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What Is a True Financial Coach and How Do They Differ from and Adviser?

Many people confuse financial coaches with a financial adviser. These are two very different animals that need distinguishing.

Financial Coach:  A true financial coach focuses on your knowledge, your habits, and your ability to make wise decisions.  They don’t superimpose their feelings upon you.  A true financial coach knows that each person is unique with different goals, different attitudes about money, different challenges with math, and different strengths/weaknesses.  A true financial coach will know how to strengthen your where you are weak.

Financial Planner or Adviser:  This person is most often selling a product.  A financial adviser wants to profit on the money you have already accumulated.  The problem is that this is not what most people actually need.  Most people need and want to know how to create the money in the first place and then how to manage it wisely, perhaps with the help of a financial adviser, once they acquire it.

Think about how a salesman wishes to make money.  They sign up with an institution and then submit to their training.  What kind of training will that be?  Will it be training on five other competitor products so they can sell for them as well?  Absurd, not ever!  This employer wants to train you on his or her own products.  In the Time and Moneycase of a financial adviser, who are truly not a lot more than sales representative, they are encouraged to acquire knowledge and even
seek degrees like Certified Financial Adviser, to show the public that they are knowledgeable.  All of this effort by the sales representative can be helpful to you with a small part of the puzzle, but they very rarely have all the answers to every part of your financial life.  Have you ever thought about asking a financial adviser about what to do about your overspending? Of course not, they wouldn’t be likely to have much information about how to help you with this, and even if they did, this is not what they’re paid to do. What about how to get out of debt, or to create a passive income from better managing  your own money? They wouldn’t know the first place to start helping you with these important matters.  Where they can sometimes help is in what to do with extra money you have created, but that’s really where their “advising” ends.    

Here is the real difference between a coach and an adviser.  A coach helps you with problems you are having with managing your money and your emotions. People have lots of emotions surrounding money. The products financial advisers sell have very little to do with how to manage emotions and get in control on a grassroots level. They don’t teach you principles of financial management, they only sell tools that can help you once you have money to manage. A coach, on the other hand, offers solutions on how to control spending, get out of all debt, save for retirement, and pay the right amount of taxes. If you don’t have someone who can teach you how to do all of these things (at the same time) then you aren’t getting advice from the right place.

Here is a test question to ask a sales representative to determine if they are an adviser or a coach: “What do you recommend I do?”  Then listen carefully as to how fast they go directly to a product that they think you need.  If they make a specific recommendation they are a financial adviser.  If they say, “Tell me more about what you are trying to accomplish, today and in the near future?”  Then they search out your true feelings and even coach you along these lines before identifying options.  A true coach will strengthen you until you are making good decisions. Once you are making better financial decisions, then you can talk about what to do with your money from there.  

There are huge differences between a coach and an adviser, but it will take some time interviewing and asking questions of these people before you will see  how they approach helping you.  Most likely you will find 1 out of 25 advisers that will serve you like a true coach will.  For true financial coaching without the pushing of products, visit www.moneymastery.com

Stretch Yourself Emotionally Today for a Better Financial Life Tomorrow…

The famed writer, Andre Gide wrote:

“One doesn’t discover new lands without consenting to lose sight of the shore, for a very long time.” 

I love this quote, it is full of pathos but also a lot of hope. To see what I mean, first take a look at the lives of the families who were left behind when their loved ones set sail back in the day on those horrifically risky voyages out on the open ocean. There was no way of knowing if the ship would return. There was no way of knowing what was happening to the people on board the ship during its absence. The amount of stress and worry for these people must have been almost overwhelming. Look at the courage the Pilgrims exhibited to sail across the Atlantic to the Americas. I cannot imagine what it would have been like to bring my wife and children along for this journey not knowing what the end result would be.

Now let’s apply this example of Pilgrim courage in taking some risks to discover a new life by consenting to leave the shore in terms of how you manage your money. 

