You might have a picture-perfect vision of your role as a financial coach: explaining how money works or why this way of doing things was the smart way to do, the client would understand exactly what you say and then viola they would go take action. They’d experience a transformation, it’d be amazing, they’d love you, you’d smile, you’d hug, and everyone would be happy. It sounds amazing, right? But the reality of financial coaching, as I’ve learned in my journey, is much more than just teaching; it’s about empowering and guiding.

The Misconception of Financial Coaching

Initially, I believed financial coaching was like what financial gurus like Suze Orman and Dave Ramsey do. Like many, I mistook their advice as the epitome of coaching. However, true financial coaching is not just about doling out financial advice or educating clients. It’s a blend of teaching and guiding, where the coach’s role is more about facilitating than instructing.

Financial Coaching vs. Financial Education

In financial coaching, the emphasis is on the coaching aspect rather than just the financial part. It’s about helping clients navigate their path to financial success, not just through sharing knowledge but also by helping them figure out how to apply this knowledge in their lives. A financial coach helps clients become the person who can create their desired financial outcomes.

The Unique Nature of Financial Coaching

Financial coaching stands out because it combines technical and analytical skills with creativity. While there are certain rules and legalities in finance, much of financial decision-making is subjective. As a coach, your role is to guide clients through these choices, helping them find what works best for them, not just what you think is best.

My Financial Coaching Method: Education-Application-Commitment

I developed a unique 3-step framework for financial coaching: Education, Application, and Commitment.

  • Education: This phase involves understanding the client’s current knowledge and beliefs about finance. It’s about laying a foundation of understanding from which to build.
  • Application: Here, clients apply their newfound knowledge to their specific situations. This phase is experimental and adaptive, allowing for the exploration of various financial strategies.
  • Commitment: In this final phase, clients decide how they want to incorporate their learnings into their lives. It’s about setting goals, forming new habits, and making informed financial decisions.

Education Phase

In the Education phase of financial coaching, the focus is on mutual learning. The coach needs to understand the client’s baseline knowledge and beliefs about finance. For instance, when meeting a new client, a coach might ask, “What’s been your experience with home-buying?” or “What do you understand about budgeting?” This helps in tailoring the coaching to the client’s specific needs and understanding.

The coach then provides foundational knowledge on various financial topics. If a client is interested in renovating their home, the coach may outline different financing options such as saving and paying cash, cash-out refinancing, credit cards, personal loans, or home equity loans. Here, the coach is not endorsing any particular option but presenting them as possibilities, allowing the client to understand and weigh them.

A key aspect of this phase is discussing why certain options may not be ideal, as well as the pros and cons of each choice. For example, if a coach prefers paying cash for renovations and advises the client accordingly, they also need to prepare the client to understand why this option is chosen over others. This ensures that the client feels empowered and confident in their decision-making, rather than being unsure or feeling regret later.

The Education phase serves as the foundation for understanding, where the coach meets the client at their level of knowledge and builds from there.

Application Phase

In the Application phase, theoretical knowledge is translated into practical, real-life scenarios for the client. The coach helps the client apply the concepts discussed to their unique situation. For example, if debt reduction strategies were discussed in the Education phase, the coach now assists the client in understanding how each strategy would specifically impact their financial health.

Action steps and experiments are key in this phase. The coach might suggest actions such as creating a budget or doing a financial analysis of the options discussed previously. It’s important to note that choosing to take no action is also considered an action step – it might mean the client needs more time or information before deciding.

This phase is experimental, with the coach and client discussing observations, outcomes, and adjustments. It’s about understanding what the client thinks of the applied concepts, how they feel about them, and the self-awareness gained through this process. The Application phase is where real learning happens, as the client begins to understand the implications of financial decisions on their life.

Commitment Phase

In the Commitment phase, the client decides what they want to do with the knowledge and application they have acquired. It’s about setting goals, continuing new habits, or making a committed decision based on their learning. For example, a client might decide to revisit their financial strategy annually, make changes to their spending habits, or even reward themselves for good financial management.

The coach guides the client in making these commitments, helping bring closure to the learning process. This phase is not just about making decisions; it’s about empowering the client to act on their newfound understanding in a way that suits their personal and financial goals.

The Role of a Financial Coach

As a financial coach, your role is to lead and facilitate this process, not to control it. It’s about empowering clients to make their own decisions. For instance, instead of telling a client to cut expenses, you guide them through understanding their spending, explore various ways to manage finances, and then support them in choosing and committing to the path that suits them best.

Real-Life Application of the Framework

In my practice, this framework has led to profound transformations. For instance, a client struggling with credit card debt might, through the Education phase, learn about different strategies to tackle debt. In the Application phase, they might experiment with a specific budgeting technique. Finally, in the Commitment phase, they decide which strategy aligns best with their goals and commit to it, thereby gaining not just financial stability but also confidence in their financial decision-making.

The journey of a financial coach is not just about imparting knowledge; it’s about facilitating a journey of discovery, application, and commitment. This framework is designed to empower clients to make informed decisions and achieve their financial goals. As we explore these concepts further in future episodes, remember: financial coaching is about guiding clients to become architects of their financial future.