In a recent study, the American Institute of CPAs (AICPA) discovered that nearly 60% of Americans feel overwhelmed at the thought of managing their finances.
Deciding whom to turn to for financial advice is not the least of the challenges faced by the average working individual.
Here’s the good news:
This article will give you a clear picture of exactly that—not just from whom to seek financial advice, but when and why. Even better, it’ll provide you with a great deal of insight into how personal finance experts – bookkeepers and accountants – tackle common financial issues and problems to come up with effective solutions.
As a bonus, the article even contains a cost calculator, to help you estimate how much you’ll need to spend in order to secure long-term financial gains.
So dive in!
Bookkeeping vs. Accounting: Are they Different?
I like to use the example of household electrical systems to illustrate the difference between a bookkeeper and an accountant—a bookkeeper is comparable to an electrician, while an accountant can be thought of as similar to an electrical engineer.
To fix a faulty switch at your home, you’d probably call an electrician (unless, that is, you’re handy with electrical repairs). On the other hand, for a home renovation that involved the wiring for an extra bedroom, you’d get in touch with an electrical engineer.
Just as an electrician installs outlets, fixes faulty switches, and ensures your home’s electrical system is functioning safely, a professional bookkeeper manages daily transactions, reconciles accounts, and keeps your financial records up to date.
Like the electrical engineer who plans a building’s overall electrical system, considering factors like load capacity, future expansion, and energy efficiency, an accountant can help you optimize your financial management through planning your taxes, figuring out cash-flow, investment planning and so on.
Professional profiles of bookkeepers vs. accountants
Qualifications of a bookkeeper
Professional bookkeepers handle the day-to-day tasks that keep your finances in order. To do this, they have usually (but not always) undergone extensive training and additionally obtained a qualification such as Certified Public Bookkeeper (CPB).
The CPB certification exam is conducted by reputed institutes such as the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB). A minimum of two years’ professional experience is a prerequisite for attempting the CPB examination (although some institutes stipulate three years).
Qualifications of an accountant
A professional accountant offers guidance on the overall planning and management of financial transactions and record-keeping. Accountants often build upon the foundational work of bookkeepers, with the aim of ensuring accurate and transparent records, compliance with financial laws and regulations and improved financial health.
In the United States, accountants must have a minimum of a Bachelor’s degree in accounting, and an additional Chartered Accountant (CA) or Certified Public Accountant (CPA) certification issued by the American Institute of Certified Public Accountants (AICPA). Besides this, they must meet state licensing requirements, which sometimes requires taking additional courses.
When do I need a bookkeeper?
I often hear the question, “Do I really need a professional bookkeeper?”
The short answer to that is, “it depends”. A more detailed answer is the following. If you find that you’re having trouble staying on top of one or more of the tasks below – all of which are essential elements of successful personal financial management – then you should seriously consider using professional bookkeeping services:
A bookkeeper is someone who can help you manage the following aspects of your day-to-day finances:
- Creating and maintaining a monthly budget to ensure expenses are tracked and controlled
- Analyzing spending habits to identify unnecessary expenses and savings strategies
- Tracking loans, credit card balances, and other debts to create a repayment plan
- Organizing financial records throughout the year to facilitate accurate and timely tax filing
- Reviewing financial records to spot discrepancies or unusual activity, helping to detect and prevent fraud
- Monitoring investment accounts to ensure accurate records of transactions and performance
- Keeping all financial records up-to-date and accurate, ensuring that everything balances correctly
So when do I consult an accountant?
When you need help in designing the entire financial “circuitry” of your life, an accountant can provide invaluable advice and guidance.
Listed below are the major categories of personal financial management in which it is advisable to consult an accountant’s expertise:
- Navigating major financial decisions, such as buying a house or other significant investments
- Helping to create a retirement savings plan, including investment advice and future financial projections
- Providing guidance on business structure (such as when setting up or expanding a small business), financial planning, and compliance with tax laws
- Conducting audits to ensure financial accuracy and integrity, and providing assurance services for peace of mind
- Advising on financial implications and planning when dealing with legal costs, settlements, or financial disputes
- Assisting in the management and planning of your estate to ensure your assets are distributed according to your wishes
What is a CFP and do I need one?