  • First, you must try new things if you want to handle your money well and most importantly, if you want to keep it. If you’re not willing to get educated and look at new options for spending, paying down debt, and saving, then it’s like staying on the shore and not going anywhere. You will be safe (maybe) in what you do know, but you won’t be able to find any new options that might bring you much better success.
  • Second, if you leave the “port” so to speak for a long time, by learning how to control spending for an extended period of time, paying the price to get out of ALL debt in a short amount of time, and understanding what it takes to save over the long-term, you will find that you can create your own passive income. This will allow you the wonderful opportunity to not only retire wealthy, but have the means to help others as well. When we have passive income we are truly free! The more options that come into play, the more excitement comes to our lives.
  • Third, financially you can set sail by holding yourself accountable weekly as to how you are spending the money you have earned.  This is hard to do, at least emotionally, much as it would be to leave home and family to sail to the New World, but it opens up all kinds of new options you have never dreamt of before. This is the hard part of “losing sight of the shore, for a very long time.”   As you build a spending plan, examining the last 12 months of how you spent money, then share this detail with your spouse, you will be amazed at what you learn about yourself… what you value, what your real priorities are, and what you want to change NOW!  You will become totally transparent to yourself and your partner and this of course will make you very vulnerable. However, with the vulnerability comes opportunities financially that are not possible when you are closed off to your true self when it comes to spending, borrowing, and saving money. Remember, as long as the ship is in the port, it is safe, but as they say, that is not what ships were built for.

Building a spending plan, a debt plan, and a retirement/savings plan with yourself and/or your partner is the best way I know of to test your ability to discover “new lands” financially that are not possible playing it safe on the shore. But because they are plans, it is also the safest way I know of to make emotional changes that will positively affect your finances without costing you any more money out of pocket and without risking your family and relationships in the process.

Here’s how to start this process of “leaving the shore to discover new financial lands”:

  1. Create a 12-month history of the way you have spent money.
  2. Divide this spending into categories so you can see what you really value. Will you be surprised at how important eating out has become to you, or that you spent $1,000 in one year on spa treatments?  Maybe that’s important to you, but if you really didn’t want to spend all that money at McDonalds then it’s time to make change. WOW! This can be so hard as you face the future knowing how inefficient you have been with your money.
  3. Make a spending plan for how you want and need to spend money over the next 12 months. This is where the voyage gets more exciting and feels less risky.
  4. Track how you spend money so you can stay on track. Compare how you actually spent with how you planned to spend and make adjustments.

The Pilgrims left England not knowing what would become of them.  The result of their courage is what you and I enjoy today.  We enjoy the freedoms and liberties to travel as we wish, with one currency, along with the rule of law and order.  Amazing is the sacrifice of our forefathers so we could have it easy.  Don’t blow all that opportunity by refusing to stretch yourself emotionally when it comes to proper financial management.  I ask you to stretch yourself today, do the hard things today so you and your family will be far better off in the future.

Stay Tethered While Still Soaring with a Proper Spending Plan…

What do kite-flying and personal finances have in common? To answer that question, you must first ask another: While flying a kite, what keeps it in the air?  The string, of course.  If you cut the string, the kite will flutter downward to the ground.  Without the string, nothing holds the kite at the right angle to catch the wind to keep it flying safely in the sky.

Similarly, when you establish a spending plan (or some people like to call it a budget but they really are two different things) you might think you are tying yourself down to a certain amount of money you can spend.  This is restriction!  But if you just spend as you wish, without tracking your spending to see what you really value and where your true spending priorities are, then it’s like cutting the string to the kite… you will financially flutter down to the ground.

But what about those darned restrictions? With a true spending plan (not a budget), like the plan we teach our clients how to build at Money Mastery, there is a way to have more freedom within the plan than a plain old budget allows. This is like letting out more string when flying a kite — as you do so, the kite soars higher but it is still tied down so that it does not come crashing to the earth.

Tethering yourself to some kind of plan makes it possible for you to spread your wings, all while remaining in control. I have included the following words from the song “Let’s Go Fly a Kite,” from the classic Disney movie Mary Poppins, as a motivation to help you feel inspired to build a proper spending plan:

Let’s Go Fly a Kite

With tuppence for paper and strings
You can have your own set of wings
With your feet on the ground, you’re a bird in flight
With your fist holding tight
To the string of your kite

Oh, let’s go fly a kite
Up to the highest height
Let’s go fly a kite and send it soaring
Up through the atmosphere
Up where the air is clear

Oh, let’s go fly a kite!

I hope you will allow the words to sink in as you realize the power that comes from disciplining yourself to be grounded firmly to a plan. Visit www.moneymastery.com to get more information about how to create a spending plan that will let you control your spending,  while still allowing you the freedom to have the things you want without going over.

Hoping to Die Now Because You Won’t Have Enough Money in the Future Isn’t a Very Good Financial Plan

Okay, so this joke is funny, I guess, but it’s also pretty tragic since it defines a good portion of Americans today…

If this describes you, what can you do to turn the joke around? I urge you to do a trial calculation to determine what “might” happen to you in the future financially and forecast an amount of money you need to get started on the road to taking care of yourself as a new goal in the new year.  As they say, “It is better to shoot for the stars and hit the moon, than aim for the moon and hit a rock.”

