When Should You Work With a Financial Planner?

Roughly 72% of Americans report feeling stressed about money, according to a survey by the American Psychological Association, and only 18% of people say they feel very confident that they will have enough money to last throughout retirement. But when it comes to handling money, most people go at it alone -- only 40% of people say they work with a financial planner.

There are many reasons you may avoid using a financial planner. Maybe you think it's too expensive. Perhaps you're afraid he or she will judge you for not having saved enough at this point in your life. Or maybe it just never crossed your mind.

While it's true that not everyone needs or can afford a financial planner to help them make sense of their money, in some situations, it may make the difference between reaching your financial goals and stressing about them the rest of your life.

Financial planners vs. financial advisors

First, it's important to understand what a financial planner actually does. The terms "financial planner" and "financial advisor" are often used interchangeably, but they're not exactly the same thing.

"Financial advisor" is a broad title that covers many areas related to money management. An advisor can help you manage your investments, buy or sell stocks, or even create an estate and tax plan.

Financial planners are a specific type of advisor, and they offer a more specific set of skills. They can specialize in many areas, such as retirement, investment, or estate planning, and they are often the ones people turn to when they need help managing their money and creating a financial strategy.

Many people assume creating a financial plan is as simple as thinking up a few goals and writing them down, but managing money is a complicated process. Here are a few scenarios in which it may be a smart idea to hire a professional:

1. You don't like thinking about money

If you're the type of person who was taught growing up that it's rude to ask someone how much something cost or what their salary is, it may be uncomfortable to even think about your own finances. Other people just don't like discussing money because it's boring (and let's be honest -- budgets and interest rates are not the most glamorous topics in the world), so they'd rather ignore the problem and hope it goes away.

In these cases, hiring a professional is wiser than avoiding the money talk and pretending that it will all magically work itself out. While you will have to talk about money with your financial planner, the burden of managing your money by yourself will be lifted from your shoulders.

2. You're overwhelmed at the thought of money management

There's no shortage of financial advice on the internet, but reading about what you should be doing with your money and actually acting on that advice are two different things. Also, when you sit down to think about how much money you'll need to reach those goals, the sticker shock can prevent you from ever putting a plan into action. Especially if you're behind on your savings, it can be tempting to throw in the towel before you even get started if you think there's no way you'll ever be able to save enough to retire, buy a home, or send your child to college.

A financial planner's job is to help you through this mindset by doing the heavy lifting for you. They can help you set goals and break those goals down into manageable pieces, making the process a little less stressful and overwhelming.

3. You need an outside opinion

Financial planners aren't only for people who aren't sure how to manage their money -- they're also for people who want to be sure they're managing their money in the most effective way possible. It's easy to get stuck in a rut when saving, and by the time you realize you're not saving enough, it could be too late.

Also, most people aren't finance experts (and even finance experts can sometimes use an impartial third-party opinion), so you never know when you may be overlooking something that could help you earn more money. Maybe your 401(k) plan is charging you high fees and you could be earning more money elsewhere, or perhaps you've underestimated how much you'll need during retirement. A financial planner can help you spot these things before they end up costing you thousands of dollars.

How much does a financial planner cost?

So you've decided a financial planner may be a good idea. But how much do they cost? There are a few different payment structures for financial planners.

One of the most common types is the fee-only structure, in which planners charge a flat fee in the form of an hourly rate, a percentage of the amount they manage for you, or a monthly retainer. There are also commission-based financial planners, who earn a commission from the investments you buy from them. And finally, there are fee-based planners, who charge fees and earn commissions.

Fees and commissions vary widely, so the best place to start depends on what you need help with. If you have a relatively simple problem that can be solved in a relatively short period of time, it may be best to hire an hourly consultant. Or if you're looking for a long-term financial partner who can help you plan for all your money-related goals, paying a percentage of the assets managed may be a less expensive option.

Talk to a few different financial planners and ask about their fee structure and any other hidden fees. And before you agree to anything, read the fine print so you know exactly what you're paying for.

Managing money isn't easy, but it's a crucial part of life. While some people do it all themselves, there's no shame in finding a professional to help you along the way.

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