9 mistakes to avoid when choosing a financial advisor

Sometimes, individuals possess the knowledge to handle financial planning, investing, and tax preparation but do not have the time to do it all by themselves. Others might be well-versed in the documentation and process but still require the intervention of a financial or tax advisor to get the job done efficiently. When choosing a financial expert, one might make some common errors that could lead to improper selection of the professional.

1. Rushing a decision
An individual might procrastinate when it comes to planning their finances and look for an advisor at the last minute. In such situations, one might rush decisions and hire the first associate on their search page. As a result, it could lead to signing up with an expert who isn’t well-versed in the area one expects or one that is too expensive. One should take time when selecting a financial or tax advisor. Moreover, one must set appointments with at least three professionals before deciding. The individual should also ask them the same questions and compare the answers to find the right fit.

2. Going for the lowest quote
Signing up with the person who quotes the lowest price might seem the right choice to save on fees. However, someone who charges a lower fee might not be experienced in handling more complex financial or tax requirements. On the contrary, hiring a professional with years of experience might incur higher fees. The ideal solution is to look for someone with exceptional credentials who might offer value-for-money tax and other financial advice and services.

3. Overlooking the idea of hiring a team
Some individuals might be better off hiring a team of experts rather than an independent advisor. Having a team on standby is helpful in situations, including when one advisor is unavailable for various reasons. In this scenario, the job will be passed down to other experts who are aware of one’s financial needs. It will also help get input from more than one individual when one has to make tricky decisions associated with their finances or taxes.

4. Failing to determine one’s financial needs
Sometimes, users start looking for a financial advisor without thinking twice. Doing so might be challenging, especially if they don’t determine their requirements beforehand. For instance, while one might find an advisor for debt management or budgeting, the individual may not require it. Instead, one might need a tax planner or investment advisor. Some advisors are suitable for planning financial needs, while others have specific areas of expertise. Finding the right advisor could help one save on unnecessary fees in the long haul.

5. Not asking for referrals
A common mistake people make when looking for a financial or tax advisor is not asking for referrals. One could speak to professionals or work colleagues in respective industries who might have used or are currently using the services of a financial expert. Additionally, one could ask questions about the agent, including if one is happy with the service and the benefits of the referred advisor over other competitors. One could also ask family and friends for referrals and inquire about the professional’s responsiveness and communication skills. Doing so can help one make a more informed decision when choosing a financial or tax advisor.

6. Picking an advisor with a focus on one area of planning
Some advisors might focus on just one area of investments to get the highest possible return on the investments in the portfolio. However, this method might not be ideal for most individuals. Wealth management requires a holistic approach. The investor and financial planner should work together and look at everything from one’s taxes and legal planning to insurance and cash management. Through proper planning, one could focus on factors like long-term goals, short-term requirements, and debt. Also, a trusted advisor should be capable of handling and coordinating with financial professionals with whom the investor might work.

7. Neglecting checking the fee structure
A financial or tax expert might have various ways to charge users for their services. Some may charge fees on an hourly basis, while others may charge an annual flat fee or a percentage of the investment assets. Whether one picks an advisor that uses these structures or one that charges a commission, it is important to assess how the consultant will be compensated and how one can afford the services. Doing so will help make a more informed decision when selecting a financial advisor.

8. Failing to spot a conflict of interest
If a tax advisor offers relevant benefits such as financial planning or investment advice, one should be vigilant about potential conflicts of interest. For instance, the expert might advise the individual to invest in a business in which they have a personal interest. Additionally, if a CPA provides services to a client’s family member, such as a spouse, they should disclose this information to the client beforehand. Vigilance in these situations can help ensure fair and unbiased advice.

9. Acting too late
While a tax or financial advisor could help one manage factors like debt, returns, and savings, one must also focus on the timing of the process. For example, several individuals delay tax preparations because of the time and energy required to segregate finances. However, acting too late and not hiring a professional could trigger additional financial stress in the long haul. An individual should hire a consultant as early as possible to contribute to developing and implementing action plans to suit one’s financial needs.