Here’s how to do a little trial calculating:  

  1. Take you parents and grandparents and average their age upon death.  Add 10 years to this number and then subtract the age you plan to retire.  This answer is what you can use to plan for how long you will need income.  I will use the example of a person I’ll call Mark Jones throughout this post. For him, he will need 18 years of income.
  2. Calculate how much money you will need to last until this estimated age of death. Assume you will earn 3 percent each year on any investments or savings, and that you need $1,000 a month for the next 18 years. This additional need will be on top of what you will receive from Social Security benefits, from any savings you already have put away for retirement, and any perpetual income you can count on like income from a rental property, for example.  Using Mark Jones’s numbers, the total amount he will need to save by retirement age will be $166,743.  If earnings drop to 1%, say, then he will need $197,600.  But maybe he will be lucky and achieve a 7% growth on savings/investments. In that case,  he will need $122,623.  Figure out your own numbers using these scenarios.
  3. Now you know what goal to shoot for and can divide this amount into years and months and find out exactly what you need to be doing each month to at least get started preparing for the future.

Okay, so it may not be perfect, you may lose money along the way. You must consider what will happen if you were to run out of money at age 78 for example. Or perhaps consider that everything goes as planned but unfortunately you live 23 years longer than you had expected. What happens then? But with an idea of what you need to get started preparing for retirement by running these calculations you will get motivated to at least get begin actually saving this money and I can assure you, this motivation will lead you to even greater desires to make more happen with your money, exploring lots of options that will provide a more predictable retirement that  you cannot outlive. Contact me today for a no obligation discussion about your future and what you can do to jump start your desire to work on it a little more seriously:  peter@moneymastery.com.

What the Future Holds for Tax-deferred Accounts

Don’t you think it is better to have one bird in the hand, than two birds you can see in the bush?  Of course! Then why do so many people defer their taxes by using 401(k) plans, or others like it, when the future and the markets are so uncertain?  We all know the federal government is overspending.  We all know the feds cannot possibly pay out the Social Security and Medicare benefits it has already committed to.  Do you think taxes just might go UP?  Wouldn’t it be better to pay taxes now, and then never again? 

Since the average person reaching age 65 has less than $60,000 of total assets, why would you consider to deferring taxes until the worst possible time in your life, when you can least afford to pay them?

Consider this: When you start drawing money from these tax-deferred plans it can easily force your Social Security benefits to be included for income tax purposes also, meaning you will pay at a higher tax bracket.  So knowing this in advance, it’s time NOW to reconsider how you really want to fund retirement and how you want to pay your taxes. Don’t just go with what everyone else is doing, consider that there might be many other viable options for creating a predictable retirement you cannot outlive than throwing money into a 401(k). Contact me for these ideas:  peter@moneymastery.com.

Do You Wash a Rental Car Before You Return It?

Whenever I have rented a car, I have never considered taking it through the car wash before I return it.  Why would I do that?  I don’t own the car, I only want to use it briefly.

When we don’t own something, we don’t take much interest in it.  So I ask, “How many people own their spending?”  Own it means being committed to it, spending money according to a plan, not deviating from the spending plan, and so forth. 

We may feel a need to have a “budget” (budgets don’t work by the way) and limit our spending to what is most important, but if we don’t have a real plan for how we need and want to spend, or in other words if we don’t “own” our spending, we will ultimately always overspend.

I challenge you to set a goal in the new year to “own” your spending.  That means:

  1. Make a spending plan (which implies writing it down)
  2. Post the plan where you can see it.
  3. Track your spending according to the plan.
  4. Review the plan every day.
  5. Make adjustments to your spending plan based on problems you see arise, but stick to the basic plan for a month and see what happens to your life.

You are the owner of your money and the way you spend it.  I urge you not to treat it like a car rental as if it’s someone else’s business to take care of.  Bring it home, take care of it, and use it daily with care.

Do You Need a Financial Parachute?

If you ever need a parachute, and don’t have one, you will never need one again.  Now apply this to your retirement.  If you don’t have a retirement, and you are arriving at that age in 5 years, you won’t have time to get one before it’s too late.

Here are national statistics to consider as you review your need for a financial parachute. 

First, the average amount of money saved in all 401(k)’s is $5,000.  ‘

Second, only 28% of employees who have access to a 401(k) actually deposit any money into it. 

Third, for those reaching retirement age of 65, they have assets totaling only $60,000. 

