“My friends and family say I'm rich.” I'm 26 and make $100,000 a year living in St. Louis, where I pay $850 in rent.  But I can't afford to buy a home and I lose money when I invest.  Would hiring a financial advisor be a smart move?

Is a Financial Advisor Necessary If You’re Feeling Overwhelmed With Money?

Getty Images/iStockphoto

Question: I am a 26 year old pharmacist making approx $100,000 a year – take home pay is about $5,600 a month – living in St Louis. I contribute 4% to my employer 401l(k), which is the maximum match. I currently have about $25,000 in my savings account for emergency funds. My rent is $850/month which I split with my girlfriend and I have no car payment or credit card debt. But I ended up with $148,000 in total student loans with an average interest rate of about 5-6% (although still in the interest free period). I’ve been paying $4,000 a month since I graduated to bring the total down to $113,000 right now. I want to start saving for a down payment on a house, so I recently dropped my student loan payment to $2000/month and am putting $1000/month into a taxable investment account and $500/month into a Roth IRA starting mid-March 2022. But with the recent issues I already lost some money in the stock market.

I feel like the economy is down and the housing market is struggling so I’m wondering if I’m doing things right? Should I keep renting instead of worrying about saving for a home at this point and just keep making $4000 monthly loans until it’s gone? Most of my friends and family say I’m “rich” because I make six figures, but I don’t feel that way with all the debt and no money saved for a home. (Want to hire a financial advisor? You can use this tool to find an advisor who can meet your needs.)

Answer: It sounds like you’re feeling stressed about money and questioning your decisions, so we asked financial advisors and money professionals what you’re doing right and what you might want to change. And then we’ll look at whether it’s a good idea to consider a financial advisor to help you.

First things first, though: The reason things feel tense is because you’re a strong saver, and for that you deserve to be praised. However, it is important to prioritize, especially around your personal goals.

“I would base your home savings rate and how much you can temporarily shift from student loan debt to a home on what you think the home will be worth,” says Joe Favorito, a certified financial planner at Landmark Wealth Management. So that might mean if you think the home you want will cost $500,000 to buy, you might want to put at least 20% down to avoid mortgage insurance, which means you’ll need to save around $100 000 dollars over your emergency fund. That’s about $2,777 a month for three years with no profit. “Then you want at least another six months of emergency funds based on what your living expenses will be when you own a home, factoring in taxes, insurance, utilities and food,” Favorito says. In the end, it may be worth it to temporarily divert some of the student loan money, but as your income grows, you can always pay additional principal, says Favorito. “Once you’ve secured a down payment, regularly put at least 10% of your gross income into retirement accounts,” says Favorito. (Of course, once student loan payments resume, always pay the minimum amount owed.)

Have a question about your financial advisor or want to hire a new one? Send your questions to [email protected].

But should you even be saving for a house? Well, it depends. You may find it difficult to prioritize securing long-term residence, and a home is not always the best investment, due in part to transportation costs over time. It also might not be the right move for someone who might be looking to move soon or someone who doesn’t want to deal with home maintenance. But there are plenty of reasons to buy, too: “While renting is something that can allow you to live with positive cash flow, if your goal is to get married and start a family, a home is a much more practical solution,” Lubimo says. “Once you have a fixed mortgage and your income grows over time, you’ll be able to catch up on some of your other savings and debt reduction goals.” However, any money saved for a home should be invested in cash-like investments , such as money markets, CDs, or ultra-short-term bond funds, not in anything that would cause volatility unless your home purchase is several years away.

And you might want to look at paying off your student loan this way: It’s essentially equivalent to buying an investment with a guaranteed return equal to the interest rate, because each will have about the same impact on your cash flow, says a certified financial planner Eric Figueroa of Hesperian Wealth. “I can’t predict the future, but high and rising inflation, high stock market valuations, negative stock market momentum, rising recession risk, and rising interest rates all seem to confirm your suspicions that the outlook for stock and bond returns is poor.” Figueroa says. Some professionals say this could mean it might be a better idea to focus on paying off your student loan debt instead of building retirement savings beyond what you’re already doing (the match is worth getting, though). However, this is not a common opinion. What’s more, with such positive cash flow, it may be worth considering refinancing your student loans.

Looking to hire a financial advisor? You can use this tool to find an advisor that might suit your needs.

Also, even though interest rates are still frozen on student loans, this may be the perfect time to keep your payment regular because it will all come out of the principal, some experts say. “If you can afford it, that’s the only time you can eat the principal [soley] by simply making your regular payment, which will accelerate your savings,” says Figueroa.

It’s also important to understand that when you’re invested in the market, you’re going to suffer losses at some point, and at your age, your retirement accounts should have a growth orientation. “This means a broadly diversified allocation of at least 70% of the stock market. Don’t let market volatility scare you, because when it comes to long-term investing in things like your 401(k) and Roth IRAs, the markets are very unpredictable in the short term, but statistically quite consistent over the longer term,” says Lubimo . And although it’s hard to do, Figueroa says try your best to ignore the performance of Roth IRAs until you need them many decades from now. “Just keep investing regularly in long-term assets over time. You don’t need the money anytime soon, so put the money to work,” says Figueroa.

Should you hire a financial advisor to help you?

Perhaps. Professionals say that in your case, a flat-fee advisor (some advisors charge a flat annual retainer fee that typically ranges from $2,000 to $7,500) or an hourly-fee advisor (hourly rates are roughly $200-$400 per hour often) may be good bet. These types of advisors can guide you through the volatility, present your spending and savings priorities in a cohesive way, and develop a financial plan you can follow. (Want to hire a financial advisor? You can use this tool to find an advisor who can meet your needs.)

“An hourly or retainer consultant can help you set up your savings plan and put your strategy in place on a more project-based basis. A retention fee advisor can help you set up your plan and assist you with ongoing monitoring and management,” says Zach Hubbard of Greenspring Advisors. here it is how much can an hourly financial advisor cost and here are the question you should ask any advisor you want to hire.

Ultimately, it’s up to you. Some investors like the help of a professional, especially during times of market volatility or when they have many competing financial demands, even though it will cost you. And some find they can handle it on their own. here it is what to ask an advisor you would like to hire.

  • Questions have been edited for brevity and clarity

Have a question about your financial advisor or want to hire a new one? Send your questions to [email protected].

Any advice, recommendations or rankings expressed in this article are MarketWatch Picks and have not been reviewed or endorsed by our trading partners.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *