Category: Financial Coaching

Why I am Not a Proponent of the Financial Independence, Retire Early (FIRE) Movement

Posted on by Admin in Financial Coaching

Because I am a financial coach, most people assume that I am a strong proponent of the FIRE movement. If you have never heard of it before this acronym stands for Financial Independence, Retire Early. The FIRE movement started gaining momentum around 2010 and since then has taken off in millennium communities around the globe.

Although anyone can technically embark on a FIRE journey, it is primarily appealing to younger individuals who have a significant amount of time to save for and enjoy an early retirement. These individuals usually start their FIRE journey in their early work life and are able to retire in their 30’s or 40’s. Of course, this is significantly earlier than the traditional age of 65.

Some individuals in their 30’s and 40’s are also starting their own FIRE journey in hopes of retiring in their 50’s. Regardless of the age or stage in life the goal of FIRE is to save and invest enough money so that you can retire early.

This generally involves taking very aggressive steps to save and invest 50% or more of one’s income. Typically, these individuals find ways to cut corners in every way. This usually means not dining out, not enjoying fee-based entertainment, not accumulating debt, etc.

Individuals in the FIRE movement are also highly encouraged to increase their income. This generally means having a side hustle or starting a business. Having more finances means being able to save more money, which can help one achieve retirement much sooner.

What I Like About the FIRE Movement

Now before I get to the reasons why I don’t support the FIRE movement, I want to share what I do like about the movement. It definitely espouses many of the financial principles that I believe in.

The FIRE movement promotes saving and investing, which is something that I encourage all of my clients to do. Embarking on a FIRE journey requires you to take a critical look at your finances, which can help you make sound financial decisions in the long run.

You can quickly see and eradicate excessive spending habits when you commit to a strategic savings and investing plan. This can quickly eliminate poor spending habits that lead to insurmountable debt.

The FIRE movement also promotes financial independence, which typically leads to entrepreneurship. I am a strong proponent of business ownership because it often leads to self-reliance. It also gives you the freedom to pursue your own vision that can easily be aligned with your value systems. Because you are free to set your own schedule and work according to your own terms you don’t have to depend on others for financial security.

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All of these aspects of the FIRE journey are very commendable. In fact, I teach these very principles to my clients. Yet, I do so from a liberating and sustainable perspective.

Why I Don’t Support the FIRE Movement

In many instances a FIRE journey equates to extreme deprivation. This means giving up the things that you most enjoy in life. Such deprivation is generally inordinate and often leads to major issues in other areas of your life.

I believe that any financial journey should be about achieving and maintaining freedom and enjoyment in every area of life. Extreme self-deprivation is not conducive to creating such an environment.

FIRE is Counterproductive to Holistic Well-Being

Skimming back on luxuries or slimming down your budget is one thing. But completely giving up everything that is not 100% necessary to your physiological well-being is extreme. We have other needs in life which include our spiritual, emotional, and mental well-being. Typically, a FIRE lifestyle doesn’t support these other areas of need which are detrimental to our holistic well-being.

Sometimes we need to celebrate small and large victories in our life. In today’s society that often means celebrating through the purchase of items like clothing, accessories, food, etc., going out with loved ones, engaging in self-care, etc. These things generally cost money, which is typically not an allowable part of a FIRE budget.

Balance is necessary for us to enjoy a happy, fruitful existence. This means that we should not be at the extreme end of the spectrum in any regard. If you deprive yourself of life’s basic pleasures like enjoying good food, socializing, and other activities that make you human this can lead to mental imbalances. Most often it leads to depression and anxiety and sometimes even more severe conditions.

As mentioned, the FIRE movement is counterproductive to maintaining a holistic sense of well-being. There are more effective ways to control your spending while simultaneously caring for your whole self.

FIRE Promotes the Elimination of Credit Cards

Many promoters and adherents of FIRE generally denounce the use of credit cards for any reason. This is not realistic in today’s society. Credit cards are not only useful but they are necessary in some instances. Credit cards can make your life a lot more efficient on many levels.

While I don’t advocate debt accumulation, I do advocate responsible credit card usage for many reasons. Credit cards are great credit building tools when used properly. Credit card reward programs can save you money in many instances. Credit cards can also protect and defend you against financial fraud.

