The Fiscal Fitness Podcast

Episode 100:

What is a financial coach and how are they different from a financial advisor?

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Hostname: Jaclyn Wise  

My name is Jaclyn Wise. I am one of the financial coaches at Fiscal Fitness and one of the hosts of this podcast, the Fiscal Fitness Podcast. Welcome back.

We are so excited that you’re listening here today, and I’m really excited to share this topic with you, which is the difference between a financial coach and a financial advisor. And who do you need right now? And so I’m really excited to dive into this topic with you because it’s a question we’ve been getting a lot lately from people who are calling and potentially looking to working with us. And they’re wondering, are we financial advisors? And if not, what do we do? And so I’m really excited to explain the difference between a financial coach and a financial advisor and which one you might need. And to give you a bunch of details about what we do and share that with you.

So I’m really excited to dive into this topic with you. A lot of times people think that a financial advisor is the first person they should work with to get their financial house in order. And sometimes that’s just not true. So I’m going to start off by talking about financial coaches because I’m a financial coach and I’m really familiar with what we do. So I’m going to share a few things that financial coaches help their clients do.

So one of the first things we do is as financial coaches, we teach you the specific behaviors, skills, habits that you will need to be successful with the day to day side of your money at first. And then we help you implement those strategies into your life. So if you’re someone who is feeling paycheck to paycheck, you probably want to work with a financial coach because we are going to teach you both the one: head knowledge that you need of how to get away from being paycheck to paycheck and support you through two: the behavioral side of the habit.

Building process, to find which specific strategies and approaches are going to work for you the best, or maybe you don’t feel paycheck to paycheck, but the process of managing your money successfully doesn’t feel sustainable to you. If that’s the case, you probably want to work with a financial coach. We at Fiscal Fitness do not believe and tracking where every single dollar goes. We know that clients who attempt to do that, won’t with it long term, it’s not sustainable. And we want our clients to have a lifelong impact on their relationship with money from working with us. So we really work with you to find a process that does work for you, and we help you refine and tweak that process until you’re successful with it.

A big thing that we say at Fiscal Fitness is we do not believe money is a one-size-fits-all approach, no matter what the gurus say, we don’t think everyone can follow steps one, two, three, four, five, six, seven, and all be equally successful. And that that’s why as financial coaches, we have so many things tools in our arsenal to support our clients with both the knowledge side and the habits and mindset side that they’ll need to be successful.

Another thing we do as financial coaches is we help you gain awareness of your spending patterns. And if you feel that they are out of alignment, you bring them into better alignment with your values, your goals and your dreams. So if you’re somebody who maybe feels like you’re winging it with your money, you probably want to work with a financial coach because we’re going to help you figure out where all of your money is. It’s going each month and see if we can help, help you redirect your dollars to their highest and best use. Or maybe you don’t feel like you’re winging it, but you do worry that you’re wasting time and money with the financial aid decisions you’re making right now.

Maybe things feel just a little chaotic. Maybe you feel like you want peace of mind with your money, or you want to stop worrying about overdrafting, your checking account. In any of those cases, you probably want to work with a financial coach because you’re not seeing your money clearly. And we can really help paint a clear picture for you of each month, what you’re thinking, income expenses and how much is left after those two things and teach you to learn to trust the plan that we’re helping you to build together. It is amazing how quickly our clients start to experience that peace and how quickly that chaos starts to leave just from working with us.

So another thing we do as financial coaches is we help you plan ahead with your money so that you can get ahead with your money and then spend it with confidence. And a big thing that we do is really help our clients. Let’s see the impacts of spending decisions they’re making today on next week or months, or even years into the future. So many of our clients come to us saying, they’re worried they’re making mistakes, or they’re making the wrong decisions with their money. And if that’s you working with a financial coach can really help you to see the impacts of those decisions ahead of time. And, Oh my goodness, what a powerful thing, a powerful tool to have. So not only can we help you see the impacts of spending decisions, we can also help you to forecast when you’re going to hit your goals. Like if your goal is to get out out of debt, we can look at how do your current spending habits, what are the timelines for that for you getting out of debt? Versus if you adjust some of your spending habits, we can help you see if you adjust them, how much interest that’s going to save you, how much faster you’ll be out of debt.

