Financial Fitness and the Wellness Coach

A Certified Wellness Coach and a parent of a teenager can share many commonalities.  One of these may well be a discussion about FINANCIAL FITNESS.  Parents – as a general rule – aren’t Certified Financial Planners. Nor are wellness coaches.  However, as long as the kids (or in this case clients) understand this fact, the parent/wellness coach can help the individual think through many of the key concepts around finances that will likely bring benefits both short and especially long term. The following provides some simple concepts from the perspective of the parent that may be beneficial during discussions with clients.

Age 16 – 21AVOID DEBT!  The focus in the late teens is avoidance – of debt.  Far too many individuals hit age 21 straddled with debt that can literally take decades to eliminate.  The combination of limited knowledge around the cost of living, easy access to school loans, and unrealistic thoughts about future salaries puts a weight around the ankles of tens of thousands of college graduates every single year. It’s easy to blame colleges and banks, but the fact of the matter is our financial lives are our responsibility.

Some individuals are fortunate to have support from parents for college educations.  That’s a blessing, not an expectation – and if you’re in that camp, I hope you thank them regularly for the sacrifices involved.  That opportunity should also result not in buying a nicer car or more computer games, but taking the money you earn in your job that would otherwise have been devoted to college expenses and SAVE IT.  The rule of 72 notes that if you’re earning 8-9% return on an investment (which is generally the stock market average over time), then your money will double every 8-9 years (8% x 9 yrs or 9% x 8 yrs).  So, if you’re able to put aside $7000 from your hard work (and the lowest expenses you’ll experience the remainder of your life!)  into a low cost ETF or Mutual Fund by age 20 thanks to your parent’s support of college expenses, that money will likely be in the neighborhood of $14,000 at age 28, $28,000 at age 37, $56,000 at age 45, $112,000 at age 54 and $224,000 at age 63.  Not a bad start toward retirement from a little summer work.

If you didn’t receive this extra assistance, that doesn’t mean it’s time to pursue the seemingly unlimited loans available to you as a student.  These are LOANS – not gifts.  You will be paying them back – with interest.  As much as some folks will hate to admit this, the name of your college won’t actually have much influence on your future in the VAST majority of cases.  But your debt level WILL absolutely influence your future. Community College might just be the perfect place to start (see this article from Motley Fool on the topic).

Bottom line – if you can finish graduation with little or no debt, you’re well ahead of the pack and have a running start when it comes to financial fitness.

Age 22-30:  GET REAL!  You’ve now graduated or are in graduate school.  Your goal in this decade? Keep it real.  For some reason, there’s a tendancy to launch into “real life” thinking we’ll have the perfect job, the perfect spouse, a new home, car, kids that sleep through the night, etc.  Note – you’re insane, and that insanity may crush your future financial fitness.

First – get a job.  It may not be a perfect job, but it’s a job. And don’t ever quit that job until you have the replacement job locked up.  Just a few months with no income while you’re “out there looking” can deplete the savings very, very quickly. Sometimes life throws a curve and a job is eliminated. But too often, it’s our own impatience that causes the gap in employment.

Second – get the cheapest transportation you can arrange.  This may be a very used car, or a bus pass, or maybe even a bike.  Everyone is in a different situation, but in NO case should you ever consider a car loan (see comments on debt above).

Third – think about tomorrow.  Are you married and both of you have good jobs but one of you hopes to cut back when kids come along?  Great!  Act like it.  Take 50-100% of the after-tax income of the second spouse and put it into savings.  Is this easy when you’d have a lot more fun spending that money on vacations, dinners out, new cars, etc?  Duh.  However, if you can both be committed to this step, you will be SO far ahead of the financial game when kids come along! And will make the rest of your life much, much easier.  Not only will you have a very healthy nest egg set aside that’s growing at the rates noted above, but you also won’t be adding “financial struggles” to the list of stressors that come along with those kids who you love dearly but sometimes bring a lack of sleep and additional financial commitments.

Third – Part II – many folks obviously aren’t married in their 20’s, so here’s a HUGELY beneficial tip that applies to everyone – the “Envelope Method.”  Simply decide in advance how much money you’ll commit to each of your “extras” (movies, dinners out, etc) and place that amount into an envelope at the beginning of the month.  When the envelope is empty, you find free things to do to replace that activity/choice until the next month.  This eliminates the need for a detailed budget, but maintains the accountability that is necessary to get ahead.

Third – Part III – if you have any issues with paying off credit cards in FULL every month, cut them up.  Studies show we spend 30-45% more with a credit card than we do with cash (delayed payment and the charge only makes up a portion of a later payment). Use that knowledge to your advantage.

Age 30-39:  GET AFTER IT!   Now is the time to be putting money aside for the future.  Compounding interest is the 8th wonder of the world (see the Rule of 72 noted above).  If you wait until your 40’s to begin saving for retirement, it’s a steep climb.  And college expenses? If you’re planning to help out your kids, this one will be knocking on your door in no time.  Keep it simple by following the 70/20/10 plan.  Live on 70% (or less) of your income, invest 20% (or more) of your income, and donate 10% or more of your income.  If you follow this guideline consistently throughout your lifetime – and especially in your 30’s, you’re likely to be in good shape going forward.

As to what to do with your money? That’s out of the realm of wellness coaching.  Just be CERTAIN that wherever you put it, the expenses are VERY low (see Vanguard Mutual Funds and ETFs as a good place to start your research).  And don’t EVER believe anyone who tells you they can consistently beat the market with no risk.  If the promise involves a rate higher than the historical returns in the market (8-9% over time), then the risk must also be higher.  And if you ever forget this trade-off, tune into an episode of American Greed on CNBC and you’ll get a good reminder that there’s never a higher return without associated risk.

Age 40 – 60:  CLOSE THE GAP  The age of 40 makes for a good “half-time” review.  You’re about half-way through your career and likely about half-way through life.  Instead of using this as an excuse to go out and buy a fast car or blow up your marriage out of stupidity, this is a great time to re-evaluate, set some new goals, and realize that it’s now time to get serious.

In your investments, it’s a good time to review your portfolio, make necessary adjustments, re-check expenses that may have gone un-noticed over time, etc.  A resource we’ve found helpful for some folks is The Motley Fool (www.Fool.com).  They provide a great deal of helpful financial information free of charge that may be of interest and charge a nominal fee for other services.  As with any other financial service, do your homework before spending any money.

As a Certified Wellness Coach, it’s unlikely you’ll have the opportunity to start the coaching process with a client starting in their teen years.  However, the above can be modified based on where the individual is at the time.  For example, maybe you are working with a client who’s returning to school to pursue a new career at age 35.  The details change, but the key questions (How are you going to pay for this? What is the cost of full-time vs. part-time when building in cost of lost wages? What is the long-term cost of loans?) likely are along the same path.

Remember – you’re not the financial expert (neither are we).  However, asking the right questions and encouraging clients to carefully consider the consequences of decisions may pay immense dividends over time. The above ideas are general guidelines and every situation (as you understand well!) is different.  We hope it simply provides a new perspective as you work with your clients to help them lay out the plan that works most effectively for them.