Managing your personal finances (what is it) whilst … starting a coaching business/service as your first career (post-graduation) by Kim Stephenson (Part 1 of 5)
“Why don’t you do an article for coaches on financial wellbeing?” “What, on providing it for themselves, or adding a string to their bow with clients?” “Why not both?”
That’s the origin of this series. It came from a conversation with Yvonne Thackray and Sally East about my work, and the feeling that there’s a “missing link” between personal financial planning and wellbeing. People see wellbeing, lifestyle and many forms of coaching as being interpersonal and not related to money. They see money as necessary, maybe desirable, but not connected to wellbeing or even living in general. The only exception is with serious debt, where there’s a recognition that various psychological therapies can be useful to deal with financial stress.
With the “credit crisis”, subjects like mental health, wellbeing, feelings of security and materialism are becoming more mainstream. But there’s still little work on the “link”, it’s still money or people, not both and it’s all about “society” funding, not people’s own finances.
I’ve said for years that coaches were in a good position to provide that link, but they seemed to be scared off because they weren’t “finance experts” and didn’t feel confident of their own money, let alone advising others.
And Yvonne asked the question above. Could I give an idea of how coaches could approach their own personal finances to improve their wellbeing, as well as potentially build their skills and confidence to talk to clients, where appropriate, about funding their own wellbeing.
What you’ve got here is a series looking at three typical situations of managing finances when starting a coaching business/service when it’s:
your first career
mid-career
following retirement...
My aim is to describe my approach to helping people use their personal finances by describing realistic situations with clients. They’re composites of different clients, both for confidentiality and convenience, but all taken from real events. The specific process in each is applicable to you if you’re in any of those three situations. Additionally, the principles are likely to be helpful at any stage in your coaching career, both to introduce some ideas that may be unfamiliar, and to demonstrate that skills and tools you already use may be applied for your benefit.
My hope is that apart from helping your personal development and wellbeing, it will provide a base for filling that gap I see in the market. Many people, probably a vast majority, don’t use their money particularly well to increase their wellbeing, and good coaches are in a position to provide help to make people happier and more fulfilled.
I also welcome feedback, questions, challenges, additional resources. It’s undiscovered country, I’ve worked in it for 40 years or so (as a financial advisor, then as a psychologist and coach) and I’m still learning and have very few peers at the moment. Now, let’s get started.
First career (post-graduation)…
We’ll start with “Sarah”, a 20-something enthusiastic young professional, aiming to enhance her life.
Setting out the service
Client intake
Sarah is in her mid-20’s. She’s come through her degree and masters with a total student debt of just over £40,000. She’s had parental support over her university years, but her parents can’t clear her debt, or give her considerable financial support now she’s seeking, or at, work. Certainly, they aren’t able to give her a deposit on her own place or give her finance to set up a business of her own. Nor would she want them to, she wants to establish herself in her chosen profession.
These are common themes.
Most young professionals want to establih themselves, professionally and commercially. Most, certainly the ones who have done a masters’ degree, will have student debt of more than £25,000, many will have three or four times that amount. Most will therefore have at least three ambitions, whether they recognize them or not:
to set themselves up as a professional,
to be successful in business (make money) and
to enjoy life.
To an extent, these are independent.
It’s possible to have a fulfilling, satisfying life without much money.
It’s possible to derive great satisfaction from a job if it’s a true calling or vocation and earn very little.
It’s also possible to engage with the job to the exclusion of a social life and have a great time, or to derive no satisfaction from the job, but earn enough to have a fulfilling life without necessarily being rich.
So theoretically, the three things, job fulfilment, money and life satisfaction are independent. Then again, for most of us, they’re linked –who wants to be a great professional and broke, or rich and suicidally depressed. There is a large practical overlap.
There are lots of potential demands.
There is only so much time, mental capacity, energy, and material resources available.
It’s necessary to focus and prioritise.
In my time as a financial advisor – and to a lesser extent as an Occupational Psychologist – I was concerned with establishing small businesses. There are a lot of demands on somebody setting up, for example, a coaching business. Designing business systems, compliance (such as GDPR regulations), advertising and marketing (usually the area people don’t consider except for the social media side with which they’re familiar), the IT aspects, the financing and building a relationship with bankers, remuneration, hiring the appropriate consultants, colleagues and eventually staff, the legal ramifications of all the policies, the insurances – the list goes on. That’s in addition to all the professional skills needed (which most of the qualification syllabuses are dedicated to) to have a business that works and needs to be advertised, insured etc.
