Can't control your finances? Get yourself a coach.
Financial coaching is a relatively new concept, and it's available -- free -- to folks who realize they're headed for trouble as well as to those in crisis situations like collections or foreclosure.
Most programs are set up for low-income workers. Action for Boston Community Development, for example, is designed for Beantown residents living at 200% or less of the federal poverty level.
Other programs don't have income limits. After all, it isn't only the working poor who have financial problems. Tiffany, a 33-year-old Connecticut resident, says she and her husband both have good jobs. But one month they couldn't find the money to pay a utility bill. (Last names have been withheld for privacy.)
"We have almost a $100,000 household (income), and yet we were living paycheck to paycheck," Tiffany says. "There was no structure behind our spending at all. We didn't understand where (the money) was going."
They made an appointment with a financial coach from Co-opportunity in Hartford. In less than a year, the couple created a spending plan, quit using credit cards, instituted an envelope system for budgeting, refinanced an auto loan with a credit union, eliminated recreational shopping, found cheaper car insurance and started using coupons.
The most important thing they learned from the coach? "To take responsibility with decisions about money."
Coaching, not counseling
Financial coaching is not the same thing as financial counseling or financial planning. All contain the same elements of financial literacy: budgeting, saving, debt repayment, building good credit scores, investing and planning for the future.But in a white paper called "Advancing Financial Coaching for Low-Income Populations" (.pdf file), a California nonprofit called EARN set forth these basic differences:
- Counseling is "a transfer of information" about a problem (for example, consumer debt), whereas coaching focuses on the behaviors and/or situations that cause the problem (for example, unemployment or unstructured spending). Coaching focuses on guidance, encouragement and support.
- Coaching is client-centered, rather than "a service provider (driving) the progress."
- Financial coaching is "inherently empowering" because it encourages people to make their own decisions and come to their own solutions.
Some agencies, such as Co-opportunity, provide both coaching and counseling as they help clients develop systems that work for them.
"It's their money that they're managing," coach Sherry Coelho says. "It can't be that they don't pay the bills because I don't come over and make them open the envelopes."
Plenty of reasons someone might need help
Money troubles are often the result of a combination of factors: a low salary (or a salary that doesn't keep pace in a high-cost-of-living area), bad money habits, student loans, health problems, overspending and a lack of financial education.Family loans were a big part of Tiffany's financial woes. One of seven children, she felt compelled to help siblings when they ran short. She hopes one day to feel comfortable saying, "No, I don't have it. We need to find you another solution."
Until then, Tiffany uses this line: "My budget coach tells me I don't have it."
Here's how financial coaching has helped several other families:
'I used to contribute'
SparkPoint is a United Way-funded organization with two locations and five more planned in the San Francisco Bay Area. That's where Thomas, an HVAC (heating, ventilating and air conditioning) specialist and father of two, sought help last year.The factory where his wife worked had closed, and she was out of work for nearly two years. They kept their mortgage current but used credit cards to plug the gaps. Because her new job paid considerably less, the couple had made no progress on their debts even though Thomas, 52, was taking all the overtime he could get.
SparkPoint coach Elaine DeNault helped them apply for a mortgage loan modification (it's still pending) and to get 0% interest for five years on one credit card. The couple learned to track expenses and to create a budget, something they'd never done before.
DeNault says that many clients have no experience with budgeting. Initially, some resist the process. "We've been in an instant-gratification world for so long now that some of our clients find it hard to do without," she says.
Thomas is not among them. He and his wife have cut out unnecessary spending and recently told their 17-year-old daughter that there would not be a big birthday party with all her friends. She was disappointed but came to terms with the reason, he says.
"It's going to take us about five years to pay the (debt)," Thomas says. "I was somewhat embarrassed that I got myself into this situation. I used to contribute to the United Way all the time."