As with many FIRE proponents, I absolutely believe in spending only money that you have in most instances. However, this can easily be achieved with the use and implementation of a sound credit card plan of action.

FIRE SElls a FAUX Retirement Plan

The average person must have a six-figure income in order to comfortably retire early when implementing the FIRE method. Otherwise, early retirement generally looks a lot like life prior to retirement for the average person who uses the FIRE method.

This ultimately means living a very frugal lifestyle in which you are not able to spend on amenities. If you earn an average salary of about $50,000 you will have about $37,500 per year to live off of during your retirement years. And that’s if you are able to save at least 75% of your salary annually during your working years. Also, keep in mind that this money will need to last for the duration of your “retirement years”.

Of course, the figures above represent the average person who only puts their money in savings. These figures are not inclusive of compound interest earned from investments or other sources of income. Likewise this amount is for the average person who is able to save at least 75% of their income, which is typically an unrealistic feat. This means that a vast number of FIRE adherents won’t even be able to save this much each year.

In which case, many who embark on a FIRE journey end up quitting their full time job and making their side hustle or business their full time gig. This means that they are still effectively working.

Summary

Starting a financial independence journey is admirable in many regards. Doing so effectively helps to improve our lives on many levels. However, achieving financial freedom should never be an extreme or overwhelmingly painful endeavor. There will definitely be times on such a journey that require you forgo things that you may want but this should not be at the detriment to your overall health.

Saving and investing should be an intuitive and enjoyable process. Otherwise, it creates drudgery and resentment for the average person. In which case, one may give up altogether instead of investigating more sustainable ways to secure their financial future.

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When Should I Use My Emergency Funds?

Posted on by Admin in Financial Coaching

The answer to this question might seem obvious. You should use emergency funds during emergencies, right? Well it is not always that simple in everyday life. And it gets even more complicated in the midst of an unprecedented and particularly daunting economic crisis.

In order to adequately answer this question you must first define what constitutes a financial emergency in your life. Then, you should exhaust all other means of resolving the financial emergency. Finally, you need to decide how much of your stash you should use toward the emergency.

Here are a few tips to help you make the right decision.

What is a Financial Emergency?

When you first establish your emergency fund you need to outline specific situations that you deem to be emergencies. Every financial hiccup is not an emergency and should not be viewed as such. Financial emergencies should generally be viewed as situations that substantially and adversely impact your physiological well-being.

In other words, does the circumstance adversely impact your ability to provide food, shelter, and clothing for yourself and/or others. While our other needs are definitely important they generally don’t provide a basis for utilizing emergency funds.

Even within the context of your physiological well-being an emergency generally involves situations that impede your ability to provide the basics – not luxuries. For instance, if you don’t have enough money to feed your family regular, home-cooked meals it may be time to dip into your emergency funds.

Going without basic nourishment definitely impacts our ability to function properly at every level. It is therefore a justifiable emergency.

However, if you can’t afford to eat at your favorite restaurant this is generally not considered a financial emergency. As such, you should continue to save and find creative ways to enjoy restaurant-style meals at home.

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Alternative Options

Every bona fide situation that impacts your physiological well-being doesn’t necessarily require accessing emergency funds. Sometimes it can be solved through alternative methods, which can allow you to extend the life of your emergency funds for when you truly need them.

For instance if you are having issues paying your rent or mortgage, downsizing may be a viable option. If you still have the means to afford housing it may be better to look for more affordable housing. So instead of paying for a $2000 mortgage or rent payment, you may be able to find suitable housing for half the price.

Not only will you save on housing, you will also extend the life of your emergency fund reserves. If you have to spend your emergency funds on a high mortgage or rent payment for several months, your emergency funds will become depleted much faster.

If you find more affordable housing, you may not need to use your emergency funds at all. But if you do, it will be less taxing on you in the long run. You could potentially extend your emergency funds twice as long in such a situation.

Of course, there are also other solutions in this scenario. You many consider moving in with family or friends, applying for governmental subsidies, getting payment extensions from your landlord, etc. The key in this and other financial emergencies is to exhaust all options before using emergency funds. Your ultimate goal should be to maintain your emergency funds for a truly rainy day.

