Developing money management skills can help you get better at saving and investing, both of which are important for building wealth. A financial advisor can lend their expertise to help you get where you want to go. If you have a low income or limited budget, you might assume that hiring an advisor is off the table. While it might require a little research on your part, it’s possible to find a financial advisor for low-income clients. If you’re ready to connect with a financial advisor, SmartAsset can help you to get started.
What Does a Financial Advisor Do?
Financial advisors work with clients to help them develop a plan for managing their money and reaching their goals. That typically involves offering advice relating to things like investing and tax planning. Financial advisors can charge fees for their services and a typical fee is around 1% of assets under management.
So who needs a financial advisor? The short answer is that anyone can benefit from getting professional financial advice, regardless of their net worth or income. Advisors have knowledge and experience that someone who’s not a financial professional may lack.
Does that mean everyone needs an advisor? Not necessarily. Some people may be perfectly comfortable with managing their portfolios themselves. But if you’re in a lower income bracket and you’d like to start building wealth, that’s something an advisor could help you with.
Can You Hire a Financial Advisor for Free?
While financial advisors may offer a free consultation, they typically expect to be paid for their services if you’re using them on an ongoing basis. Advisors may be fee-only or fee-based and it’s important to understand the difference.
A fee-only advisor charges fees based only on the advice and services they provide. They may charge an hourly fee, a flat rate or a percentage of assets but at the end of the day, you’re only paying your advisor for the work that they do for you. Fee-only advisors act as fiduciaries, meaning they’re obligated to put your interests ahead of their own when offering advice.
Fee-based advisors can charge hourly fees, flat fees or percentage-based fees, but they can also earn money by recommending specific investment products. For example, if your advisor suggests a specific mutual fund, they might earn a commission if you decide to invest in it. Some, but not all, fee-based advisors are required to follow a fiduciary standard.
Benefits of Working With a Financial Advisor
If you don’t have a lot of income or assets yet, you might be wondering whether hiring an advisor is worth it. While it largely depends on your needs and goals, an advisor may be able to pinpoint steps you can take to get ahead financially that you might overlook yourself.
Here are some of the ways you might benefit from working with a financial advisor when you have a low income.
- Potential tax savings. You may already be in a lower tax bracket based on income. But an advisor might be able to help you find additional ways to reduce your tax bill, which could put more money back into your budget to save and invest.
- Retirement planning. You probably want to retire someday but if you don’t know how to start, an advisor can help. For instance, they may offer advice on how to make the most of your 401(k) or the benefits of opening an Individual Retirement Account (IRA).
- Minimize investment fees. Investing can help you build wealth, but it can be an uphill battle if you’re paying back a sizable chunk of your returns in fees. An advisor may be able to help you find low-cost investments that fit your objectives and risk tolerance.
There’s another good reason to consider working with a financial advisor on a low income. When the market becomes volatile, an advisor can keep you from slipping into panic mode and making rash decisions.
It’s tempting to sell when stock prices begin to fall, but that could do more harm than good. An advisor can talk you through potential outcomes should you decide to sell your investments or hold them, so that you can make a reasoned decision.
How to Find a Financial Advisor for Low Income
If you’d like to work with a financial advisor and you have a low income, it helps to know how to narrow your search. One way to get started is to use an online tool that matches you with advisors in your local area. You’ll answer a simple questionnaire about your needs and goals, then get recommendations for advisors that might be a good match. You can then decide if you want to follow up with them or not.
Should you choose to meet with an advisor, asking some questions can give you a sense of whether they might be right for you. Here are some sample questions to ask a financial advisor.
- What types of services do you offer?
- Are you a fiduciary?
- What is your investment strategy or style?
- How do you get paid and what fees can I expect to pay?
- What’s your preferred method of communication?
- How often will we communicate?
- Is there anyone else on your team that I might work with?
The fee question is important because you want to know upfront whether an advisor is in your budget range. If you talk to some advisors and find that the fees are out of reach for the moment, there are a couple of other options you might try to get free or low-cost financial advice.
For instance, you might search for pro bono financial planners in your area. The Financial Planning Association has a pro bono program that offers services to people who belong to underserved and/or high-risk communities. According to the FPA website, that includes low-income individuals and families, military personnel and veterans, domestic violence survivors, people affected by natural disasters and people experiencing serious medical crises.
A robo-advisor is another option. Robo-advisors use an algorithm to develop a personalized investing plan, based on your age, goals and risk tolerance. Compared to the 1% annual fee a financial advisor might charge, robo-advisors may charge fees that are closer to 0.25% or 0.35%.
The difference, of course, is that a robo-advisor lacks the human element. That may not seem important if your goal is saving money on fees, but it can make a difference when the market gets bumpy. In that scenario, a robo-advisor can’t coach you through the ups and downs the way a human advisor could. So that’s something to keep in mind when deciding where to look for financial advice.
A financial advisor can help you shape a plan for managing your money, even if you have a low income. If your income grows, then an advisor can help you adjust your plan to account for any additional money you might have to invest. Looking for advisors that offer a free consultation can give you a better idea of what you might stand to gain by working with a financial professional.
Financial Planning Tips
- If cold-calling advisors seem too intimidating, you can start your search online. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Reading personal finance books or blogs is another way to get money advice for free. You can also try listening to some personal finance podcasts to learn the basics of investing if you’re new to the market. Expanding your financial education can make it easier to take the reins of managing your money when you’re not quite ready to work with an advisor.
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