Getting started, right out of school – Role of the Financial Advisor


After finishing law school, Joe found himself at 29 with an entry-level position at one of the largest firms in his city, along with a lot of student loan debt.  Joe also needed a car for his job and with no cash on hand he had to borrow money yet again.

With hard work, Joe should be able to rise quickly in his firm and earn a good living on his way to eventually becoming a partner.  But what should he be doing now in his current financial situation to best prepare for his future?  Starting out with a mountain of debt means it is crucial to control spending while at the same time create a savings strategy for the future.

What’s the best way of managing all of his debt? Should he buy a car? Is it too soon to think about buying a home? And, how should he manage his contributions to his 401(k) right at the start?

To make the best decisions possible, Joe went to see a financial advisor.

The advisor started out by gathering all the data on Joe’s finances: his earnings, debt, expenses, and most importantly, his goals.

The first step was to see how Joe could best budget for his daily needs – including a little extra for some luxuries from time to time. It was clear that Joe had to free up some income by reorganizing his debt. Some student loans had low interest rates, but others required high payments and Joe was using his credit card too much to pay expenses, piling up extra debt at a high interest rate.

The advisor put together a budget that allowed Joe to pay down his credit card debt quickly. Expensive loans were consolidated into a single loan with a manageable monthly payment. While this did not reduce the overall cost of the loans, it took the pressure off Joe’s monthly budget.

This also permitted Joe to increase payments to his 401(k) plan to get the maximum employer match. The advisor also set up a Roth IRA for additional retirement savings.  After a discussion about risks and rewards the advisor shifted him into some higher-risk/higher growth investments which were more appropriate for Joe's plan. In-time, these changes would help his money grow faster and achieve more of his goals.

Based on Joe’s increased earnings, the advisor also helped him set up a monthly payment to an emergency fund so that Joe had increased financial security and didn't have to worry as much about the fluctuations in the stock market knowing he had additional cash if he needed it.  

As Joe was not married and had no dependents, the advisor explained to Joe that he had currently no need for life insurance and that he should drop the voluntary supplemental life policy that he signed up for when he was first hired.

The advisor reviewed Joe’s home and auto insurance policies. Competitive quotes were obtained from other insurance providers and the advisor found that it was possible to significantly reduce payments on both types of insurance, particularly as Joe had signed up for far more coverage than he actually needed. The total cost of the insurance carriers the advisor recommended saved Joe a considerable sum.

Thanks to the solid work from the advisor, Joe was able to make the critical decisions he had been puzzling over. He decided to hold off on buying a home until he’d built up some savings and he went in for a smaller and less-expensive car than he’d originally thought about. The advisor suggested Joe to make buying a home part of his future financial goals and to prioritize paying off his loan and investing what he could in his 401(k) to achieve financial security. Joe agreed to see his advisor regularly to review his progress and to consider any changes he might like to make to his plans.