How to Use Emergency Funds

You should see a theme developing my now. The idea of using emergency funds is to keep as much money on reserve as possible. So the goal is to spend the least amount of money that is necessary to cover an emergency situation.

For this area I will use the final physiological need – clothing. In modern, western society clothing is rarely considered an emergency need on a day-to-day basis.

However, situations such as fires, theft, natural disasters, etc. sometimes result in people losing all of their possessions. In such instances, they usually have to replace their clothing. This definitely constitutes an emergency.

As stated earlier, you should first exhaust all other means before dipping into your emergency funds though. In such scenarios there may be clothing available through donation-based organizations or from family and friends. So the first option should be to use alternative sources so that your emergency funds can be used for the most important expenditures.

However, if you need to use your emergency funds for clothing you should be conservation with your spending. Start with the basics. You don’t need a wardrobe full of designer apparel to get back on your feet. It is fairly easy to get away with buying 1-2 weeks worth of clothing until you get settled again.

You can generally get quality, affordable items through thrift, second-hand, or discount department stores. Such items are usually suitable for your immediate needs. It is definitely not necessary to use all of your resources on clothing.

Instead you should keep as much as possible to cover your other physiological needs. In this way you can and should use your emergency funds to keep yourself afloat.

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Should I Get a Credit Card if I Have Poor Money Management Skills?

Posted on by Admin in Credit Cards, Financial Coaching
Credit Cards and Budgeting

Credit cards are a vital part of everyday life for the average person because they have become essential tools in the online marketplace. So based on the wide-spread scope and use of credit cards I wholeheartedly recommend that every independent adult carry a credit card. This simply makes life easier from many perspectives.

The benefits of owning a credit card are plentiful and include:

  • More efficient purchasing transactions
  • Safer and more secure financial transactions
  • Greater variety of payment options
  • Low or no interest fast-track credit
  • Card rewards and benefits
  • Credit building resources

While credit cards can be great tools, I emphatically recommend exercising sound financial management strategies when using them. This means that you need to plan and budget properly to avoid getting into debt or paying high interest rates. Obviously this isn’t easy for someone who has poor money management skills. However, all is not lost just because you may be a bit deficient in your budgeting skills.

There are ways that you can monitor and limit your own spending when you obtain a credit card. Such tools can help you take advantage of the many benefits of having a credit card while still enabling you to avoid or decrease credit card debt. So if you desire to have a credit card but you are have troubling keeping track of your finances, here are tips that can assist you.

Credit Alerts

If you are concerned about spending too much on your credit card from month-to-month you can set spending alerts on your card. Most major credit card issuers have this functionality on their online card management portals. You can simply set alerts to be sent via email or text message for you or secondary cardholders.

For instance, if you want to keep your spending limit to $500 per month you can set an alert to remind you when you reach this amount. This way you can curtail your spending before you reach your limit.

These types of alert systems are great for people who have challenges keeping track of what they spend but are easily able to control their spending. I personally like these type of reminder systems because they allow me to use my card while staying on track with my monthly budget. This way I can keep my credit profile active, yet not overspend or go into unnecessary debt each month. Also, I can earn cool cash, point, and travel rewards while staying within my budget.

Spending Limits

Another option is to set hard spending limits on your card that don’t allow you to go over the spend amount at all. Unfortunately, this option is only available if you are a secondary user on someone else’s account. But it is still a great option if you have issues with money management. You get to take advantage of this credit building tool while learning the art and science of money management.

Credit alerts give you soft reminders that you are approaching your credit limit. However, you can still go over the alert limit without interacting with your credit card management system.

If you are an authorized user on someone else’s account, they can set a spending limit for you which will not allow you go over this limit. They will have to change the limit in order for you to go over the spending limit. This option is great for young adults who are just starting out in life. They can be added to their parents or their spouses accounts even if they have no credit history.

This feature is not available on all credit cards so you need to check with your card issuer before applying if this is something that you are interested in. American Express is one of the few card issuers that has this feature on all of its cards. However, there are a few other issuers that have this feature for some of the cards in their product lines.