A Certified Financial Planner (CFP) is a professional who helps individuals create comprehensive financial plans, focusing on areas such as retirement planning, investment strategies, and estate management.
Consulting a CFP can sometimes be the ideal solution to a straightforward financial planning need, for example, creating a retirement savings plan or managing investments. This might be the ideal strategy for simpler needs and a more limited budget, since CFP consulting fees tend to be lower than those of CPAs by anywhere from 20% to 50%.
However, seeing a Certified Public Accountant (CPA) is recommended for more intensive financial planning needs. CPAs are experts in tax planning, auditing, and financial reporting, making them better suited for complex financial situations and ensuring compliance with tax laws. If your financial needs are more specialized or involve intricate tax considerations, consulting a CPA may be more beneficial.
Better Personal Finance Management through Bookkeeping
Whether going the DIY route in personal bookkeeping or opting for professional services, it can really help to get a better understanding of the many ways in which bookkeeping can help you make those $$$ last longer, and to work towards your long-term financial goals.
How can a bookkeeper help manage my finances?
To give you more insight into how a professional bookkeeper (or even your own bookkeeping, if done well) can transform your personal finances, let’s consider a few real-life scenarios.
1. Budget creation
Sarah, a freelance graphic designer, has been struggling with inconsistent income—some months, her earnings cross $5,000, while others, she has trouble meeting her monthly rent. With her bookkeeper’s help, Sarah creates a flexible monthly budget, enabling her to put away enough during prosperous months that she can use to tide over expenses during lean times.
2. Expense analysis
The Johnsons are surprised by their high monthly expenses. Their bookkeeper helps them analyze their spending to identify key cutbacks: canceling a forgotten gym membership, switching to a more cost-effective family plan for their mobile phones and scheduling a limited dining out time-table. These insights help them save $300 monthly.
3. Debt management
Mark, a student, feels overwhelmed with student loans and credit card debt. His bookkeeper devises a structured repayment plan, prioritizing high-interest debts. She even helps him find an extra $150 for monthly repayments by identifying unnecessary expenses (see above).
4. Tax preparation
Emily used to dread tax season. She’d find herself scrambling for receipts and racking her brains to remember important expense details. Her bookkeeper helped her organize her financial records for the whole year, making tax filing smooth and stress-free. He even identified deductions Emily had previously missed, helping her get a bigger refund check.
5. Fraud detection
When reviewing Tom’s bank statements, his bookkeeper noticed unusual recurring charges. Her prompt detection helped Tom place a ‘stop payment’ request with his credit card company, saving him from prolonged unauthorized transactions on his credit card.
6. Investment tracking
Lisa, new to investing, finds it challenging to track the performance of her newly acquired REIT stocks. Her bookkeeper helps her set up and maintain detailed records of all transactions and returns, providing clear insights into her investment growth.
7. Accurate record-keeping
Small business owner Mike is preparing for a loan application. Thanks to his bookkeeper’s meticulous record-keeping, he is able to provide detailed and accurate financial statements, which strengthen his application and secure the loan.
Long-term benefits of bookkeeping
In each of the cases described in the previous section, a bookkeeper’s expertise helped the concerned individual (or family) to:
- save time
- reduce stress
- improve their financial health
Good bookkeeping is the stairway to better money management that in turn helps an individual achieve their long-term financial goals.
While some of the steps along this path may be successfully negotiated using a do-it-yourself approach, professional bookkeeping services are highly recommended for navigating the entire stairway smoothly (see below).
Step #1: Laying a solid foundation of financial data
A professional bookkeeper sets up and maintains an accurate, up-to-date record of all your financial transactions. Building this complete picture of how your money moves is essential to effective long-term planning.
Step #2: Identifying savings opportunities
Bookkeepers are trained to spot patterns and trends in financial data. This typically enables them to help you identify opportunities for greater savings, from spotting unauthorized expenses and identifying cost-saving alternatives in case of recurring expenses (see example above) to renegotiating loan repayment options and claiming tax exemptions.
