What is Financial Coaching?
Financial Coaching is a process that assists people in identifying and gaining insight about their relationship with money and the core values learned in this sensitive aspect, as well as to discover if both are working in their favour or not. This self reflection helps people align their lives and financial goals, and devise specific plans to become financially aware and stable. During the process people learn how to balance their “wants” and their “needs” preventing those continued yearnings, whether self or externally imposed, which led them into debt.
Addressing the root of the financial problems which are cognitive or emotional, rather than its symptoms which are purely financial, prepares us all to experience fulfilment and reach our furthest human potential and growth.
Why take financial coaching?
Most of people believe that simply by earning more money, most of their problems will be solved. This might not be an accurate conclusion, as in essence, the existing financial constraints are the result of decisions, tendencies or unaware actions taken due to emotional reasons. An example could be overspending, continuous engagement in debt to cover immediate desires, lack of knowledge, or the annoyance of feeling controlled by a budget, among many others.
Throughout my extensive work in the field, I have witnessed that regardless of the economic, academic or social status, the only point when people are able to identify and understand the cognitive and emotional aspect that ultimately led them to their current financial situation, is the point when they are able to overcome the source of the issue.
The financial coaching provided to my clients focuses on the following areas:
What people learn from their caregivers and culture, in addition to the interpretations they made of those experiences during their early years, determines how they relate to money and what their beliefs are in this respect. A clear understanding of this relationship is what helps people determine if a change is needed or not. Once people gain insight in this respect, the next step is to set up objectives and put a plan in place to achieve them. Clients then learn to balance their wants and needs, to ensure they have a fulfilling lifestyle, without falling in the traps of debt or consumerism.
There is no magic behind what people do to maximize the distribution of their income, make it last to cover their needs and wants, and on top of it all save enough money to meet their long term goals. The tool used to make this happen is a budget. Whether they do it mentally, through a simple spreadsheet or even a web based application, the only thing that matters is that they follow it closely and refrain from spending when there is no money left to reasonably do so.
Though budgeting may not be the most fun activity, it becomes extremely helpful when families encourage their children to join in this process. Their children’s participation enables them to understand from where the money comes, how it is distributed and helps them to make responsible choices about the allocation of resources.
The real benefit of budgeting is the awareness that it brings to people in respect to the areas where they tend to overspend on a continuing basis. The ongoing difficulty to control certain line items, brings to light underlying issues that otherwise might not have been detected.
In a world immersed in marketing campaigns targeting potential and sometimes unsuitable clients, it is easy to make financial decisions under the influence of these initiatives, which sometimes are not particularly beneficial to the consumer. Knowing the differences between these financial institutions, their perhaps less than altruistic objectives, the type of accounts they offer and the fees they charge are of paramount importance. Particularly when examined closely, financial organizations nowadays earn more revenues from the fees they charge their clients than from the interests earned from credits granted. The latter was for centuries the highest revenue stream for banks until the concept of “fees for service” was introduced.
Many people who have investments sometimes ignore how they are comprised and how their investments are performing. Financial coaching provides clients with a clear perspective of the appropriate investment instruments available in the market (such as GIC’s, Bonds and Stocks), its combination (e.g. mutual funds) and the accounts that hold them (RRSP’s, RESP’s and TFSA). Knowing the pros and cons of each instrument and learning simple ways to monitor and evaluate their performance help investors ensure that their efforts put towards building long term plans are in good hands.
Regrettably, the financial industry has not yet evolved to a point where financial specialists use simple language to explain relatively complex terms to their clients. On the contrary they use a language that can leave the client more confused than before the consultation took place. Financial coaching helps unravel the stressful and sometimes intimidating concepts frequently used in this industry. It provides non-financially specialized people, often novices, the necessary knowledge and tools to assertively approach bankers, creditors and advisors to look after ones best interests regarding capital and personal monetary affairs.
Credit is useful in helping people achieve their long term goals but can be very harmful when used to cover expenditures that go beyond their income or to finance the unaffordable. Financial coaching helps people identify and work on the issues that motivate them to spend beyond their means and to learn to postpone immediate self-gratification when internal or external pressures arise.
The toll that overspending takes, is reflected in an increased level of stress, anxiety and its consequential impact on health and loss in the quality of life experienced by persons going through these circumstances. None of these issues, according to my work experience are originated in mathematical or arithmetic inabilities, but in deeper issues that once identified, allow people to devise a plan of correction and most importantly, prevent reoccurrence.
Through financial coaching, people understand and learn to prepare basic statements (budgets and balance sheets), to obtain credit facilities from financial institutions, negotiate better credit terms, including lower interest rates, and improve their credit rating and score. When facing a debt crisis, financial coaching will assist clients in consolidating their debts and devising a plan to move out from this stressful situation.