I have limited the spending limit on my children’s accounts since they are in the process of learning about money management. I give them a monthly budget and spending parameters so I set their spending limit to ensure that they don’t surpass their budgets. As they grow and become more responsible I plan to expand their spending limit.

Credit Freezes

Whether you have your own credit card or you are an authorized user on someone else’s card, a third option is to freeze the card. You can freeze your own account if you are the primary cardholder and you can freeze the accounts of authorized users. Freezing a credit card means that it can’t be used for new purchases by one or more authorized users. However, any prior authorized purchases or recurring payments from the card will continue unless you stop them.

This is a very effective option if you want to have a credit card handy for large or unexpected purchases. If you don’t use your card on a regular basis freezing it can also help protect it from fraud. This is also useful for those who have issues with controlling their spending.

Because I have several personal and business credit cards, I have frozen one of them that I don’t use on a regular basis. I actually plan to close the account before it incurs the annual fee payment at the end of this year. However, since I don’t use it and still want to have the credit line available to me for a while I have frozen it for me and all authorized users. This way I don’t have to worry if it gets lost or stolen since I don’t carry it with me like my the other cards that I use on a regular basis.

Need help managing your finances? Contact us and we will help you develop the right skills to secure your financial future.

6 Things to Consider When Choosing a Brokerage Firm

Posted on by Admin in Financial Coaching
Choosing a Brokerage Firm

Choosing a brokerage firm can be daunting in today’s investment market. There are many options to consider when deciding which one is best for your investing needs. I often advise my financial coaching clients on several options that may be a good fit for them. However, this is because I have built a strong relationship with them. I understand their personalities, their needs and desires, and their goals and objectives.

I rarely ever give specific financial advice to the general public because there are many things to consider when it comes to your personal finances. Selecting a brokerage firm is both a science and an art. There are specific factors that usually impact everyone when it comes to choosing the best brokerage firm. However, this process is also very unique to each individual.

This is why I have put together a list of common factors that one should consider when deciding on a brokerage firm. So if you are in the midst of trying to decide which firm is best for your financial needs, here are some things to think about.

Accessibility

Historically, brokerage firms have operated out of brick and mortar buildings. They offered investors full service options inclusive of financial advisors and trade execution. Investors had somewhere to go when they had questions or concerns about current or future holdings.

Today, most of the long-standing traditional brokerage firms have both physical locations and robust online trading platforms. And they still offer a suite of services to their customers. They are great options for investors who want 5-star treatment but also desire the convenience of online trading.

A number of virtual brokerage firms have sprouted up over the past few decades or so. Online brokerage firms have changed the investing landscape in many ways. A number of them have 24/7 operating hours and they offer simple, self-directed trading options.

This has significantly expanded accessibility options for investors. So new investors who don’t need to access a live broker can easily open an account with an online brokerage firm. They can still speak with account managers and tech support over the phone, yet conveniently self-manage their portfolio online.

History and Reputation

Investing is a very sensitive matter as it deals with exchanging monetary funds in the virtual environment. The average person is typically concerned about where they park their hard-earned dollars, especially in today’s economy. This is why it is important to know the history and reputation of the brokerage firm that you select.

A number of brokerage firms have a strong, long-standing reputation in the financial market. This is vital to maintain sustainability in this sector. On the other hand, some firms are newer and haven’t built a solid history as reputable establishments. This doesn’t mean that the they don’t operate with integrity, however, this can be a concern for some investors.

Trade Commission Fees

While more brokerage firms are starting to offer commission-free services, a few of them still charge these types of fees. This means that investors are required to pay fees when they trade. This amount can be anywhere from $1-$50 or more, which gives investors reason to shop around. So understand how much it will cost you to trade when selecting a brokerage firm. No or low trade fees are more ideal for capitalizing on your investments.

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Account and Trade Minimums

Brokerage firms vary in terms of account opening minimum deposits and trade minimums. Some firms don’t have minimum deposit amounts while others can require a minimum deposit of up to $30,000. Some firms have trade minimums on certain types of exchanges such as mutual funds or exchange traded funds (ETF’s) while others don’t. It is important to keep this in mind when you determine which firm is the best one for your needs.