Step #3: Cash flow management
Analyzing past and present financial records allows a bookkeeper to make projections about your future cash flow, both income and expenses. These projections are essential to timely adjustments in saving and spending habits, prudent allocation of funds for debt repayment, emergency expenses and long-term savings.
Step #4: Monitoring progress and course correction
A bookkeeper helps track how your financial decisions are panning out over time, in terms of economy, savings and investment growth. Regular comparisons of your financial health indicators against your goals empower you to make necessary changes and fresh decisions to meet your goals.
Improved Financial Health with Professional Accounting Help
Understanding how a professional accountant can help optimize your finances, minimize tax liabilities, and strategize for your long-term goals is instrumental, not just in making your money last longer, but in growing your wealth over time.
How an accountant can help maximize savings and growth
Below are some snapshots that illustrate the ways in which an accountant can help you both save and grow your money.
1. Tax planning
Jake, a freelance musician, usually files his own taxes. This year, he started a side business as a voice coach, inherited a small legacy, and had medical expenses that seemed deductible. On a friend’s advice, Jake consulted an accountant ahead of tax time.
With the accountant’s help, Jake was able to estimate and minimize the tax payments for his side hustle in a legal manner, and also claim all deductions and credits for which he was eligible. This left him with not only more $$ in his pocket, but also netted him a larger refund check that was more than twice the accountant’s consulting fee.
2. Financial forecasting
The Millers are planning to buy a home in 18 months. With their accountant’s help, they are able to analyze their current financial situation and revise their financial forecast, through:
- Debt restructuring (monthly savings: $400)
- Pruning unnecessary expenditure (monthly savings: $450)
- Sale of long-held stocks, maximizing capital gains (income: $20,000)
As a result, the Millers are able to set aside significantly more for their house purchase, and successfully achieve their revised goal of making a down payment within one year.
3. Retirement planning
Helen, age 51, realized recently that she was behind on retirement savings. An accountant reviewed her finances and suggested the following plan that balanced aggressive savings with her current lifestyle needs:
- Hiking 401(K) monthly contributions from 6% to 15%
- Adding ‘catch-up contributions’ to the 401(K) – allowed for those over 50
- Sale of paid-off, 4-bedroom house
- Move to a smaller, 2-bedroom house
As a result of the first two 401(K) modifications, Helen added an extra $6,500 to her annual contribution, estimated to result in an extra $100,000 by age 65 (assuming average market returns). The sale of the big house and move to a smaller one freed up $150,000 to add to her nest egg, and additionally reduced her monthly expenditure by a good $1,000.
4. Investment strategy
Amy received a large bonus and wanted to invest it wisely. She consulted an accountant, who first helped her figure out her ‘risk tolerance’—the level of potential financial loss an individual is willing to accept when making investment decisions. Then, he analyzed various investment options, and recommended a diversified portfolio consisting of low-cost index funds and high-yield bonds.
This helped Amy align her investments with her long-term financial goals and her tax situation, as well as balancing growth potential with stability. Additionally, Amy followed her accountant’s advice and set up a Roth IRA, a tax-advantaged account that helped her maximize her tax savings while securing her financial future.
5. Estate planning
When Dave’s aunt left him a large inheritance, he consulted an accountant. They helped him structure the inheritance to minimize tax implications by recommending specific tax-saving strategies. First, he gifted portions of the inheritance to his wife and children, thus reducing taxable estate value.
Additionally, the accountant helped Dave set up trusts for his children’s education, ensuring that funds were not only securely allocated but grew tax-free. This helped Dave gain long-term benefits and financial security for his family.
Consulting an accountant for a personal finance roadmap
Making the right personal finance decisions can be challenging, if not overwhelming, particularly when faced with unusual circumstances such as litigation or a legacy. Accountants provide proactive financial management, which encompasses:
- regular reviews of your financial status
- expert forecasting of potential financial opportunities and pitfalls
- troubleshooting minor financial issues before they become major problems
- timely guidance in dealing with legal compliance
- financial scrutiny and evaluation of future transactions
Regular consultation with a professional accountant can therefore provide the working individual with financial solutions tailored to their unique needs and additionally equip them to face financial challenges as and when these arise.
