Managing your personal finances (building a habit with a dose of self-compassion) whilst … starting a coaching business/service as your first career (post-graduation) by Kim Stephenson (Part 5 of 5)
What to do when the plan goes awry. This is the last in the 5-part series looking at how Sarah, a recent postgraduate who’s in her mid-20’s, with just over £40,000 student debt, learned to handle her personal finances. She’s determined to start her own business as a coach because it’s her passion and earns an inconsistent salary throughout the year. She came to me, for financial coaching, as she wanted to achieve her goals. However, like many clients I have worked with she had little understanding of her personal financial situation, how to prioritise her dreams and goals or how to budget for those priorities. In each of the previous blogs, we’ve given you, the reader, the process and approach I applied to enable Sarah to understand what personal finance is, and then explore what it is that her heart (dreams) and head (financial reality) wanted, and in the penultimate blog, bring her heart and head together to devise her plans of how she wants to use her money.
In the final blog of the series, we see that Sarah’s motivated to stick to the plans, they’re realistic in terms of anticipated events and they potentially provide for a meaningful life. All of which is great, until something unanticipated occurs, or things go wrong for some reason and the plan either needs adapting in practice or will fail. This section is about what we did to deal with adapting the plan and keeping control and has some general principles that can be applied to your own, or potential clients’ situation.
A plan is nothing without action.
Sarah has a goal for her personal finances and now she had a basic plan. She knew what she was currently spending and where. She knew what she wanted to get from her spending, both in immediate terms (like food, social life, priority items) and in the longer term (building her business commercially and professionally). She knew how much she had allocated to different areas of life, what was fun money, what was to build up the emergency fund. She had an idea of how she would keep track, with apps and a quarterly review of spending and income. She had the various insurances and business costs, such as CPD, budgeted, and standing orders set up to cover them.
It was time to put her plan into practice and observe how she kept herself accountable to her budget.
That part of finance is very personal. Some people like checking on things monthly or even weekly, others prefer an annual review. Some like to have lots of little “pots” for different savings, others like fewer, more general pots. Some have notional funds for expenses, others actually have cash in jam jars. Some have multiple bank accounts, within or between banks, each dedicated to specific finances, others have a single general account and put in and take out as needed.
In the same way that there isn’t a “best” way to budget (but there are lots of handy pro-forma’s and models available), there isn’t a “best” way to organise keeping to the budget. There are plenty of should’s and ought’s, but it’s not about what’s wise or conventional, it’s about what works for you.
Money is a tool.
It’s fungible – you can turn it into stuff. It doesn’t have to be a goal in itself, just a means to a goal. And the goal you want to achieve with the money is yours. That’s why the “heart” work is so important, it makes sure that the money – that can serve just about any purpose – works to do what you want, rather than what you think (or have been told) you ought to want.
And it means that you can build in some things to keep you motivated, like building in social contacts and meaningful things for you in the short term. It might be volunteering, learning new skills, anything to give you purpose and a positive focus. A meaningful goal 20 years away is lovely, but something meaningful right now helps you get out of bed on a dull, rainy day when the thought of a distant future, however bright, lets you hit snooze.
That heart work is also important to keep on track when things go wrong!
Course-correcting is expected!
It’s natural that the plan, in its original form may not go smoothly, particularly as new insights emerge as a person’s relationship with their personal finance evolves. Realising that the priorities aren’t quite right, or some assumptions of head or heart are incorrect, can require some adjustment to the plan. And external events, financial and otherwise, can cause the best laid plans to go awry. Fortunately, money is a flexible tool, so it’s often simple (not aways easy to do, but simple conceptually) to make necessary changes. To decide if things need to change, and if so, how to change them, some analysis is required.
I find the simplest way is to look first at whether what’s going on is a problem with the plan itself, or the execution of the plan. And then to look at whether the problem is with you, or it’s external.
If the plan is unrealistic from the start, it’s going to be a problem. Say you’ve planned to save more money than you have spare. It doesn’t matter how hard you work, if the budget isn’t achievable, you can’t keep to it. That’s why it’s important to be quite hard-nosed and analytical in the “head” part, where you’re working out what is possible. And then maybe going back to the “heart” bit and deciding what is the real priority, what truly has meaning, and cutting out a few of the “nice to have” elements to make it more feasible to keep on track. That’s why “holistic GROW” matters.
Of course, it can be impossible because of external circumstances. If you suddenly have major unexpected expenses, illness, rent increases etc. there may be little you can do. In life, stuff happens (to put it politely). But don’t kid yourself that forgetting that the boiler needed servicing, or the car MOT is due, or your key client wasn’t renewing the contract are “external”. You knew about it; you just didn’t take it into account. That’s why Sarah’s plan included an average of income (so she didn’t overestimate), why she took out income protection (in case of illness or injury) and why she was trying to build a fund early (to pay for unexpected expenses).
