Making a plan
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Lisa Napoli: You can't build a skyscraper without a blueprint. Same goes with building a nest egg.
Since you're listening to this show you probably know you're supposed to plan for the future, but when you finally decide that now is the time to do it, how exactly are you supposed to start and what's the safest way?
Reporter Sally Herships went to find out for herself.
Sally Herships: I just turned 35 and left my job of seven years. Seems like a good a time to talk to a financial planner. They're the ones who can help my money make money, right?
But, do I keep saving so I have enough to hire one now or do I take what I've got and see if a planner can work some magic? And what do financial planners do anyway?
I went to talk to Karen Schaeffer, chair of the certified Financial Planning Board of Standards to find out.
Karen Schaeffer: We're not just going to look at the investments, we're not just going to look at the taxes or the insurance, but we're going to look at their entire financial picture and help them achieve their goals.
Turns out I was all mixed up. And it's not just me.
Schaeffer: What people are very confused about -- and understandably so -- is the difference between financial planning and investment planning.
I'm really embarrassed I didn't get this. It's investment advisers who help pump up your bank account. Planners help you -- yeah, you guessed it -- plan. They help you find the money to invest with in the first place.
Schaeffer: You know if I just stopped with the credit card debt or if I become a one car family for a year instead of a two car family, I mean, there are lots of things that we can do that can help us find those dollars. If I waited till I had the dollars, I might be waiting too long -- maybe forever.
There's no time like the present, so I went to see financial planner Kathy Boyle in New York.
Kathy Boyle: Hi.
Herships: Hi, are you Kathy?
Boyle started off asking the big picture questions:
Boyle: How much is your health care costing you? What's your real budget? What's your goal? What's your income earning potential over the next five years?
But I went to her with a specific goal: a down payment for a three bedroom Brooklyn condo.
Boyle: So based on your income and your current ability to save and your expenses, you're really looking at probably an eight to nine year plan. Unless Mr. Wonderful comes into your life and has an income with you.
Herships: Wait a minute -- eight or nine years... did you say eight or nine years?
I was totally shocked. I asked Boyle what would help.
Boyle: You need to make more money.
Herships: Can I buy a car?
Boyle: Yes, you can buy a car, but that's a depreciating asset, so that's not gonna get you closer to your goal.
Ok, so no house for about a decade. It was a real eye opener. It forced me to face cold hard facts, but there's still hope:
Boyle: You can buy a house or you can buy an apartment; you just have to change your parameters a bit. It's not gonna be in the chicer areas of Brooklyn. You may have to go out into an area that's turning or that had further away from the city. Now if you were open to living in suburbia or New Jersey, it becomes a different kettle of fish.
Herships: I really feel like I should have started saving ten years ago.
Boyle: Should have, could have, would have is the favorite phrase in our life and the best time to have started saving was ten years ago. The next best time is right now.
So back to my original question: when does it make sense to get professional financial advice? How much do you need in the bank to make it worth the fees?
Boyle: It's hard to say, $5,000, $10,000, $50,000, but I would say if you're serious about saving money and you have $10,000 saved and you can add to that, it's worth spending $400-500 a year.
That, says Boyle, works out to about four or five percent -- what you'd pay in fees if you bought a fund.
Boyle: Yes, and remember, part of the rule of investing is the same as real estate: diversify, diversify, diversify. So you have to have enough money to put it into four or five or six categories.
Find a planner or an advisor who will bill you hourly -- that's Boyle's personal advice. You also, she says, have to make specific goals which she suggests laminating and hanging somewhere you'll see it every day.
Herships: Do you have goals in your shower?
Boyle: I do. It keeps you very focused. You wake up every morning and say, "OK, what am I going to do today to get closer to that goal."
For now, I'm gonna hold off on finding a financial advisor. So what's next? Starting to save aggressively. It's number one on my list of goals hanging in the shower.
I'm Sally Herships for Marketplace Money.