An often overlooked but important aspect of consulting an accountant is the contribution it makes to the working person’s sense of wellbeing. Being assured of expert financial advice and support greatly reduces the burden and stress of making responsible financial decisions.
The Cost of Professional Help with Bookkeeping and Accounting
Now that you have a clear understanding of the difference between bookkeepers and accountants, you likely also have a clearer picture of the steps you need to take to obtain the right help for your current financial situation.
This section of the article will help you estimate costs and fees for different types of consultations, in order to enable you to choose the most effective yet economical solution to managing your personal finances.
Factors affecting the cost of professional bookkeeping and accounting
Multiple factors play a role in determining the overall cost of professional financial expertise. Some of the major considerations include:
- The complexity of your financial situation
Obviously, the greater the complexity of your financial situation, the more it is likely to cost you to consult a professional or an expert; for example, a single, salaried individual in their early 30s is likely to have a simpler financial situation than someone in their late 40s with a family of five, who runs a business in addition to their regular job.
- Your geographic location
There are wide variations in the cost of professional services across states. While the exact fees charged by any professional can only be ascertained by asking them directly, the table at the end of this section provides a ready reckoner for estimating differences in the cost of professional services across US states, based on cost of living and average salary indices (skip to the table).
- Professional’s credentials
Here again, higher qualifications and greater experience command higher rates compared to those with limited expertise as well as exposure. See the tables below to gain some idea of how this factor is likely to affect your costs.
- Specialized services
As seen in the case examples in previous sections, bookkeepers and accountants are called in to help with a spectrum of financial needs. Some professionals specialize in certain domains, for example, bookkeeping for small businesses, tax filing for LLCs or estate settlement.
Even in the case of a single domain such as preparing and filing individual income tax returns, the nuances of one individual’s financial situation may call for the advanced knowledge of an experienced accountant, whereas another’s simpler needs may be amply addressed by a competent bookkeeper.
- Frequency of service
Greater number of consulting hours naturally leads to higher costs. However, keep in mind the possibility of negotiating package rates for regular or recurring services.
Bookkeeping services cost estimator
Use the table below to obtain a rough estimate of the cost of consulting a professional bookkeeper for your needs.
Tip: Use the ‘state-wise cost multiplier’ table at the bottom of this section to arrive at a more accurate estimate of the likely cost of the desired service where you live.
| Finance Management Service | Estimated # of Hours | Estimated Hourly Fee Based on Years of Experience | ||
| 0 – 2 years | 3 – 5 years | 5+ years | ||
| Basic monthly bookkeeping | 2 – 4 | $80 – $200 | $120 – $280 | $160 – $400 |
| Comprehensive monthly bookkeeping | 5 – 10 | $200 – $600 | $300 – $800 | $400 – $1,200 |
| Bank reconciliation (per account) | 1 – 2 | $40 – $100 | $60 – $140 | $80 – $200 |
| Financial statement preparation | 3 – 5 | $120 – $300 | $180 – $400 | $240 – $600 |
| Payroll processing (for small businesses) | 1 – 2 | $40 – $100 | $60 – $140 | $80 – $200 |
Accounting services cost estimator
The table below should help you figure out the approximate cost of consulting a professional accountant to receive the financial advice you currently need.
Tip: Use the ‘state-wise cost multiplier’ table at the bottom of this section to arrive at a more accurate estimate of the likely cost of the desired service where you live.
| Finance Management Service | Estimated # of Hours | Estimated Hourly Fee Based on Years of Experience | ||
| 0 – 3 years | 4 – 7 years | 8+ years | ||
| Individual tax return preparation | 2 – 5 | $200 – $500 | $300 – $750 | $400 – $1,000 |
| Tax strategy consultation | 3 – 5 | $450 – $750 | $675 – $1,125 | $900 – $1,500 |
| Financial planning session | 2 – 3 | $300 – $450 | $450 – $675 | $600 – $900 |
| Audit support (per hour) | Varies | $150 – $200 | $200 – $300 | $250 – $400 |
| Small business tax return preparation | 5 – 15 | $500 – $1,500 | $750 – $2,250 | $1,000 – $3,000 |
Important considerations in estimating the cost of financial advice
While calculating the likely cost of seeking professional financial advice, you need to keep in mind a few important factors:
- The tables above provide estimated ranges. Actual costs may vary.