Education & Research Tools

Education and research tools may also be a consideration when selecting a brokerage firm. Some firms have very robust education platforms that allow them to deliver live webinars, consistent print materials, and extensive prospectus reports. These tools can be very useful for new investors who are learning about the ins and outs of the stock market.

Traditional firms with brick and mortar locations tend to have a comprehensive suite of educational services available to their clients. Conversely, online brokerage firms tend to be less equipped to provide such services. If educational tools are important to you, you should research which options are available through various brokerage firms.

Promotional Offers

One of the last things to consider is the availability of promotional offers. Such offers generally come in the form of cash or transfer bonuses, free securities, or free services for a limited period of time. Cash bonuses can range anywhere from $50 to more than $3000. Investors are generally required to deposit anywhere from $5000 to $1,000,000 to qualify for such offers. So they are definitely for serious investors who are able to make significant contributions to a new brokerage account.

Promotional offers are generally not important to new investors with less than $5000 in investment capital. However, it may be useful to research options that may be available to you if you are in the market to invest larger sums of money.

I don’t recommend choosing a brokerage firm solely based on promotional offers. You should definitely consider more important factors such as those mentioned above before thinking about promotional offers. Keep in mind that you will most likely have a long-standing relationship with the firm that you select. So you should consider how it meets your most important needs first. Promotional offers are just icing on the cake.

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Need more investing guidance? Contact us so that we can help you start building your wealth.

5 Tips for Overcoming Fears About Investing in the Stock Market

Posted on by Admin in Financial Coaching
Overcoming Investing Fears

The number one source of opposition that I get from my financial coaching clients is their fear of investing in the stock market. Once I help them develop strategies to pay off their debt so that they can begin building wealth they usually want to stop at simply saving money. While I always recommend having liquid emergency funds in store, this is not a sufficient tool for building true, sustainable wealth.

In order to build wealth quickly and efficiently it is important to invest. There are many ways to invest your money to make it grow fast. You can invest in real estate, a business, the stock market, etc. But one of the quickest and easiest ways to start investing is through the stock market, which many people are afraid of. This is especially the case for individuals who have just finished paying off debt and are anxious to set aside extra cash for the future.

And this is completely understandable. I once had these same objectives when I was fresh out of debt, however, I quickly realized the value of investing my money after taking a few steps to overcome my fears. Since that point I have found other strategies that have helped my clients overcome their fears of investing and start rewarding journeys to building wealth.

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Educate Yourself About the Stock Market

Education is your first line of defense for making sound decisions in almost any endeavor. Investing is no different. The more you know about the stock market and how it works, the better equipped you will be for selecting sound investment options. Proper education can easily dissipate your fears about investing in the stock market.

When I first decided to invest I spent about a year figuring out how the stock market works. These are some of the things that I did to educate myself about the stock market:

  • Signed up for a paid online investing class
  • Frequently watched the Bloomberg channel
  • Watched YouTube videos about investing
  • Read books and online articles about investing

It took me about a year to start investing because I wanted to pay off my debt before I got started. At the time I had quite a bit of revolving debt that I wanted to pay off. I knew that I wanted to invest once all my debt was cleared so I started my educational journey very early.

It doesn’t take this long to become adequately educated about the stock market though. With the right tools and resources and adequate time you can easily learn investing basics within a month or so. There are plenty of free and paid investing resources available in-person and online. You can easily find tools to suit your personality, budget, needs, and desires. So one of the first steps you should take to ease your fears about investing is to educate yourself about the process.

Use Stock Market Simulators

When I first started investing stock market simulators were not available to me. Or at least I was not aware of them. However, these handy tools have grown in popularity over the years. They are basically a way of allowing you to invest virtual or “play money” in the stock market to see how your investments can grow over time. These tools are a great risk-free way of getting acclimated to the stock market without taking major risks with your money.

Open and Fund a Brokerage Account

This is one of the first measures that I took when I decided to actually start investing in the stock market. I opened a brokerage account with a $100 deposit. I didn’t know what to invest in at first so I started doing a lot of research while my money sat in the account for 4 months. The firm that I used automatically puts deposits in an interest-bearing money market settlement fund. So my money was growing at about .25% each month as it sat in the account.