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8 things to consider when investing directly in bonds

Bonds are a common investment avenue for people looking to make money. Reports say the worldwide bond market accounts for over $100 trillion! Bonds are so popular because they help individuals diversify their portfolios, get excellent returns, and provide several other benefits. One can also choose from several bond options based on their preferences. But before investing, one should understand the fundamentals and keep a few important things in mind. What are bonds? When a person invests in a bond, they lend a certain amount to the issuer. The bond issuer is usually an organization, such as a government body, corporation, or municipality. The entity issuing the bond commits to pay the investor interest on the loan at a predetermined rate and returns the principal amount when the bond matures. Key considerations when investing in bonds While bonds are great investment options, they only provide a good return if one researches well. Those looking to buy bonds directly must consider a few important things, such as their type, maturity period, risk, and likelihood of appreciation. Type of bond Bonds are classified into different types based on who issues them. For example, corporations issue corporate bonds, local and state governments issue municipal bonds, and the treasury or federal government agencies issue government bonds. Studying each type is critical because they have different features and risk and return profiles. Maturity The maturity refers to the lock-in period of the money. Before one invests in a bond, they should check when they will get their money (principal) back. Bonds have varying maturities, ranging from weeks to decades. Most consumers will benefit from a mix of short and intermediate-term bonds. Bond rating A bond's rating indicates its creditworthiness or how likely the borrower will repay one's money. One must investigate this aspect when investing in bonds. Choosing a bond with a lower creditworthiness is a bad idea because the risk of losing money is high. To assess a bond's creditworthiness, one can check its credit rating. AAA has the highest rating based on the S&P scale. A bond with a C rating or lower is classified as low-quality or junk and is at the highest risk of default. Bonds rated D have already defaulted in one or more areas. Capital appreciation Bond prices can rise for various reasons, like interest rate changes and an improvement in the issuer's creditworthiness. But if a bond is held to maturity, any price increases throughout its life go unrealized. Instead, its price returns to par as it approaches maturity and principal repayment. So, investors can profit from price appreciation (known as capital appreciation) by selling bonds after their prices have risen and before maturity. Capital appreciation on bonds boosts one's return and has become one of the most popular bond strategies in the last four decades. Risk tolerance Individuals should consider their risk tolerance before investing in any avenue, including bonds. Bonds with a lower credit rating often pay higher yields to compensate for higher risk levels. Still, buying them may not be a good idea if one is struggling financially and cannot afford to lose money. Focusing on high-quality bonds is advisable in this case. It helps diversify one's portfolio and lower the chances of a loss, especially during economic uncertainty when equities are most vulnerable to downturns. Interest rate While individuals receive the principal amount back only after maturity, they earn interest periodically. The frequency of interest payments differs depending on several factors. One must remember that the interest rate can change over the bond's tenure. As interest rates rise, bonds lose value. Since it is difficult to foresee how interest rates will move, one must invest carefully. Tax advantages The money one earns from bond investments may or may not be taxable. Municipal bonds are usually tax-free, making them a popular choice. Before investing in a bond or bond fund, one should also decide whether to keep it in a taxable brokerage or a tax-sheltered account like an IRA or 401(k). Bonds that generate taxable income are typically held in tax-sheltered accounts, whereas those that provide tax advantages can be held in taxable accounts. Investment goals Before investing in bonds, one should set goals and financial objectives and not change them because of short-term market volatility. Many people invest in bonds because they serve as a hedge against an economic slowdown or deflation. During inflation, a bond's fixed income becomes less appealing since it buys fewer goods and services. Inflation is typically associated with higher economic growth, which boosts demand for goods and services. Conversely, slower economic development reduces inflation, making bond income more appealing. Unlike stocks, which require the firm to grow for the investment to be profitable, bonds can be profitable even if the company (or government) survives. Another reason bonds are popular is they diversify one's portfolio and balance the investments in stocks and other asset classes. But that does not mean they do not have drawbacks. That's why one should consult a financial advisor before investing in bonds. The expert can suggest specific sensible investing tactics to reduce the dangers of this investment option.

