What is financial coaching?

A financial coach works with clients on improving their financial IQ and relationship with money; this includes money management, budgeting, investing, and ultimately a plan to grow their wealth to achieve financial freedom. With a higher financial IQ you are able to understand your options and make educated decisions related to money throughout your life.

I like comparing people's views on health vs personal finances. At a very high level, you understand that physical exercise is good for you, but the type of exercise you do is dependant on your goals, your schedule, what keeps you motivated and so forth. Everyone is aware of the importance of physical health from a young age; it was part of being in school and widely talked about in society. Financial health unfortunately was never taught in schools and it’s too personal and taboo to talk about. People only realize its importance when they start planning for the future. In this analogy, financial coaching is like hiring a personal trainer. We teach and hold you accountable and eventually, you learn to do it on your own.

A financial coach helps you budget in a way that no matter what amount you make, you can create a positive cash flow, save, and invest to grow your wealth. A coach helps break down seemingly complex financial products into extremely simple concepts you can easily grasp. It empowers you to be confident and make educated decisions with your money for the rest of your life.

There are two main differences:
  • what kind of advice they provide
  • how they get paid; i.e. where their incentives lie

A financial advisor provides you with investing advice and options that are usually tied to the institution he/she works at. They focus on giving you options to invest your money but not necessarily educating you in these options. A financial coach provides you with the knowledge to make educated money decisions. They focus on helping you manage your money, budget, create positive money habits, and work with you so you truly understand different investment options. They help improve your financial IQ and EQ.

When you decide to go on a holiday, going to a travel agent and getting them to book the entire trip is similar to going to a financial advisor. On the other hand, if you research where you’re going, find hotels, restaurants, read reviews, talk to friends, and then make a decision, that's what a financial coach enables you to do. Whilst financial advisors add lots of value due to the complexity of the financial system, they do not spend time educating you, as their incentives don’t encourage them to.

Which leads me to the next big differentiator - Financial advisors typically get paid by commissions on the investments you make. Financial coaches get paid a flat fee. In my opinion, if your financial IQ is high enough to explain your investment decisions to your grandmother – then yes, a financial advisor is for you. They give you access to products. But if you want help managing your personal finances and educating yourself so you understand investment options, you need a financial coach, not an advisor.

Cash flow is the movement of money. and typically refers to a financial statement that shows the cash flowing in and out of your life. It is used to understand your money situation, assess your flexibility, enable goal setting and encourage growth.

There are three primary financial statements - Income statement, balance sheet and cash flow statement.

All three are interlinked; the income statement and the balance sheet are used to create the cash flow. I will help you create all three!

I know, it sounds complex. Trust me, it’s very simple, especially the way I will explain it to you. The idea behind it is that by creating these for your own personal finances, you will be able to see your money situation at a high level and start the journey of understanding your finances. From this you will increase your financial literacy and make informed money decisions.

Financial literacy is the education and understanding of a range of personal finance topics. It focuses on the ability to manage personal financial matters in an efficient way, and includes the knowledge of making educated decisions about investing, insurance, savings, real estate, paying for college and retirement.

Financial literacy is important because understanding your finances seeps into every area of your life, whether you think it’s going to or not. If you bury your head in your career and don’t understand what’s happening in your financial world, you could be at a severe disadvantage. Financial literacy helps you -

  • plan for the future
  • meet your financial goals
  • get through times of financial hardship
  • get the most out of your income
  • go from ‘surviving’ to ‘thriving’
  • improve many areas of life — relationships, careers, hobbies, and home life.

Through my experience, 6 months is the right amount of time for habits to get instilled and for the learning to pass on. Everyone is busy in their lives with work, kids, hobbies and so forth, and we don’t want this to feel like a burden.

Everything is personalized for you so this can be sped up or slowed down if desired.

Financial literacy was not taught in school, and still rarely is. It’s a skillset people are left to figure out on their own. The current working generation has it tough; it’s likely their parents didn’t need a lot of financial know-how. Back then, interest rates were high enough that by simply leaving money in the bank, they were making more than 8%. Now, we get 1-2% interest, and with inflation averaging 3.5% globally, you are actually losing money value by leaving it in the bank.

A financial coach teaches you about your personal finances and improves your literacy so you have the skills to better manage your money for life. These are critical skills that everyone, not just finance professionals, should know.