my money at the same time that I was spending money I did not have. So we tackled our credit cards one by one until we brought them down to zero. After we cleared all our credit cards, we kept them clear every month by paying off the total. By doing this, we were also reaffirming that we were spending well below our means. After all our credit card debt was paid off, we only had two debts left. My student loan, and Mike’s car loan. We decided to tackle the student loan first. The reason was because it had a much higher interest rate than the car loan, as well as a higher amount. The amount of money we would be gaining in interest by letting my student loan sit is way more than the amount of interest we would gain by letting the car loan sit a little longer. Don’t get us wrong, we are still paying down the car loan at the same time, at a speed fast enough so that it will be gone in three years. But we are funneling all our extra money towards paying down the student loans instead. Once you start paying things off, it becomes more addicting than spending your money. I get such a thrilling, spine-tingling joy when I pay off debt. The debt snowball is well on its way, and my goal is to make this snowball the biggest and fastest snowball possible!
  5. Hire  a financial planner. It’s the last on the list, but it was actually the first thing we did. It was how we began this journey. So why is it listed as number 5? I hesitate to put this on here because some people believe that hiring a financial planner is not a worthy way to spend money. Some may argue that paying for such a service could cause you to lose out on money that would be better served invested or paying down debt. I am not completely disagreeing by the way. If you are really good at this type of stuff and can do an equally great job on your own, I would back up your decision not to hire a financial planner. I would agree that your money is way better spent towards investing or achieving your dreams. So it isn’t for some people, which is why I hesitate to put it as number one, for fear that somebody will just shut down this post’s tab and move on with their lives. For us, this was the right choice, and I think it IS worth the money. One hundred percent! First off, notice that I did not write financial investor. That is a different type of service, one that focuses solely on investing money. A financial planner, when you’ve got the right one, does more than investment management, although that is part of their job description as well. A good planner will start by helping you discover your goals, and then trying to get you to your goals by tackling your financial life. It isn’t about the money, but about the end result. Where you want to be, and how you can shape your finances to get you there. Ours is particularly good at analyzing what we truly want and asking us the right questions to re-evaluate every few months if our dreams are still our dreams. We create the vision, and he helps to give us the path to make that a reality. The planner will keep you accountable, and is useful as a resource to guide you towards new and innovative ways to approach your goals. People can say it’s a mistake, we don’t care. Let’s just say, it’s a mistake we have to make. And if we had to choose all over again, we would do it just the same because frankly, I wouldn’t even be here, writing about all of this, if we had chosen differently.

So those are our first five steps, and now you know that the list is not in a particular order. Happy budgeting!