I received monthly email statements that constantly reminded me about the account. This encouraged me to keep doing my research so that I could figure out where to invest this money. Once I finally decided which investment products where right for me I added $900 to my settlement fund and began trading. Thereafter, I became hooked on the stock market once I realized its wealth building potential.

Overcoming investment fears

The key to this strategy is to add funds to your brokerage account. Many brokerage firms allow you to open an account with no initial deposit. If you do this then you won’t be as compelled to do something with your money. So as soon as you open your brokerage account fund it with an amount of money that is comfortable for you. You can start trading whenever you are ready.

In addition to kick-starting your investing ambitions, opening a brokerage account can give you access to valuable investing educational resources. Many brokerage firms provide a number of useful educational tools such as articles, videos, webinars, etc. to their clients. As such, you can utilize these to grow in your knowledge and awareness of salient investment strategies.

Choose Low Risk Options

Another tool that you can use to ease your fears about investing is to put your money in low risk investment vehicles that guarantee a return on investment. Certain investment options such as certificates of deposit (CD’s), money market accounts, and bonds allow you to safely start your investment journey.

You are guaranteed to get your initial investment back with these types of accounts in addition to some interest. However, the interest payout is generally quite lower than what you could get when investing in stocks. Low risk investing options typically result in lower dividends or payouts. But this is still a great way to get your feet wet and to diversify your portfolio.

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Start Small

Another strategy for decreasing your angst about investing in the stock market is to start small. You do not have to pour your life savings in the stock market. In fact, this is a bad idea even if you are an active investor. You should always leave cash in an emergency or reserve fund.

Many online brokerage firms allow you to invest as little as the per share cost of a stock or exchange traded fund (ETF). This could literally be as low as $2. Like with other low risk investment options, the payout is typically lower with smaller investments. But the goal is to ease your way into the stock market – you can always add to your portfolio as you become more comfortable with investing.

Need more helpful ideas on investing in the stock market? Contact us and we will gladly help you develop a sound investment strategy.

Enjoy the security and earning potential of a savings account while maintaining the flexibility to write checks with a rate of 1.00% APY on all balances equal to or greater than $25,000

Is it Better to Save or Invest?

Posted on by Admin in Financial Coaching
Save or invest

This is a question that I have been getting a lot lately. More and more people are concerned about storing away for the future since COVID-19 has ravaged the global economy. And rightfully so. We should always prepare for our financial future because we simply don’t know what tomorrow holds.

As such, saving and investing are both important pieces of the puzzle. Both are critical tools for building wealth and for securing one’s financial future. This is why I always advise my clients to do both whenever possible. This is because saving and investing are both important and one only outweighs the other in regards to purpose.

What this means is that your decision to save or invest your money should be determined by your overall goal. There are definitely times when it is better to save than to invest and vise versa. But, this is ultimately determined by your individual financial situation. Let’s take a look at a few situations in which one option may prove better over the other.

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Emergency Funds

In general, I recommend saving at least 3-6 months worth of emergency funds before you start investing. Emergency funds are the equivalent of all your essential living expenses. However, I recommend adding enough to cover non-essentials as well.

For example, if your living expenses typically add up to $3,000 per month then you should aim to save at least $9,000 in your emergency fund account. This is the minimum that you should store up – the more the better. Effectively you should strive to accumulate at least 6 months worth of living expenses in your emergency fund.

Emergency funds should be stored in a savings account because they are more liquid. This means you can easily access your funds in an urgent situation. Thus, you don’t have to depend on an upmarket to sell stock shares.

There are many options for storing money in savings accounts. Common savings options include regular savings, high yield savings, or money market accounts. I always recommend accounts with the best interest rates to my clients. This way your funds are earning money when they are dormant. They are also easily accessible to you when you need them.

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Major Purchases

If you are planning to make a major purchase, timing is very important in determining whether to save or invest. If you have less than a year to purchase the item, it may be better to save or purchase a certificate of deposit (CD). These are very low risk, highly liquid options.

Conversely, if you have more time such as three to five years, investing may be a wise choice. You can invest the funds for the purchase in a mixture of low and high risk funds. This way you can get the best return on your investment. You can easily and quickly compound your money and still have the financial resources necessary for your purchase.

