Financial Counseling and Financial Planning: They Go Hand-in-Hand
The difference between financial counseling and financial planning is duration and function. Financial counseling is a short or mid-term relationship between client and counselor. Financial planning is a long-term relationship between client and planner. The goal of the financial counselor is for you to become independent by helping you build new skills and attitudes to improve your day-to-day relationship with money. A financial planner is someone you depend on long-term to take care of the money you are saving and making sure it is getting the best rate of return to meet your financial goals and priorities.
Why do financial counseling and financial planning make sense? Here is an example:
Couple A is coasting along, not stressing over money decisions and their bills are getting paid on time. They keep enough money in their checking account so they don’t worry about overdrawing their account and incurring overdraft fees. They seem to be living within their means. Couple B on the other hand is struggling from paycheck to paycheck which has caused a lot of stress in their relationship. They are paying extra bank fees for overdrafts and money transfers. They are also paying finance charges because they rely on credit cards to meet their monthly expenses when they run short of cash.
If couple A or B had to come up with a “ball park figure” of how much money they could save every month to contribute to an investment plan, do you think they could? Couple B is already strapped for money each month so they would probably “assume” they have nothing to save. Couple A, is comfortable now, but do they know how much money they could contribute to investment plan? Without taking a closer look at their day-to-day spending habits, like Couple B, Couple A probably does not have the clarity they need to determine exactly how much they can afford to save every month.
Whether you identify more with Couple A or B, most people can greatly benefit by meeting with a financial counselor to tweak or fine tune their day to day money habits and skills before or while they are working with a financial planner. Here are seven reasons why financial counseling and financial planning go hand-in-hand:
- You will know how much money you need to support your current lifestyle and the one you want to have in retirement.
- You will have all the personal and financial data required by a financial planner to analyze in order to customize a long-term financial plan for you.
- You will know what you can afford to consistently contribute to your investment plan.
- You will have a clearer picture on the amount of risk you can build into your portfolio depending on your immediate and future needs.
- You will be financially stable, and less likely to borrow or make withdrawals from your investment accounts and pay costly taxes and penalties.
- You will have a sense about the types of financial products you need and how much you can afford to spend on them.
- You will be more prepared once you have control over your money and clear financial goals to work effectively with the financial planner who is right for you.
When you have financial clarity, improved spending habits, identified goals and priorities and peace with your partner you will achieve your ALL of your financial goals.