We can do the same, same kind of forecasting with certain milestones of your savings goals, help you to know, okay, if you paid off your debt first, and then you want to save up for a house, here’s when you would have enough time to have the down payment that you want. And so helping you plan ahead and really have this, you know, crystal clear plan, moving forward of what you’re going to do specific to you, not these predetermined steps, one, two, three, four, five, six, seven, but really specific custom steps for you. Another thing we can do as financial coaches is serve as your accountability partner, when you’re faced with spending temptations, or when you find you have a lot of buyer’s remorse, we really helped with that.

And that being said, I want to make sure or, you know, we do not tell our clients how to spend their money. We really have helped them evaluate if you want to change any of your spending decisions and then figure out the how behind changing them. So we don’t tell you to stop spending your money on certain things. And if you’re worried about that, that’s not our approach. Our approach is to help you find out what you want to be spending your money. How do you want your spending to align with your values and your goals? And if you feel things are out of alignment, bring them back in. And, you know, we have lots of clients who deal with spending temptations, and we have so many different strategies that we can use to help you overcome those spending temptations.

Another thing we do kind of in the same vein is of accountability partners. We also can serve as a sounding board. So when you’re going through major financial decisions, having an expert’s eyes on your finances, who’s seen it before. Seen other clients go through similar things. And that person who is not being personally impacted by the specific numbers involved in the decision, you know, we’re that kind of neutral, third-party, unbiased opinion for you, right? When you’ve got a big decision to make, and it’s not going to be emotionally impacting us, like it is you so we can really help you evaluate that decision.

Another big thing we do as financial coaches is we focus on your goals. So we pushed you to set and reach your financial goals faster than you ever thought was possible. We love being creative with our clients. We help our clients brainstorm ways that if they’ve got this goal, they either can increase their income for a short period of time or decrease their expenses, decide maybe to sacrifice if I see something just for a short season so that they can focus and be really aggressive with their goals of getting out of debt, or if they want to get out of debt so they can start investing more, or maybe they want to save up to buy a house or any number of other big goals that they have.

And so, honestly, some of those goals, I just talked about good indicators for people who should work with a financial coach first, before an advisor, many times I’ve had clients come to me from an advisor. Who’s told them, you need to get out of debt first, because you have these high-interest debt accounts open. And the interest that’s accruing on them is hurting you more than the interest that your investments with me, the financial advisor would help you. And so we see a lot of this with our clients. And so if that’s you, we really can specialize in helping you strategize around debt pay off and support you in developing those behaviors and mindsets that you’ll need to get out of debt as fast as possible so that you can start investing and building your retirement as early as possible. So we are always encouraging our clients to challenge their financials, status quo, seek to always make it just like a little bit better when we’re working with them on goals.

We often challenge them to set, what we call good, better, and best goals, where they’re good goal is the goal that they think they can hit. If they, you know, just keep things rolling as they are, and their better goal goals, a bit of stretch, it requires more intentionality, but I can’t tell you how many times we have our clients hit their best goal that really required a miracle or something amazing to happen. And just because they put it out there and they were so much more aware of it and pushing for it, they hit their best goal. That’s such an amazing thing for us to experience as their coach and obviously an amazing thing for our clients to experience.

The other big thing I want to talk about with financial coaches is that there’s a big misconception, which is that a financial advisor is the only person you should talk to when it comes to retirement. And actually I have helped quite a few clients recently specifically prepare for retirement. So I want to talk about your financial coach’s role in helping you prepare for retirement. So something that we often say to our clients when we first start working with them is the very first thing we need to do is help you gain awareness around where all of your money is going right now. It is so important to know that before you work with a financial advisor, because if that advisor is going to tell you things like you’re not on track for retirement, and you need to invest X many more dollars to get yourself on track for your goals. If you don’t know, “do I have that much wiggle room in my current budget”, it’s going to feel defeating for you to first of all, not have that awareness and frustrating if there’s not that wiggle room.