Financial Independence and Retirement

If your goal is to achieve financial independence or plan for retirement, a mixture of saving and investing is usually better. If you have more than 10 years before you reach your goals, aggressive investing is usually more effective. The more time you have to reach either goal, the more opportunity you have to make your money work for you on a larger, more rapid scale.

Saving and Investing for Retirement

On the other hand, if you are closer to your financial independence or retirement goals you should definitely go a bit slower. You need to ensure that you will have the financial resources available to you once you leave the workforce.

In general, I recommend that individuals who are planning for financial independence or retirement to trade lower risk options. Additionally, they should save a greater proportion of their money. The last thing you want to do is to lose your money right before it’s time for you to retire or resign. This will only prolong your time in the workforce and possibility lead to mental and/or physical health complications.

Need more financial coaching advice? Contact us and we will gladly assist you.

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The Difference Between a Financial Coach and a Financial Advisor

Posted on by Admin in Financial Coaching

Oftentimes when someone finds out that I am a financial coach, they start asking me questions about investing. While I am an active investor, advising people about trading is not part of my role as a financial coach. In fact, I am not legally qualified to do so on a fee basis.

Instead, my role as a financial coach involves financial education and motivation. I help people manage their finances more effectively and give them the encouragement that they need to do so. While this function involves investing to a degree, I am not a financial advisor.

So whenever I get these types of questions, I usually try to help people understand the difference between the two professions as outlined below:

The Role of Financial Coaches

A financial coach assists clients in setting and sticking to measurable financial goals. The role of a coach is to help clients assess their own financial situation from a practical perspective. Thereafter, a financial coach guides clients through the process of creating specific, measurable, and achievable financial goals. During coaching sessions a financial coach typically educates clients about effective money management strategies based on the clients’ individual needs.

Financial coaches are not required to have specific qualifications in order to advise clients, though many do. This is because the role of a financial coach does not entail advising clients about trading specific stocks or funds. Instead, financial coaches educate and encourage clients to implement wealth building strategies.

Due to the function of this role, your relationship with a financial coach may be short-lived. It typically takes about 1-3 months of coaching to get clients on the right track. Thereafter, they should be able to effectively manage their finances and adequately prepare for the future.

Money Management

For this reason, good financial coaches do not desire to prolong a fee-based relationship with their clients. Instead, they want to equip their clients in as little time as possible to be financially independent.

Financial coaches are typically paid by the hour or through a fixed-price package. So you know exactly what to expect up-front. The benefits of working with a financial coach is that you receive personalized attention. You also have someone in your corner every step of the way. This is much like working with a personal trainer instead of by yourself. You have an advocate pushing you through the tough beginning stages of your financial improvement journey. Therefore you don’t easily give up when faced with challenges.

The Role of Financial Advisors

A financial advisor can be complementary to the role of a financial coach. An advisor helps you build your wealth once you are on the road to achieving your money management goals. You don’t have to have a ton of money to seek out or benefit from a financial advisor. However, you should be financially fit before you consult with an advisor.

The role of a financial advisor is to help you with your long-term financial planning goals. Advisors tend to be most beneficial to individuals who are interested in investing or otherwise taking high level financial risks. These individuals usually make about $100,000 or more annually and tend to be in their mid-40’s or older. Such individuals often desire personalized, in-depth investing tips and strategies.

Retirement Planning

For this reason, financial advisors must be licensed and registered with the Financial Industry Regulatory Authority. These individuals often give their clients very detailed investing recommendations and they usually manage their portfolio for them. This is why clients typically have a long-term relationship with their financial advisor. It is fairly common for clients to remain with the same financial advisor throughout their retirement years.

The cost of retaining a financial advisor is typically more expensive than that of a financial coach. Financial advisors are usually paid on a fee or commission basis or a combination of both. They can charge by the hour or they can take a percentage of your investment portfolio. Usually the more money an advisor manages for you, the more expensive it is to retain the advisor.

Summary

These are the main differences between financial coaches and financial advisors. As you see, they both have separate and distinct roles but are definitely supportive of each other. Whichever one you choose, be sure that the services that the professional offers is a good fit for your financial needs.

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