Money is the number one cause of stress in America. It’s easy to see why: 67% of Americans wouldn’t be able to scrounge up $1,000 for an emergency, only 1 in 3 of Americans keep a household budget, 35% of Americans have debt in collections, and 1 in 3 people have nothing saved for retirement.
Financial stress is mounting, and there aren’t enough qualified people to help. You know who can help – financial coaches. Credit counseling, financial planning, money coaching, oh my! If you need help with your finances, there’s an endless amount of support — but they can each serve different purposes.
What is Money Coaching or Financial Coaching?
Money coaching (sometimes referred to as “financial coaching”) helps you gain clarity on the state of your finances and habits. They help you become more confident about your financial decisions, giving you the tools to create good money management habits that will help you get your life in order, grow your wealth, and improve your overall financial well-being.
Sometimes a lack of income isn’t the problem. Look at celebrities like MC Hammer, Mike Tyson, and Lisa Marie Presley. All three made tens of millions of dollars every year — yet somehow declared bankruptcy and lost millions, be it from divorce, poor investments, or trusting the wrong people with their finances.
We can also see this happening in situations a little closer to home. For example, some people earn great incomes that place them in a higher tax bracket, but they don’t seem to make any financial progress for years.
Poor money management can destroy the financial well-being of even those with high incomes, leaving ostensibly successful people scrambling to plan for the future.
So, money coaching helps people:
- Establish financial goals
- Better manage their income
- Strategically invest
- Plan for the future, including recognizing risks and preparing for a rainy day
- Feel more confident about making money decisions
How does it work?
Like most financial services, a consultation is the first step. Clients and coaches get to know each other, discuss the client’s financial scenario, and assess whether money coaching is a good fit for what the client wants to achieve. Some money coaches offer a free consultation, while others might charge a fee.
Some money coaches work like an insurance broker, where they are paid via sales commissions on financial products, referral fees, or assets under management versus charging the client a fee for their services.
Other money coaches work with an “advice-only” or “fee-for-service” model, where they do not earn any commission from sales, referrals, or assets they manage but rather charge a clearly stated fee for their services.
An “advice-only” model works in the client’s favor because it ensures full transparency and an unbiased approach to money coaching, including the advice and recommendations they receive.
What’s it like to work with a Financial Coach?
When you work with a professional, here’s what that service typically looks like:
- You provide your coach with information about your finances, and you both discuss your financial goals and areas in your finances to work on.
- Your Money Coach will work with you to create a detailed action plan to bring you closer to your goals and build good money management habits.
- You and your coach will meet regularly to ensure you’re staying on track with the plan and to help keep you motivated.
- Your coach will continue to offer you advice as you need it and as you set new goals, or if your circumstances change.
Retirement Planning
Some people earn a steady income throughout their entire careers, only to be left with next to nothing when retirement creeps up. Money coaches help you avoid this difficult situation with sound advice and planning to prepare you for retirement. Some money coaches even provide specialized retirement planning coaching.
Divorce
One of the biggest culprits for severe financial downward spirals is divorce. Divorce rates continue to go up. Uncontested divorce (also known as “easy” divorce), can cost between $1,000-$3,000.
Contested or “difficult” divorce can cost upwards of $74,000. Oftentimes, divorce results in losing half of your net worth, which is something worth preparing for with a Money Coach.
Legacy Planning (or inheritance)
A Will isn’t always enough to ensure your estate is managed the way you want it to be after you’ve bid adieu (permanently). A Financial Coach can help you work with an estate planner on leaving inheritances to your children, or deciding how to transition ownership of your assets and/or operations of your business.
Debt Reduction
If you have a good income but struggle to get out of never-ending debt, they could help you find a way out. Like the detailed action plan mentioned earlier, financial coaches can help you create a customized budget that works for your lifestyle and priorities that will reduce and eventually help you eliminate your debt.
Building Strong Financial Habits
It’s easy to make a decent income and still not save any of it, especially when you live in a city where the cost of living is high. They help you take your money further by using behavioral coaching practices to teach you to build strong financial habits and curb spending.
Understanding Your Finances More
Some people get so overwhelmed with their finances that they ignore them completely. Maybe you’ve been guilty of ignoring a credit card statement, giving up on tracking your spending or living your financial life on autopilot.
They help you take a hard look at your income and spending, understand both down to the last dollar, and then help you feel more confident and aware of the decisions you make when it comes to your money. They help keep you accountable to yourself.
Money Coach vs. Credit Counsellor
You might be thinking that money coaches provide similar services to credit counselors. Indeed, money coaches can help you manage your money, pay off debt, and achieve your financial goals, like a Credit Counsellor. But they differ in a few ways:
Future Planning: A Credit Counsellor can help you set and achieve financial goals, like getting out of debt. A Money Coach can also help you plan for future life events, like retirement, purchasing a home, a divorce, and legacy planning.