If it’s the execution of the plan that is at fault, there are also two basic situations. Sometimes, however you’ve planned and insured and tried to cover yourself, however thoroughly you’ve thought through the risks and consequences of your alternatives – it goes pear shaped.
Inflation (and your costs) soar suddenly due to incompetent national finances.
You unexpectedly have caring responsibilities due to an accident or illness with family or friends.
Sometimes, you just have to suck it up, keep your head above water (to mix metaphors) and plug away.
That’s where it’s important to have done all the heart work.
Without a solid motivation, an inspiring dream of where you’re going, it’s easy to get dispirited. It might take a while, and there might be some tears and bloodshed, but sooner or later you get back on the horse (again, horrible mixed metaphors, but you know what I mean). Without that motivation, it’s easy to think “what the Hell, it’s pointless, I might as well splurge now, nothing works”.
The more usual problem that derails things, if there’s a good motivation, a realistic attitude and a sensible plan, is that people are human beings. Money’s the same in this sense as healthy lifestyles, tidying the house, instilling any good habit. We can start off full of enthusiasm and tick along for a while, and then the motivation flags, there’s a bit of a problem, we get dispirited and start to beat ourselves up.
That’s what happened with Sarah.
Things went well, she had done the Marie Kondo thing, reduced her wardrobe to stuff that really sparked joy, and sold loads of things. She had a bit more money, felt full of confidence, was sticking to the budget and life was good. Then she had a slow period at work. She was bored and had a minor spending binge, going over her allocated “fun” budget. Some of it went on clothes that she fancied, but that weren’t really sparking joy and that would sit in the back of the wardrobe for years until they went in the charity bag. That made her feel stupid, she’d let herself down and hadn’t kept to her new resolutions. What was wrong with her? She started to get back to her old “I’ll never manage my money, I’m supposed to be smart, why am I so stupid”. Which made it hard to monitor her spending, or act with restraint. And it made it hard to make tough decisions about what was really worthwhile doing or spending money on.
And that became a bit of a downward spiral.
Finding ways to get back on track with self-compassion
When a person is spiralling, sometimes something fairly simple will do to get them back on track. CBT (or more accurately in my case Cognitive Based Coaching) can help. It gets people to see things in perspective, re-set the goals and get back on the horse.
More normally, as with Sarah, that’s not quite enough. It’s fine to use logic and disputations as in CBT. But sometimes that simply increases the feeling of “I know it’s irrational and I know I ought to do X, but I don’t, I’m so stupid.” What we did was use a couple of other techniques borrowed from areas of psychology, therapy and coaching. One was a general principle from Acceptance and Commitment Therapy (ACT), of taking action towards valued objectives. She knew what she wanted to do. The thoughts that she couldn’t do it, was bad or stupid etc. were just thoughts – she could diffuse from them. Because that was hard for her as she’s got high expectations of herself and expects to be able to master things quickly and is frustrated when she doesn’t, I asked her to do some self-compassion exercises.
Self -compassion (the best sources for this are Kristin Neff and Chris Germer) has three basic steps.
To accept that it’s painful. Feeling a failure, stupid, not able to cope hurts. You don’t run from it (ACT also has lots about experiential avoidance), you recognise that it’s hard.
You then appreciate that it’s not unique to you, it’s normal. It’s part of the human experience, we all get upset, fear missing out on things, feel we don’t fit in, are not good enough and so on.
And then you give yourself compassion. You wouldn’t speak to a good friend or your kids the way you speak to yourself about mistakes. You’d tell them it’s OK, everybody messes up sometimes, you’d support them and give them some love. But we tend to hold ourselves to an impossible standard of perfection.
There are many subtleties and these (along with lots of free stuff, meditations etc.) are on the self-compassion website (https://self-compassion.org/).
Sarah found that helped, she didn’t feel quite so bad. She wasn’t tempted to blow all the money on retail therapy, she got herself back in control. But she did worry that it wasn’t going to hold her in check for long enough, that she’d have a problem and need external help in the future, instead of being able to self-adjust.
That’s where we got to habits. That’s kind of the ultimate “hand” bit. We do far more stuff automatically, by routine, than we do by conscious decision, some research suggests up to 40% is habit with around 90-95% of thinking being unconscious (New Scientist, 2018). She needed to build in some habits with her money. That way, she’d be doing the stuff that she wanted to do, that would help her, rather than revert to the habits she’d had before, which had got her confused and anxious in the first place.
Building habits
There’s a lot to habits, for a start, there are two really good books on it,
Tiny Habits by Fogg, and
Atomic Habits by Clear.
Personally, I like the approach Fogg uses. I find it easier to explain. We did quite a few things to “automate” the way Sarah handled money, to get her doing things that would help, rather than having consciously to decide to do something other than the way she’d always done it. I’ll give one example.
Sarah found that she was OK checking on her credit card and spending when she got the monthly accounts or doing a quarterly review. But after a while, it was a bit of a chore, and it might take a while to sort out exactly what she’d spent, where, and assign it to a place in her budget to keep on track. So it drifted, because she wasn’t checking and eventually started splurging a bit and didn’t really notice until the bills were in danger of not getting paid. By which time it was too late and she’d beat herself up for being lazy.