I spent a lot more of my time as a financial advisor – and all my time now – dealing with the personal financial aspect of having a fulfilling life. Establishing a financial plan to aid that fulfilling life has a lot of parallels to establishing a professional business. There are a lot of aspects, many of which seem to require specialist knowledge, but only a finite amount of time, skill, and money to acquire, develop or buy in. And that’s separate (but related to) setting up a business. Whether you’re employed, self-employed, retired, whatever, you still need to handle your money to help to give you the life you want.
So in this article I won’t focus on the requirements to set up a business. It’s necessary for anybody, such as Sarah, to handle them. But I’m not the best qualified to advise on them, and they’re actually a distraction from the main point. The idea is to have a fulfilling, satisfying life.
A successful business might lead to that life – but it might not.
Loads of money might lead to that life – but it might not.
Being a world regarded coach or other professional might lead to that life – but it might not.
This article is about how somebody like Sarah can think about money, and work out what focus and priority is needed to get the life she wants, using their resources (time, effort and money) in the appropriate way. It won’t give “an answer”, it will give a suggested process and the reason behind that process.
Understanding what is Personal Finance
Sarah’s good at what she’s learned to do, coaching. She’s also aware of a lot of the things she needs to set up a business. She’s a bit naïve about how easy it will be to attract clients – aren’t we all. I thought when I was a “qualified professional” people would beat a path to my door. But that’s not my main concern although I’ll chip in a few ideas about the business realities along the way. The immediate issue is that she’s not just naïve, she’s entirely ignorant (in the true sense of not having any useful knowledge) of personal finance, something that’s true of the vast majority of people.
Most people (including “experts” who run the economy and major financial institutions) have a huge ignorance of personal finance. It’s not the same as corporate finance or national economics., for a start, Governments can literally print money, individuals can’t. National economic and fiscal policy is based on what the “average” or majority effect will be on the population as a whole. Personal finance has to deal with the effect on the individual of that policy, and the unique situation and needs of that individual.
What everybody remembers are headlines. We hear about investment scams, bitcoin, financial collapse, and credit crises. Some are national economic issues rather than ones that we can, individually, handle, which confuses people. But the way information is presented and the way our brains evolved for an environment where money didn’t exist, means that we tend towards an overly simplistic, and hugely distorted view of how personal finance works. We think there are “safe” and “risky” investments (it’s not about risk, it’s about suitability to your situation). We think there are absolutes, goods and bad’s and we “ought to” do what “experts” say and what is universally “smart”, when nothing is good for everybody, because we’re all unique. For example:
A common question from psychologists discovering that I had a background in finance was “should I have a pension/ISA/investment property”.
A common question now is “is it better to pay off my debts or start an emergency fund”.
All these things depend on what we’re trying to do, what our idea of a fulfilling life would be and what our resources (of time, skills, money) are.
For Sarah, along with most people, there are a few scary “facts” and a whole lot of ignorance. So, she’s always been a bit reluctant to investigate. Which may be a good thing.
Money and overconfidence bias
Wariness and caution, certainly with money, is often less dangerous than unwarranted overconfidence.
What’s curious is that, in many cases, incompetence does not leave people disoriented, perplexed, or cautious. Instead, the incompetent are often blessed with an inappropriate confidence, buoyed by something that feels to them like knowledge.
David Dunning (https://psmag.com/social-justice/confident-idiots-92793)
There is a concept called overconfidence bias. The research says it’s more prevalent in men. I encountered it before I went into psychology.
Commonly, female clients were more like Sarah, very diffident, afraid that they didn’t know and eager to find out the facts.
Equally commonly, male clients (who were, like the women, paying for my time to advise them) would spend 80% of the meeting telling me their views and explaining to me (who did it for a living) how finance worked.
It seems to be a common experience, because in the famous paper by Barber and Odean, 2001, across thousands of accounts, the men, more confident of their financial ability traded far more than the women, who were less confident and tended to leave the investments alone. The men managed to lose more than 1% p/a on their return by trading too much. They appeared to trust their own, apparently deeply flawed, judgments.
That doesn’t mean men or women are “better” at handling money. It’s just an illustration that trying to focus on the money, as money, and assume that confidence because you “know the money” gives you real understanding is illusory and potentially dangerous.
And even if you do, actually, know a lot about money, the actions of the various money experts (bankers, regulators etc.) in the years leading up to the LTCM collapse of 1998 and the worldwide economic crisis of 2008, prompt some examination. All the “experts” were confident that they understood the situation and knew what “good” financial policy meant. Awards, including a Nobel Prize for Economics and a European Banker of the Year award were handed out, but within a few years, billions of dollars were wiped out overnight and the worldwide banking system was under threat of collapse. It suggests that focusing purely on money knowledge and not the bigger picture of life as a whole is probably a recipe for an unpleasant existence. Whether or not you make money.