So as a financial coach, we can help you decide how much room is available in your budget. And if we need to get more room available, we can work with you to do that. Another thing we can do is not just help you gain awareness around where things currently are with your budget, but we can actually help you predict how much money you are going to need at retirement. So what we do is once we get your normal budget kind of dialed in, we duplicate your budget, we do everything digitally. So we make a copy of it. And then we go in and we adjust all the numbers for how they’re going to look when you reach retirement. So we might get rid of your mortgage. If you’re planning on paying that off before you retire, we might add in an expense. If you know, you’re going to want a vacation home like me, I can not wait to have a vacation home and have somewhere to go to escape the cold winters in Ohio.

And so that’s definitely a retirement goal of mine, at least right now, I feel like that’s something I’m going to want. And so we can add that expense and any other expenses that are associated with it, we might need to tweak down some of your expenses if you have kids. And by the time you retire, there’ll be out of the house. So your grocery budget might go down from where it’s at right now, or maybe your toiletry or cleaning budget or things like that might get to be adjusted down. Some of your entertainment budget though might go up. If you’re like my husband, his goal is to be on the golf course Monday through Friday when he retires. And right now he golfs twice a month. So our budget for golf is definitely going to go up when we get to retirement. So we can help you really refine those numbers and figure out how much money you’re going to need every month in retirement.

And that is going to be so powerful for when you work with your financial advisor, because they’re going to be asking you that question. And if you don’t know, they’re probably going to suggest a rule of thumb for you and maybe predict something like you might need 80% of your expenses now. And honestly, that just might not be true. And so that’s why we are really hesitant to recommend rules of thumb like that because we know how everybody’s situation is really so unique.

Another thing we can do with retirement specifically is help you prepare ahead of your meeting with your financial advisor, so that when you walk into the meeting with that person, you know, what topics will most likely be discussed and you’ll have all of the numbers ready to go for that meeting, as well as an overall understanding of the different investment options that are out there that your advisor might start to talk to you about.

So now that I’ve kind of talked a little bit about financial advisors, let’s dive deep into what financial advisors do for you. So one of the biggest things a financial advisor does is they really help you get started with investing and they make specific investment recommendations for you. So while financial coaches can educate you on the different types of investment vehicles that are out there, we don’t give specific investment advice. And we also don’t manage your investment accounts. Those funds for you, a financial advisor does. So your financial advisor will evaluate what is called your risk tolerance, which is how comfortable you are with how aggressive or conservative you want to be. So maybe you want to be in something more aggressive that has the potential for greater return, but also has the potential for greater loss. Or maybe you want to be in something more conservative.

That’s going to be less of a return, but more consistent over time. So a financial advisor can help you with that. They can also help evaluate with the years you have left until retirement, your tax situation, and a bunch of other factors, and use all of that information to devise that best investment strategy for you to make sure you reach your savings goals.

To kind of clarify, a financial coach will not tell you specifically what stocks to buy or what index funds to buy, but a financial advisor will, this is their area of expertise. It’s what they were trained to do. Another thing a financial advisor has is more advanced tools specifically with retirement projections, so they can run different scenarios, kind of like what we just talked about with that risk tolerance to see how likely you are to meet certain savings goals based on how aggressive or how conservative you want to be.

They can outline for you if you’re aggressive or if you’re conservative, here’s what this might look like. Here’s the variation. Here’s how likely you are to hit your goals. If we do this right now, I’m actually working with our financial advisor and we’re talking about retirement 30 years ahead of time. And he was able to help me see with his tools, the impact of keeping my retirement pension from my career as a teacher that I recently left, keeping it in the state teacher’s retirement system or rolling it over into different investment accounts and what that would look like. And if I left it in the state plan, how much I would need to be contributing to my retirement accounts to reach my goals. And if I brought it over into a different investment account, how much faster it would grow and how much less I’ll have to contribute right now to reach those goals.