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A brief guide to credit card hardship programs

Emergencies like losing a job, sudden medical expenses, or financial setbacks can often cause or increase debt and also make it difficult to keep up with debt repayment. Credit cards are one of the most common sources of debt in the country. Fortunately, there are ways in which one can avoid defaulting on their credit cards, especially when dealing with sudden yet temporary financial difficulties. One such option is a credit card hardship program. What are credit card financial hardship programs? A credit card hardship program is an option offered by credit card issuers and banks to customers facing financial difficulties, providing them temporary relief. If, due to certain circumstances, the customers find themselves unable to make even minimum monthly credit card bill payments, they can seek assistance from their lender through these programs. The bank or lender can arrange for these cardholders to make reduced payments toward their existing credit card debt. Features A financial hardship program can help provide monetary relief in several ways, the exact benefit varying from lender to lender. But a credit card hardship program typically has one or more of the following features: 1. Reduction in the monthly payment amount One of the most common ways lenders offer financial relief to their customers is by temporarily reducing the minimum monthly payment on their credit cards. 2. Pausing monthly payments Some programs offer a temporary suspension of monthly credit card payments to their customers. 3. Lower interest rates One may also be offered lower interest rates on their credit card payments for a temporary period. They may even be offered a complete suspension of interest charges for a specific period, anywhere between six to 24 months. 4. Waiver of late fees If a cardholder has accrued penalties and charges for making late payments, credit card companies can waive those penalties under their financial hardship program. This feature is especially useful for those who might have been facing financial difficulties for a while now, making them miss credit card payments. 5. Extended due dates One can also get an extension on the due date for making credit card payments from the card issuer. Qualification requirements Credit card hardship programs can be extremely beneficial for those who are in serious financial difficulties due to unforeseen circumstances, like loss of a job, unexpected medical emergencies, losses due to a natural disaster, pay cuts, or divorce. Such situations can be a source of financial burden, preventing one from making credit card payments. When that happens, one can immediately contact their credit card company or bank and discuss their situation. The credit card company will ask one to share certain details to check if they qualify for the program and also ask one to fulfill a few requirements to get started. The requirements include: 1. Ability to provide documentation First, a credit card holder may be required to present documents to the credit card company that substantiate their financial difficulties. This includes pay stubs, medical bills, divorce papers, or a letter of termination. 2. Good payment history If a credit cardholder has had a good payment and credit history prior to the financial emergency, i.e., they have paid credit card bills on time in the past, they may have a better chance of getting assistance from the credit card company via financial hardship programs. 3. Consultation with a credit counselor A lot of credit card companies also require cardholders to consult a credit counselor to qualify for the financial hardship program. Some institutions may also ask cardholders dealing with financial difficulties to enroll in a debt management program as well. It is important to note that the qualification requirements can vary from institution to institution. So, before signing up for the financial hardship program, one must carefully go through all the terms and conditions and address all their concerns to avoid unwanted surprises. Things to know before enrolling in the program 1. Credit card accounts can be frozen It is important to note that in some cases, the credit card company may temporarily freeze the cardholder’s account as long as they are enrolled in the hardship program. 2. Interest may continue to accrue In some cases, the credit card company may continue to charge interest on the card payments even as one is enrolled in the program. So, one should have a strong interest payment plan in place once the program ends. 3. Review finances beforehand Before one signs up for a credit card hardship program, one should review their finances and check if they can still make a few monthly credit card payments before they need to pause the payment cycle. 4. Quick action can help As soon as one realizes they will not be able to make monthly payments in the near future, they should reach out to the card issuer and seek assistance. One should ideally take this step before they miss a bill payment. This is because the company may provide better assistance if one acts quickly than if one reaches out after they miss a payment. Also, missing a payment affects the credit score, so being proactive here can help one avoid this outcome.