Q: I'm a single woman in my mid-30s, and I'm in the process of getting my finances together. I want to learn more about how to manage money and how to plan properly for my future, but I've never done any investing or serious financial planning before now. I also don't own any property, and I only have a limited 401(k) account. I know I need some help, but I feel silly consulting a financial adviser, considering my limited financial resources and knowledge. Is that what you'd recommend for my situation? If not, how else can I get the help I need?
A: First, congratulations on making the decision to take better control of your finances! You're making a good effort to educate yourself about managing your money. Asking a financial adviser to help you along the path would be a good first step.
Basically, there are two kinds of financial advisers: fee-for-service and commissioned. Advisers from the first group, often called financial planners, are paid (most often by the hour, but sometimes for a flat fee) to give you independent advice about your financial picture. Advisers from the latter group may either work by themselves or as part of a corporation, and they receive commissions and fees based on the products you buy. While many of these people do an excellent job—and have the advantage of usually not being paid by you—you should bear in mind that the way they make money is by having you buy financial services.
For a person in your situation, some financial advisers — particularly from the commissioned group — require a minimum amount of assets for you to put under their care before they'll consider you as a client. Others choose to cultivate clients with minimal assets in order to build strong relationships with them. For example, an adviser who takes you on now will help you grow your assets, and by the time you're in your mid-50s, you may be one of that adviser's more valuable clients. There are also financial advisers who specialize in specific types of investments, such as bonds.
My recommendation is to start with an independent adviser, in particular, a Certified Financial Planner (CFP). CFPs specialize in taking a broad view of your financial picture, as opposed to the other types of advisers who may focus on specific types of investments. Before the CFP recommends any action, the first step should be an in-depth discussion of your short- and long-term financial goals and then an analysis of your current financial state.
The financial planning process can take a while, and you may not feel ready to take the leap. If you simply want to ask someone a few questions about your situation, you should be able to find a CFP who will charge you a fee for a relatively short discussion. (Expect to pay about $200 per hour.) If you think it is worthwhile to take matters further, you could either choose to continue working with an independent CFP or go with a commissioned financial adviser.
For more information about financial planning, you can start with the CFP Board's consumer Web site, and also check out the of the Financial Planning Association. Both sites have search engines to help you find financial planners in your area, as well as important questions you should ask a financial planner before you enlist his or her services.
Jean Chatzky’s Bottom LineThis week: Divorce and the houseIn a divorce, the house can end up being an incredible drain on cash flow (with insurance, property taxes, and unexpected costs for repairs). The easiest thing to do, in fact, may be to sell it — this way you divorce yourself financially. Thanks to changes in the laws that make selling a home and retaining the profits much easier, it's likely you won't have to face capital gains at all.
Unfortunately, if there are kids in the picture, this may not be the easiest move. One common compromise couples make is that one spouse, typically the mother, takes the house in exchange for other assets. This only works if you know the value of what you're getting — a house isn't worth the appraised value minus the mortgage. In order to make for a fair trade, you also have to factor out the cost of the sale, commission, and any capital gains taxes you are going to owe. If you agree to refinance to get your ex's name off the mortgage, make sure that the cost of refinancing gets subtracted from the value of the house.
Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Copyright © 2004. For more information, go to her Web site, .