Financial Planners vs. Financial Bloggers: Same Goals, Very Different Advice
Earlier this month, I attended the Financial Bloggers Conference in St. Louis, and while I've been working in financial planning since 2007, I've been following a few money bloggers for even longer. Along the way, I've learned a few things about the distinct differences in philosophies between bloggers and financial planners -- differences that will mean that, with the best of intentions at heart, the two groups will often be giving quite divergent advice.
Financial Bloggers Hate Debt; Financial Planners Leverage Debt
Many money bloggers started their blogs while they were paying off their own heavy loads of debt, and as a result, they despise it. I've known bloggers who've paid off not just their credit card debt at breakneck speeds, but also handled their student loans in record time (Stephanie Halligan at the Empowered Dollar) or paid off a 30-year mortgage in just six (Mike Choi from Renting Out Rooms). Financial bloggers hate being tied to monthly debt payments; they also like to focus on one goal at a time.
Financial planners, on the other hand, leverage debt to reach multiple goals simultaneously. I don't know many financial planners with credit card debt, but almost all of them have mortgages and quite a few have car payments. They like the tax deduction that they get from the mortgage, and with interest rates incredibly low, they don't see the benefit in paying off their homes or cars any faster than necessary. However, I've witnessed a number of financial planners use debt to inflate their lifestyles, which leads me to conclude that there's a lot we can learn from financial bloggers when it comes to freeing ourselves from monthly payments.
Financial Bloggers Love to Save; Financial Planners Love to Invest
Bloggers love having large cash cushions. After they work like crazy to get out of debt, the next thing they do is save like crazy. And then ... they get stuck. They don't know what to do after that, because higher level financial planning is more complicated than matching money in with money out: It also involves investing, tax planning, and insurance coverage.%VIRTUAL-WSSCourseInline-449% Investing for retirement is crucial to any sound financial plan, but sometimes bloggers are scared to invest. (Check out this rap from Hey Agatha about being an investing virgin).
Many of the bloggers I know have really large emergency funds, but they only recently started saving for retirement because they were too focused on paying off their debt. Don't miss out on creating long-term wealth: Start investing in your 401(k) or an IRA today!
Financial planners love making money with our money, which is why we love investing. We proudly max out our contributions to IRAs or 401(k)s. However, sometimes we invest before we have adequate emergency savings. It's hard for us to sit on cash that isn't working for us when we could invest that money and (hopefully) watch it grow. However, the prudent thing to do is to have enough cash to cover three to six months worth of expenses in an emergency savings account. (Easier said than done.)
Investing is important: You need a higher rate of return on your money if you want it to grow into a decent retirement account (or mortgage down payment, or whatever). That brings us to the rule of 72, which is a rough guide to figure out how long it will take for your money to double. Divide 72 by what interest rate you're earning on your money; that's approximately the number of years it will take to double your investment. So if you start with $10,000 and earn 2 percent a year, it will take 36 years for your investment to turn into $20,000. If instead you invested that money in stocks, and earned an 8 percent average rate of return annually, it would only take nine years to double your money. This is why compound growth is the coolest money trick ever.
Financial Planners Know Insurance Is Critical; Bloggers Often Let It Slide
Financial planners understand the importance of protecting ourselves, our families, and our stuff, but financial bloggers sometimes see insurance as just another monthly payment. It scares me how many bloggers I know who don't have proper coverage. Insurance can be a hard sell because you don't see the immediate benefit from it that you do when you pay down debt or invest, but it's a crucial component of creating financial security. Most people know they need homeowner's insurance and almost everyone who drives has car insurance. But an umbrella policy can be invaluable if anyone ever tries to sue you because it provides excess liability coverage.
%VIRTUAL-article-sponsoredlinks%Financial planners have worked with enough clients to have seen the effects of not having enough life insurance or disability insurance, so we want to protect our families in case anything happens to us. Still, disability insurance can be expensive, and it's easy to ignore the idea that you'll ever need it. (Read: "How to Figure Out How Much Life Insurance You Really Need"). I know that a lot of bloggers aren't doing enough to protect their businesses either.
In the session at FinCon13 on insurance coverage, only about 10 people attended, and half of us were financial planners. It's clearly tougher for those with less-formal training in finance to see the value robust insurance coverage -- which could be one of the biggest reasons why financial bloggers need financial planners. But neither group has all the answers: Financial planners can still learn a thing or two from the bloggers.