We wanted a habit that would keep her on track. Without going into all the details (read the books!) one big thing is to make the new habit tiny. Really easy. It should take almost no time and you can do it very easily. If you try to do full analysis of everything you spend, in detail, every day it’s like suddenly deciding to exercise for an hour a day. You might do it for a day, or maybe a few days. But soon your motivation or determination slips, and you stop.
We agreed that Sarah would simply look at her previous day’s spending each morning. That was all. She didn’t have to analyse it, do anything about it. She simply had to look. It would take about five seconds. It had the advantage (read the books!) that it tacked onto her existing habit (she’d look at her social media first thing, so she’d have the phone in front of her). It was also handy in that she could set a reminder to start with, so she didn’t just do social media, she did her routine first, then social media. And that made sure it was done regularly and it was quick. And she could set the reminder with a sound, picture or whatever that would remind her of what she was trying to achieve by changing her financial habits.
Looking at her spending therefore gave her a regular, daily reminder of why it was important. She got an automatic, easy thing to do, that not only reminded her of why she wanted to do it, it made her aware of what her spending was. Of course, the fact that it was a five second job didn’t stop her spending longer and doing more work analysing if she wanted, but she didn’t have to.
There were other things, but that kept her awareness both of the reason she was trying to control her money, and what she was actually doing about it. After a while, whether she had a reminder or not, her first action when she picked up the phone was check what she’d spent. Usually, that was it, but if she’d had a bit of a splurge, an unexpected bill that she needed to move money around or anything, she got a warning and could pick up any minor trouble before it became a major financial or emotional issue.
Sarah finished with a financial plan that she could stick to
She could make decisions on and adjust to suit changing events.
She felt happier with life, had more time for things (like social relationships) that were important to her and that gave her purpose.
And she’d moved from feeling inadequate, even stupid and scared, to feeling in charge of her money.
Epilogue: For coaches interested stepping into the world of ‘financial coaching’ – my advice and insights
Most of the people currently doing “financial coaching” come from a finance background. They may still be registered and therefore capable of making specific financial recommendations. They may, like me, have the basics (and maybe more) but aren’t registered anymore, so they know enough to give the “money” side of general advice without going into detail of specific products or regulated advice on areas like pensions. But what they don’t usually have is any formal training in psychology (either therapeutic or positive) or necessarily any real knowledge of coaching.
Coaches, in general, are going to have the more complex psychological and “people” knowledge that is far more difficult to learn, let alone master. By comparison with that, learning the basics of finance well enough to give general advice is relatively simple. For example, in Sarah’s case, we created the conditions for meeting three basic psychological needs of Self-Determination theory: relatedness, autonomy, and competence (Deci and Ryan, 2017). At the same time, there are other dynamics happening that can’t fully be captured from formal base of knowledge and rely more on intuition. That’s all quite complex, and even having a Masters degree in finance and being a registered advisor won’t have taught anything about that. On the other hand, a skilled coach with a knowledge of therapy, positive psychology, and coaching, can refer (or refer the client to) plenty of reputable online information about finance, or to a registered advisor to handle any technically complex money issues, once the personal, psychological areas are settled.
For an ideal financial coach, apart from the usual coaching skills,
They will also need some knowledge and practice both in traditional methods of psychology and therapy (helping “fix” things) and in positive psychology (the flourishing side). It isn’t necessary to be a qualified therapist or have a doctorate in positive psychology. But obviously people are infinitely more complex than money, so there’s a high degree of expertise required to deal ethically and professionally with people.
They will also need some familiarity with the basics of insurance and areas such as saving, investment, credit, and debit. It isn’t necessary to be a qualified financial advisor, although if you’re going to give regulated advice (such as pensions, or specific products) as distinct from general advice, you do need to be qualified, have insurance submit to regulation and abide by a code of ethics. The difference from the psychological angle is that the general financial steps required aren’t complex. And information about products (e.g., income protection insurance, or savings interest rates as well) is readily available, some from the general sources and in the case of regulated products, from qualified IFA’s.
In the same way as Sarah knowing herself, your clients are the expert on themselves. Using coaching to help look at the person, their dreams and fears, their attitudes and aptitudes, traits and habits allows insight into what a fulfilling, meaningful life would look like. It also provides emotional, cognitive and behavioural understanding. Those are the elements that determine how the money can help and how the money can be handled.
References:
Ryan, R. M., & Deci, E. L. (2017). Self-determination theory: Basic psychological needs in motivation, development, and wellness. The Guilford Press. https://doi.org/10.1521/978.14625/28806
Chris Germer Website https://chrisgermer.com/
Kristin Neff Website https://self-compassion.org/
New Scientist, 2018 https://www.newscientist.com/article/mg23931880-400-lifting-the-lid-on-the-unconscious/ (accessed 27/6/23)
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.