Reframing personal finance to start from where the client’s capable to engage from.
Personal finance is outside most people’s confidence and competence. And it’s potentially dangerous to engage purely with the money, per se, to the exclusion of anything else. Therefore, it’s usually handy to reframe the focus a little. People tend to want “money” answers, focussing tightly on how to handle the money. It’s useful to step back a little and think what’s wanted in broader terms.
Sarah is focused on her work. She wants to become a leader – perhaps self-employed, perhaps if she can get in the door, via management in a company. She wants to have a fun life doing that, and maybe, when the time is right, settle down with the right partner. She wants to make money, and handle it well, and is thinking about clear expenses, such as the home she’d like and being clear of student (and other) debt.
That means Sarah’s in a position that’s typical of clients, of almost any age or career profile. She has a vague idea of what “the good life” looks like, but hasn’t really thought through what would be really important, the goals that would have meaning for her, the sacrifices that she’s not prepared to make to her values. She has some ideas about money, but has never really considered what those ideas mean in practice, or where they come from. For example, is money a necessary evil or something to be worshiped? Is it important to or a by-product of, life? What are the unconscious lenses through which she sees the world, her place in it and the role of money? What do those views mean for how she thinks about and consequently handles money? And she has a vague notion that she “ought” to have “better” control of her money, maybe have some savings for emergencies and start a pension (because she’s been told you “should start saving as soon as possible”). But she’s never thought about what “better” would mean in practice, or what it would enable her to do that would be different from what she’s got now.
That means that her early questions tend to be about what she “ought” to do – which generally turns into discussions of what to do to produce financial results, how to save, how to invest, how to budget. As mentioned above, that’s generally not useful (although there are plenty of people, websites, books etc.) that will give pat “answers”. The issue with those answers is that they might work for the author, to achieve the author’s desired life – but they’re very unlikely to help the individual, who has different skills and aptitudes, a different life story and a different ideal life and has a unique personality.
That, the general thinking and the questions on most people’s agenda who want help with money are about the “how” to do “what” of money. The how comes from behaviour, and particularly the habits people have (around money, decision making, prioritizing etc.). That comes partly unconsciously and partly from thinking. And both the unconscious and the thinking are primed and directed by emotion and feeling. So the order to produce a “what” outcome tends to be emotion, thinking then behaviour. Or to put it a simpler way (that I paraphrased from Ronald Siegal), “heart, head and hand”, which tends to be the way I also look at decision making. So, with Sarah I started from a different spot than answering the direct questions about “how do I do X”.
What’s emerged for you, and would you do?
In this first piece of the series, I’ve laid the foundations of what is, and what isn’t, personal finance. Importantly, personal finance relates not simply to money but to wellbeing and meaning in life. It’s about one’s relationship with money, attitude to it, and the links to what the ideal life would be, using those to work out what focus and priority is needed to get that life, using their resources (time, effort, and money) in the appropriate way. In what I’ve shared so far, does this resonate with how you relate to your own personal finances.
Does the disconnect between money and wellbeing seem familiar to you?
Is it clear that there is difference between personal finance and the economy?
Are you still curious to focus on what to do with the money and how to, for example, supplement your pension, set up an emergency fund or establish an ISA knowing what you know now?
Are you more conscious that your “ideal life” and your dreams for the future are more vague than you imagined?
What would you do as a consequence, and where do you think I started with Sarah?
What I did, forms the next part of the series.
References:
Barber , B. M, and Odean, T, Boys will be Boys: Gender, Overconfidence, and Common Stock Investment, The Quarterly Journal of Economics, Volume 116, Issue 1, February 2001, ages 261–292, https://doi.org/10.1162/0033553015564001.
Siegal, R. (2022) The extraordinary gift of being ordinary, Guilford Press.
Kim is a former financial advisor and an Associate of the Chartered Insurance Institute (hence the interest in costs, ROI etc.) and now a Chartered Psychologist, coach and tutor/assessor in neuroscience. He’s written two books on the psychology of personal finance and can be contacted on kim@stephenson-consulting.co.uk or via the website, www.tamingthepound.com.
* I’m qualified in finance and worked as a financial advisor for 14 years, have taught personal finance and am a qualified and experienced psychologist and coach. I do know a bit about both people and money. From that (unique) viewpoint, those ideas are wrong. They assume people are simple, while money is complex and money is more important than people. Neither assumption is even partially true.
