Guide to DIY Money Management (and When to Hire a Professional) | Saving and Budgeting


Even financial advisors admit that professional money management isn’t a necessity for many individual investors and families.

Instead, a few tried-and-true, do-it-yourself money strategies can successfully lift individuals out of debt and away from overly risky investment decisions to grow their wealth and achieve financial stability. DIY money management offers simplicity and control. A self-directed portfolio and plan also avoids the risks and costs associated with a financial advisor.

“Not only is it possible to manage one’s finances entirely using DIY strategies, but it’s also the best way,” Stanley Kon, chairman and co-founder of Ripsaw Wealth Tools, wrote in an email. “Given the potential conflicts of interest, managerial risk, and excess fees, it is not difficult to do better for yourself than what most professionals can do for you.”

Create Your Own Financial Plan

Though only 33% of Americans have a written financial plan, according to Schwab’s 2021 Modern Wealth Survey, those who do are more likely to rebalance their portfolio, have an emergency fund, never carry a credit card balance, make payments on time or have no debt.

To create your own financial plan that would rival the experts’, it’s important to cover all of the basics. First, set specific goals for your money, like retiring by age 65 or saving for a down payment of $60,000 for a first home.

Then, look at the big picture of your financial situation, reviewing assets and liabilities, and write down the steps required to reach those goals. To reach your financial goals, you’ll also need to have a strong foundation, such as an emergency fund able to cover three to six months of expenses, basic estate planning documents and insurance for any risk areas.

Managing your own finances without professional help is time-consuming, but free resources are more readily available today than ever before. Take advantage of free tools like Mint, Goodbudget or a simple spreadsheet to create your own budget, and take the time to learn more about personal finance topics by researching online or checking out money management books at your local library.

Take Advantage of Tax Opportunities

There are numerous opportunities to lower your tax bill each year, such as saving for retirement in a tax-advantaged IRA or Roth IRA. Small contributions starting early and maintained consistently throughout one’s life can be incredibly powerful in the long term.

“The most useful DIY strategy is to maximize tax-deferred retirement contributions, especially those involving a company matching program,” Kon says. “They are a source of disciplined savings with an extraordinarily high instantaneous, riskless rate of return from reducing current taxes and capturing matching programs, future tax-avoidance options, asset protection in personal bankruptcy, and the minimization of market-timing risk.”

Other tax-advantaged accounts like a health savings account and 529 plan can also be valuable tools for DIY investors.

buy and hold

Actively managed mutual funds tend to be costly both in fees and in higher capital gains tax liabilities – with a history of underperformance compared with passively managed index funds. According to Morningstar’s analysis, only 47% of nearly 3,000 active funds outperformed their average passive counterpart in late 2020 and early 2021.

Through ups and downs, the stock market has historically continued to rise. To DIY your investments, consider buying index funds that aim to keep up with the stock market and stay the course through any market fluctuations at a cheaper cost.

“If you have the time, effort, energy and desire to research and keep your emotions out of it, in today’s day in age, growing money and doing it yourself absolutely makes sense,” says Kristian Finfrock, founder of Retirement Income Strategies. “If you look at the market, for the most part, for 12 years that market has basically just gone straight up. Quite frankly, growing money has been really easy and we have apps like Robinhood and we now have crypto platforms. It seems like even though there’s been volatility, it’s gone up.”

Despite these trends, investors opting for a self-directed portfolio will still need to weather market risks and corrections alone – and set their emotions aside amid market downturns, Finfrock says, to make thoughtful investment decisions.

Follow Your Gut

Financial advice abounds in the modern era, but your opinion matters most when it comes to your financial decisions. You must understand and be comfortable with your financial strategy – setting your goals and determining your risk tolerance.

“The key to avoiding costly mistakes from utilizing DIY strategies is to have an independent, disciplined investment process,” Kon says. “This can only be accomplished by defining a low-cost, well-diversified, tradeable benchmark (strategic asset allocation) that is consistent with your investment objectives and risk tolerance. Then performance is measured relative to that benchmark.”

Know When and How to Get a Financial Advisor

There are some situations in which professional financial advisor help is useful. These include situations in which real estate investments extend beyond a first or second home property, when an individual owns their own business or businesses, or when an individual is the beneficiary of a complex estate, for example.

A financial advisor can manage your investments while also connecting you with resources and other professionals, such as certified public accountants and estate planning attorneys, who can ensure you meet your goals and avoid costly mistakes.

Finfrock says while many individuals can use DIY strategies, changes to tax laws and in market trends can be challenging for an individual to navigate alone – particularly as retirement nears.

“Being retired, not having a paycheck and seeing 40% of your portfolio disappear – that’s when an advisor can really step in and help,” Finfrock says. It may be wise to seek professional help “when you’re ready to have a more comprehensive financial plan and or when you start getting very serious about retirement planning, probably five years from your own retirement, you’ve already accumulated the bulk of your wealth, and you’re ready to get serious about a withdrawal strategy and some more comprehensive tax planning.”