Fourth, 10,000 people each and every day are turning age 65 for the next 14 years.  

Okay, so what if you are nearing retirement age and you don’t have that “financial parachute?” Don’t panic, it’s not everlastingly too late, it’s just time to get serious… NOW! Everyone can improve their retirement income, no matter how late in the game, no matter how little the money.  Some things can be done to at least get a small parachute.  Please go to www.moneymastery.com and signup for the Select program, then complete the retirement worksheet. Then email your questions using the “ask a coach” feature within the online training.  This will be the best financial decision you make in your life.

Retire in Certain Locations and Spend Only 28% of Income for Living Expenses…

If you search the Internet for the most affordable places to live in the United States you will find that those places only use an average of 28 percent of income towards living expenses.  In some areas like California, New York and big cities it is up to 65 percent.

You may not want to move, but if you can plan ahead and work where income is higher, then at retirement move to inexpensive locations where the cost of living is less, you just might be surprised at how affordable retirement becomes!  If you can find a location you wouldn’t mind moving to where living costs are much lower than what you are currently paying, consider moving and spend much, much less at a time when your
income may be fixed and in more jeopardy than it is now.

Here’s an example: A friend of mine lives six months in Costa Rica during the winter and travels back to the United States in the summer.  Her cost to live in Costa Rica is so low she can afford to live in a nice neighborhood in California in the summertime.  She has made dear friends in both locations and now others travel with her doing the same thing.

Expand your thinking when it comes to retirement and how you can more affordably fund it by considering alternative locations to live and the costs associated with that location.  This may save you enough to match what you have in retirement savings and take the stress out of your life.

New Year, Changes, Economics, Money and You…

Recently I watched a presentation given by world-famous economist, Jim Rickards.  His track record seems impressive in terms of being able to predict economic change.  I want to use his economic outlook to illustrate my point, which is that we have more options today than ever before due to some very significant changes in our economy and society.  The way we communicate has changed.  The way that we learn has changed.  They way we market has changed.  They way we spend and save money for the future has changed.  We have seen start-up companies become Facebook, Google, Twitter and so many others.  Our lives are so different from just 25 years ago.  You cannot walk down the street without seeing most everyone using his or her smart phone.  Don’t you agree with me, that the past gives little to no indication of what the future will be?  Maybe we can expect change as the one thing that won’t change?  My point is that with this constant change brings uncertainty.

That does not mean that the unknown future is hopeless or need be more scary than it really is. The fact is, it is brighter and has more options than ever before.  The problem is that with so many options we experience paralysis by analysis.   When we arrive at the end of our life and ask the question, “what has my life stood for?”,  I’m afraid we will find that we went in so many different directions all at once that we maybe stepped one inch in any of those directions, not really achieving anything at all because  we did not focus on any one thing.

Jim Rickard’s predictions indicate that we will experience the domino effect in the coming year in terms of economic change. How will those changes affect you? The only way to make sure they don’t affect you negatively is to be certain you are focused financially and not trying to head in several different directions at once. With so many financial options and so little understanding of how those options all must work together, it is more important than ever that you get focused in this new year on what really matters so you can manage your money (and your life) more wisely.  The key is to see clearly where you want to go and stay focused. For more information on how to clearly prioritize where you want to go financially, go to www.moneymastery.com.

Successful Retirement Means You Will Need 8 to 10 Times Your Annual Income

After preparing many retirement plans for my clients over the last 45 years, I can assure you that you will need about 8 to 10 times your annual income in savings when your reach retirement age.  I know this is a quick “rule-of-thumb” but it can work.

If, for example, you are earning $60,000 a year, at retirement you cannot possibly make it financially with only one time your annual earnings! This means you will only save $60,000 for retirement. How do you expect to live on that sum until age 84 (if you are a man) or age 87 (woman) How will that possibly work? It won’t!

If you can save 10 times your salary, for example, you will have $600,000 saved at retirement.  You can make this work by living on the interest and pulling out some of the principal, then combined with Social Security benefits (which I have shown in past posts you will need all of to pay for the skyrocketing health costs of close to $350,000 needed for a couple money-nest-eggwho retires in 10 years) you will have adequate income well past age 87 with plenty of money left over.  Plan it too close, as in two times, or four times and you will run out of money at age 72. All that work only to run short that quick would be horrible!

I hope you can see that the multiplier of 8 to 10 times current earnings will give you just enough money to retire comfortably.  Use the Money Mastery retirement worksheet and see for yourself.  Go to www.moneymastery.com.