If you’re planning how to get your finances in order but don’t know how to get started, consider enlisting the help of a financial coach. Compared to other financial experts, financial coaches actually devote most of their time helping clients understand the basics of financial planning. But some of them also analyze their client’s tax situations instead of recommending investments. So, what is finance coaching and how do you get started with it?
This article will be talking about financial coaching, what a financial coach is, whether you need what and the main difference between a financial coach and a financial advisor. Stick around to learn more.
What is a Finance Coaching?
The terms ‘finance coaching’ may be new to you, and to make it even more confusing, there are many other names used in lieu of it, including money coaching, financial life coaching, and etc. But, in general, regardless of what it is called, its main goal is to educate clients on the fundamentals of personal finance. The finance coach and client work together as a team, to create customized financial plans reflecting the values and goals of the client. The coach gives the client confidence in taking responsibility for their financial choices and supports their desire to learn and grow. The coach also serves as their accountability partner, guiding them throughout the entire process.
Financial coaching, in more ways than one, is essentially different from financial advising, or personal finance planning. A simple way to explain what it is is to compare it with what a financial a financial advisor does.
Financial advisors usually focus on using financial products and strategies, whereas finance coaches focus more on the fundamentals of money management, behavioral change, and responsibility to a client-based financial plan. Although financial advisors usually manage money that already exists, a financial coach provides clients with the knowledge and skills necessary to help them build that wealth.
Another striking difference between financial coaching and financial advising is that coaches do not have connections or associations with products at all; they do not sell insurance nor manage investments. They simply educate clients on the main principles surrounding insurance, investing, diversification, and etc. But they do not specifically provide recommendations on where clients should invest.
Financial coaches, in a way, are an important asset to traditional financial advisors. Every time a client has achieved their goal of positive cash flow and wealth building, financial coaches usually refer them to a financial advisor so they can move on to the next stage—extensive financial planning.
Comparing financial coaches to financial advisors is a lot like comparing apples to oranges—they’re completely different and one is not better than the other. Both of them are important and help people achieve their financial goals differently.
So, what do Financial Coaches Do?
So, let’s discuss what exactly financial coaches do. A finance coach is basically just that—a coach. The relationship with their client is purely professional and client-centered. A client hires a financial coach to guide and support them with their personal financial goals. Finance coaches educate their clients and help them evaluate their personal relationships with money, habits, and even their emotional issues. Clients are provided a platform to envision what kind of life they want in the future. Finance coaches encourage clients whenever things get difficult, helps keep them on track, and hold them accountable for any decisions they make that are essential to the achievement of their goals and directives.
The examples below will give you an idea of what a normal finance coaching process looks like:
1. Building awareness on one’s spending habits
Most people do not have a budget, or they couldn’t stick to one for more than a week or two. The first task of a financial coach is to help clients assess how much money is coming in, how much of it is being spent, and where it is being spent.
2. Envision your “awesome” lifestyle
Since coaches consider money as a tool to achieving a dream, rather than a goal, they provide clients with opportunities to explore and envision the life they want to live—not just in retirement but at the current moment! This is not to say that financial coaches encourage the idea of YOLO or You Only Live Once, but rather challenging them about what they really want out of life. It’s more like challenging clients on how they can make it possible for them to experience financial freedom today, not in 30 years or more. This usually involves evaluating their personal values, fears and anxieties around money, and their desires in life.
3. Take a look into their emotions and attitudes
It’s easy to tell people what to do. The challenging part is actually getting them to do it. As humans, we’re naturally irrational with regards to money, so it is the job of a financial coach to help them assess their stories and behavioral patterns and make them understand that it’s usually their own beliefs about money that govern their spending habits or issues.
4. Confront their difficult financial issues
Financial coaches help clients create an emergency fund. They also help them manage debt, and work out a plan to pay it off.
5. Have at least 3-6 worth of savings
Most clients don’t have at least 3-6 months-worth of savings tucked away, so this presents both client and coach a challenge on how to save up some funds each month, and changing the client’s behavior towards saving (since they’ve never done it before, it can be a bit overwhelming, scary and almost impossible to achieve for them).
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6. Create an effective spending plan and budgeting system
It should be personalized for that client for it to be able to work. Some clients enjoy creating spending plans but never really stick with them. It’s important you understand your client’s personality, so you know how to approach and create a spending and budgeting system that actually works for them.
7. Support and Follow-up
After completion of the process, clients will often keep communication lines open with a coach, to call them in moments of weakness, or whenever challenges come into play. They seek emotional support or consult the coach for clarifications and etc.