- Some professionals may charge flat fees for certain services rather than hourly rates.
- Higher priced services might be the more economical option in some cases, as more qualified and experienced professionals might arrive at solutions more quickly as compared to their less proficient colleagues,
- Be sure to discuss fees and estimated hours upfront before engaging services.
State-wise cost multiplier
Using the table below, you can arrive at a more precise estimate of what professional financial advice and help is likely to cost you. To use this table, simply multiply the estimated cost that you calculated using one of the above tables with the ‘cost multiplier’ relevant to your state.
| State | Cost Multiplier |
| Alabama | 0.85 |
| Alaska | 1 |
| Arizona | 0.85 |
| Arkansas | 0.85 |
| California | 1.25 |
| Colorado | 1.15 |
| Connecticut | 1.25 |
| Delaware | 1 |
| Florida | 1 |
| Georgia | 0.9 |
| Hawaii | 1.25 |
| Idaho | 0.85 |
| Illinois | 1.1 |
| Indiana | 0.9 |
| Iowa | 1 |
| Kansas | 0.85 |
| Kentucky | 0.85 |
| Louisiana | 0.85 |
| Maine | 0.85 |
| Maryland | 1.25 |
| Massachusetts | 1.2 |
| Michigan | 0.85 |
| Minnesota | 1.15 |
| Mississippi | 0.85 |
| Missouri | 0.9 |
| Montana | 0.85 |
| Nebraska | 0.85 |
| Nevada | 1 |
| New Hampshire | 1.15 |
| New Jersey | 1.25 |
| New Mexico | 0.85 |
| New York | 1.3 |
| North Carolina | 0.9 |
| North Dakota | 0.85 |
| Ohio | 0.9 |
| Oklahoma | 0.85 |
| Oregon | 1.15 |
| Pennsylvania | 0.85 |
| Rhode Island | 1.15 |
| South Carolina | 0.85 |
| South Dakota | 0.85 |
| Tennessee | 0.9 |
| Texas | 1 |
| Utah | 0.85 |
| Vermont | 1 |
| Virginia | 1 |
| Washington | 1.15 |
| West Virginia | 0.85 |
| Wisconsin | 0.9 |
| Wyoming | 0.85 |
A hybrid solution: Complementing digital bookkeeping with professional oversight
If the cost estimate that you calculated in the previous section made you wince, don’t worry, we’ve got you covered. In this section, we outline an approach that allows you to enjoy the economy of digital or software-based bookkeeping, while still availing the premium quality services of a professional when needed.
Increasingly, private individuals as well as small business owners are adopting a hybrid bookkeeping strategy. The steps involved in implementing this ‘software + professional help’ strategy are typically as follows:
- Install a reputed, reliable bookkeeping software like Quicken or Wave. (See our helpful blog that dives into the pros and cons of different bookkeeping apps.)
- Hire a professional bookkeeper to ensure that the initial set-up is customized and optimized for your financial situation.
- Carry out regular data entry of your financial transactions (DIY), following the principles and rules of good bookkeeping.
- Schedule periodic professional reviews; For individuals with simple financial situations, a semi-annual review may suffice, while quarterly reviews are ideal for complex financial needs or when coping with unusual financial circumstances. (Alternatively, scheduling frequent professional reviews initially while you gain proficiency is also a good strategy.)
- An annual review-cum-audit by a qualified accountant is advisable; this should ideally be scheduled sufficiently in advance of tax season, to ensure your bookkeeping aligns with broader financial goals and tax strategies.
Next Steps: Implementing the Perfect Personal Finance Solution
Since you’re now well on your way to evolving a plan for managing your personal finances, you might find it useful to learn how Joe DiSanto and the PlayLouder team can help you put together a tailor-made financial management plan to suit your every need. Drop us a line <link> and we’ll be happy to arrange a free consult for you.