What is Financial Life Planning?
Finances
touch just about every aspect of your life. Your personal life and your
financial life are not separate — they mingle and dance a complicated dance.
While it’s important to have the right amount of money in emergency savings, retirement savings, and insurance coverage, it’s also
just as important to live a full, rich life. Your money should not only provide
a safety net but also a means to reach goals and accomplish great things.
Thankfully,
there are financial planners who focus on helping clients effectively manage
their finances while also reaching personal goals, as opposed to just focusing
on the numbers. This approach, called financial life planning, makes a
conscious effort to keep clients’ life goals in mind throughout the planning
process.
The Cheat
Sheet chatted with Michael Kay, certified financial planner, financial life
planner, and president of Financial Life Focus, to learn more about how
financial life planning works.
“Financial
life planning is an approach to financial planning that brings together
quantitative data with qualitative information. The quantitative side is the
normal numbers side. The qualitative is the deep understanding of what people
care most about, their values, their money mindset (how they approach money),
and their fears. We understand that the emotional/behavioral side of money can
lead people to great success or massive problems. Financial life planning helps
people and the planner understand how to best help a client live their values,”
said Kay.
He warns
that only focusing on the numbers is not sufficient. Clients need to have
balanced advice in order to realize their full potential. “Anyone who is a true
practitioner cannot ignore the qualitative aspects of the clients. To rely
solely on the numbers is to reduce people’s lives to numbers on a page,” said
Kay.
Here are
four things to know about financial life planning.
1. It is not psychotherapy
One
misconception about financial life planning is that it involves therapy. While
part of the process centers on uncovering some possible causes for the way you
currently manage money, you will not be receiving psychological treatment.
“The
greatest misconception is that financial life planning is psychotherapy. It is
not. While the conversation is around money history and helping clients open
their understanding to the root of their money beliefs, it is not therapy.
However, the effects can be therapeutic,” said Kay.
If
you feel that you need therapy for money problems, your best bet is to start by
seeing a financial therapist. It is very important to seek help if your
financial situation is making you to feel depressed or causing
significant long-term anxiety.
“Some
believe that financial life planning is some mystical, new age, woo-woo out
there fad. In fact, it is in complete alignment with the CFP Board of Standards
regarding knowing your client. Without understanding people’s beliefs,
background and attitudes about money, how can a planner really do a thorough
job of preparing a plan that the client will own?” continued Kay.
2. There are some elements
of life coaching
Financial
life planning will require you to examine your life and understand which goals
are most important to you. From there, you and your planner can work
together to see how you can best align your goals with your financial
situation. Part of the financial life planner’s role is to gather enough
information about your values and goals so that he or she can help you live
your best life.
“Financial
life planning can somewhat take on aspects of life coaching as it helps
pinpoint life transitions, challenges, and other aspects that are directly
related to money. The life coach does not, as a rule, bring the money into
play. The FLP practitioner sees the tether between life and money. For example,
retirement — not only is it vital to understand how someone will spend their
time, but what is the financial cost? People talk about travel, but one
can take a bus tour or a luxury cruise around the world. They are both ‘travel’
but have vastly different price tags,” said Kay.
3. Find a reputable planner
Certification
as a financial life planner is not a standard. However, Kay says formal
training is recommended in order to best serve clients. If you are interested
in working with financial life planning, your best bet is to work with a
certified financial planner who also has training as a financial life planner.
The Certified Financial Planner Board of Standardshas
a searchable online directory. Once you find a planner, you can call and ask
about his or her training in the area of financial life planning.
In
addition, Kay recommends searching for a financial life planner through Money Quotient,
a non-profit organization that provides advisor training. “George Kinder offers
training, as do several other firms. Their websites generally list advisors who
have done the training and to what extent. That’s a good place to start,” says
Kay.
4. Be prepared
During
the process of exploring your goals, values, fears, and desires, you may have
an emotional reaction, says Kay. It can be difficult to uncover dreams and
wishes that may have been pushed aside for years. Know that emotions may run
high during your meeting with a financial life planner.
“Clients
can experience emotional reactions and tend to talk about issues they might not
have thought about or considered before the conversations around money
began. Advisors need to ‘be with’ the client on their journey and not try
and sweep real emotions under the rug or toss out unwanted platitudes because
they are feeling uncomfortable. Financial life planning connects life and
money and that combination can be tumultuous. Our job as planners is to help,
advise, and support our clients through their journey.
It requires intelligence, empathy and patience. It is the most meaningful
work I can imagine,” said Kay.
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