Common Q & A about Financial Coaching

I started coaching in a kind of unconventional way. A number of my friends knew I had an interest and a passion for personal finance and began to ask me for advice. Most of the advice they needed was extremely basic even though these were teachers, executives, and other well educated people.

When no one taught them about banking, saving, how much to save for retirement, how to live below their means, how much to spend on a house, etc, etc they just did what everyone else around them did. They used credit cards and lines of credit and got themselves in over their heads in debt.

When I would sit down with them to ‘do the math’ they would be shocked at how much they were spending on interest and misc bank fees and credit card fees. With a few tweaks (changing their cell phone plans, canceling extra cable packages, quitting the gym they never went to, switching to a no fee credit card, canceling credit card balance insurance and other miscellaneous useless fees) they were able to free up money to begin their emergency fund and begin investing once the emergency fund was full.

Then I found out about http://www.crown.org/ and while I don’t agree with some of their advice, they do provide certification and training for volunteer (non-professional) coaches. We never sell students anything or talk about specific investments. We can refer them to a professional for this type of help. Most of what we do is walk them through the steps, very similar to the steps outlines in Dave Ramsey’s Total Money Makeover (an excellent beginner book if you haven’t read it!).

People like the accountability and find it motivating. They often need a bit of tweaking in their finances or just someone to talk to about something they’ve never shared with anyone. Most of the people I work with are either referred through friends or referred through the church who provided the training. I get everything from newlyweds wanting to start out right to executives (usually women or couples).

Many are heavily in debt and just need some advice on how to start paying the debt off. Some have more money than they know what to do with and just needed some advice on how much to spend on a mortgage and what percentage to put away for retirement.

Basically I encourage them and walk them through the steps.

1. $1000 emergency fund.
2. Have an up to date will.
3. Have enough term life insurance.
4. Pay off all debt except for the mortgage.
5. 3-6 months fully funded emergency fund.
6. 15% pre-tax income automatically going for retirement (either through TFSA or RRSPs depending on their income).
7. RESPs for their kids if they have kids and hope to help with their education.
8. Pay off the house.
9. Live debt free! This frees them up to invest more, give more, buy real estate and live the life of their dreams however they see that carried out.

I give homework every time .. getting them to figure out their net worth, lists of debts and how much is owed plus interest rates for each debt as well as a list of all of their monthly expenses.

I also have them begin writing down EVERYTHING they spend for the whole time we meet. (I usually meet with them once a month for 6 months and then how often they like after that). Each month they need to show me their updated spread sheets. As they watch their net worth going up and their debts going down, they are often highly motivated to keep working at it.

I really try to encourage them along the way and make myself available through e-mail for any questions they have throughout the month. As they write it all down, we continue to tweak things that they can change.

I had one person who was spending $5 every day on diet coke and a chocolate bar the gas station across the street from her work. When I suggested she buy a case of diet coke and a pack of chocolate bars from the grocery store and keep them in the fridge at work, she had never thought of that and began saving nearly $4 a day .. and not changing her daily snack at all!

Almost everyone I’ve worked with pay huge amounts of bank fees. One person had 4 accounts with different banks all with monthly fees over $12.95 a month. She just thought this was normal. Once we got her switched to PC Financial and canceled all her other accounts, she had nearly $50 a month extra to pay off her debt with. She was pretty happy!

Editors Note: As described in Kathryn’s profile below, she volunteers as a financial coach. Question for personal finance beginners - Would you be willing to pay for basic financial coaching/education?