And course there are other things associated with that decision besides just the financial side of it. But he was also able to look at my husband’s 401k account that he’s not even managing just yet and determined whether based on our scenario right now, we should keep contributing to the traditional 401k or put our money into the Roth 401k option, or maybe do a combination of the two and how that would impact our investments. So they can get really detailed and specific with the investment side of things for you.

Another big thing financial advisors do is they help you get your needed insurance policies for things like life insurance, disability, insurance, health insurance. And so I love to just give you a quick overview of some of those different insurance types in case you’re not familiar with them.

So life insurance is a great coverage to get in place for you, which you would have in the event of your death.

And in the event that you would pass away the way your family receives a benefit or your beneficiary, whoever you say is going to receive the money. And that benefit fit is to help cover the cost of funeral expenses. And if you are a married couple or two people living together who you depend on each other’s income to pay all of your bills, your life insurance can help cover that income in the event that one of the people die. So for instance, my husband and I each have 10 years’ worth of income covered on each of us, so that if something were to happen to one of us, the other person would have that income for 10 years. And that would give them a nice long span of time, come up with an alternate plan, you know, sell the house or do whatever you need to do to adjust your bills down.

And so that can make a really big impact and be helpful in that scenario. And God forbid, but things happen. So life insurance is a great one to get in place. Another one, a financial advisor can help you with is disability insurance. And disability insurance is a great coverage to have in the event of a longterm disability. So maybe you get injured or you’re in an accident that causes a longterm disability, or maybe you even are just going through a surgery like a knee or hip replacement. It’s going to keep you out of work for a long time time. Maybe if you have a terminal illness and that’s going to keep you out of work for a while, that’s when your disability insurance benefits would kick in. And it would provide you with a portion of your normal income while you’re working, uh, for that season when you’re not working.

And so that’s a really great insurance that a financial advisor or another insurance agent, maybe not an advisor, can help you get set up. So what financial advisors can do with these different insurance policies is price out the different options for you to help you make sure you have the right coverages in place.

Another thing a financial advisor can do is help with other really specific areas of your longterm financial plan. So things like your legacy plan, your succession plan, your college savings plan. If you have children who are going to be attending college business, retirement plans, and many more specific things like that. So we often work side by side with financial advisors to help you reach your financial goals in life. As financial coaches, we’re specializing in a different area of your financial life, but both of us are important for you to be as successful as possible with your money.

We have found over the years that the clients who have worked with us as financial coaches tend to be more focused on that long term picture, which is great for the financial advisor, because you’re going to be much more successful with that person. And so those clients, they have a game plan in place that allows them to save and invest successfully for their future. And we’re able to collaborate with their financial advisor to navigate all of the financial changes that happen along the way.

If right now you’ve listened to this and you’re still feeling like you’re not quite sure if a financial coach or a financial advisor is who you need to work with, I have great news. We actually have a free 15 minute Q and a call. Yes, you can actually call us or really we’ll call you at a time that’s convenient for you. And you’ll get a chance to tell us about what’s going on for you financially. We’ll ask you some detailed questions to find out if what we do for our clients is going to benefit you best, or if you should see a financial advisor first, and if the answer is you should see a financial advisor first, we will refer you to someone who we know and trust. We have some great ones in our local areas that we could refer you to. And we also know some excellent advisors who are licensed and most States and can serve you remotely, just like how we work with our clients.

So to wrap up financial coaches and financial advisors are two cogs in the same wheel. We are both working together to help you move the needle forward financially. It’s normally not one or the other. It’s best to have both on your financial team. I hope that this episode helps you to understand the differences and the roles, your financial coach and your financial advisor play. If you have any questions, do not hesitate to ask and we will see you back here next time on the fiscal fitness podcast. Take care.

If you would like more information about how we can help you take the stress out of money with one-on-one financial coaching feel free to join our private Facebook group by going to Facebook.com/groups/fiscalfitnessmoney.

And if you have a passion for personal finance and are interested in helping others, take the stress out of money by becoming a financial coach, check out our financial coach training program at www.financialcoachacademy.com and join our free Facebook group here.