Debt Elimination: Money coaches can help you create a debt elimination plan, but they don’t offer debt restructuring services, like a debt consolidation program.
Review of Investments and Insurance: A Money Coach can provide an unbiased review of your investment portfolio and insurance policies that is independent and has your best interests at heart.
Creditor Negotiation: Money coaches can offer advice on how to manage creditor obligations but they do not negotiate with your creditors on your behalf as do non-profit credit counselors.
Price: Money coaches either charge a fee for their service or earn commission on sales, so their clients tend to be in a higher income bracket. Non-profit credit counselors offer free professional debt services, like credit counseling, which caters to those earning more modest incomes.
Does Financial Coaching sound like an interesting profession?
Maybe you have worked your way up from a pretty tough financial situation and feel empowered to help others do the same. Maybe you have always been good with your money and want to show others how to achieve financial freedom. Or maybe your position in financial services or coaching has allowed you to help people with their finances, but you never considered it anything beyond just part of your job.
Who can become a Financial Coach and what do they do?
A financial coach is someone who educates clients on the basics of personal finance and creates a spending plan that reflects the values and goals of the client. The coach then empowers clients to take responsibility for their decisions, supports their learning and growth, and serves as an accountability partner throughout the process. You may use a personal trainer to help you achieve a level of health you couldn’t on your own. Being a financial coach is like being a trainer for someone’s finances.
Start a Financial Coaching Business
Figure out your “Why” so people know, like, and trust you.
First things first. You need to ask yourself why you really want to become a financial coach. Who do you want help? Why do you feel this calling to help them? What is your personal story and journey with money?
Figuring out your “Why” really helps solidify your passion for helping people. It helps define your audience and create your message. Maybe you paid off a significant amount of debt, realized how good it feels and want other people to feel the same way.
Or maybe you saw your single mother go through financial stress and bankruptcy and have a passion for helping single mothers and women who are in need of guidance and compassion.
Or maybe you’re called to help small business owners use their finances as a tool to help them achieve their earning potential. These are all great “whys” for starting a financial coaching business.
You don’t need to have a passion to help everyone achieve their financial goals. It’s ok to want to work with single moms and not small business owners. But figuring out why you feel that way is key. When you start by clearly identifying your Why it makes every business decision you make easier.
Craft and tell your story so clients understand your expertise and how your backstory relates to their specific needs.
Along with your finding your Why, crafting your story is one of the most important things to help you become a financial coach. What is your personal story and journey with money and why does it make you want to help people with their personal finances and how does it help you relate to the people you want to help?
Don’t sell yourself short. You are qualified to call yourself a financial coach.
Imposter syndrome is real. A lot of people have a hard time getting over the mental hurdle of feeling like they are not qualified to be a financial coach. It’s enough of a block that it can stop people from taking the first step. The number one requirement to become a financial coach is passion.
Passion to help people first and foremost, and a passion for teaching them about personal finance. Not to oversell it, but let’s go back to your why. If you are confident about why you want to be a financial coach, you are well on your way to becoming one – fancy degree or not.
How to justify charging people when they are in a financial crisis
It’s a very weird thing to ask for money from people who are either not good with paying their bills or are trying to pay off debt. It seems like a bad way to build a business asking for money from people who feel like they can’t afford the bills they already have.
They are paying you to help them stay accountable, stick to their plan, and provide unbiased strategies and advice on their finances. Doing that will save them thousands upon thousands of dollars in the long run, putting the couple hundred dollars into perspective. Also, they are more likely to engage during our time together.
Paying for something means they don’t take my time for granted. They come to our meetings, take notes, ask questions, engage in the process, and in turn get better results from our coaching sessions.
The difference in the person’s attention, preparation, and nonverbal communication from those who came in for free consultations compared to those who had to pay something for the advice was staggering.
Reflect on how it is you would hold or are holding yourself in integrity as a financial coach.
Do you:
- practice what you preach?
- have policies about client privacy and security and do you share those policies with your clients?
- allow third party groups and vendors to pay you for referrals or affiliate links or do you have any other conflicts of interest that you tell your clients about?
- allow people to cancel and reschedule over and over again because of fear and avoidance?
- Can you be empathetic and give tough love and know when to use them appropriately?
All these things are very important because clients will see that.
If you appear to not have your finances in order, they won’t think your coaching is effective. And if you allow them to control coaching sessions or cancel or reschedule willy-nilly they won’t respect you or your authority as a coach.
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