If you do smart things with money for long enough, those around you start to take notice. There is no doubt that you’ll stand out because money sense is not common sense!
You may have seen this in other areas of your life. If you have tech background like me and you fix your Aunt’s PC… The next thing you know, you find yourself fixing the internet connection on your Aunt’s Grandson’s Grandmother’s PC, and then removing hundreds of viruses your Aunt’s Grandson’s Grandmother’s Niece’s PC!
Word of mouth can be a very powerful thing! It can be used to help you quickly build a community, a business, or to do some good for others that lack your knack for personal finance.
As our friend Captain FI recently posted on Instagram, he will be starting a mentoring program! As such, he asked me to discuss coaching and mentoring. This is a topic near and dear to my heart as I have mentored plenty of friends and family. In addition, I taught Dave Ramsey’s Financial Peace University course for seven years.
When he suggested mentoring, the topic was quite fresh on my mind, as I just returned home from helping a friend Sarah (using an alias) who, within a couple months span, lost her husband, fell on her neck and became paralysed, and had to kick her destructive daughter, boyfriend and granddaughter out of her house.
She has tens of thousands of dollars in debt and medical bills to tackle, property taxes that are due, and a $24,000 pulled out of home equity line of credit (HELOC) that is expiring.
As if that wasn’t complicated enough, her work hours are currently reduced because of the physical pain of working with a fused neck and her involuntary muscle spasms. To make matters worse, due to her paralysis, she is incapable of getting herself out of bed, clothed and ready to work.
There are many, many, many other challenges in her life that I won’t detail including issues completing the probate process to finalize her husband’s estate, the state denying her disability, and more.
What I aim to do in this post is use her as a case study to outline the steps of putting together a personal financial plan that is clear and actionable.
If I can do this for my friend’s, situation surely you can follow this outline for less challenging scenarios.
Step 1: Get a picture of her financial situation
This first thing I try to do is get some situational awareness. Keep in mind that it never helps to spout general financial planning advice at people.
To really help her I need to roll up my sleeves and get a real sense of where she stands. When doing this, it is important to meet people where they are. Sarah has never paid a bill, balanced a checkbook, or handle really any financial matter on her own. Her late husband handled all the finances alone and due to financial troubles didn’t share any of the details with her.
Knowing this, rather than asking her put together a spreadsheet for me or categorize her bank statements I told her she could just give me her pile of bills.
At home, I went through her bills and made a spreadsheet, noting each creditor, utility company, bank, and hospital that she owes. I’m doing so, it is important to note the minimum payments and balances. In the margin, I made a few notes with observations for each. For example, I made special note of bills that I believe are discretionary as that might create room in her budget.
With that done we set up time to meet. We took her out to dinner as she doesn’t get out much anymore. After dinner, I met with her in her home to talk though the things I observed in her expenses and to clarify questions I still had.
Step 2: Prioritize her problems and goals
After assessing her income situation, we estimate that she can reliably work 20hrs a week and company furnished disability will pay half of her salary for the remaining hours for a range of $3,000-$4000 per month. This is good, however she has upwards of $60,000 in debts that we know of, and a bunch more that we do not know of sitting in probate.
Now, at this point we know her expenses and we know her income so it may be tempting at this point to start giving advice. However, I caution you NOT to do this. If you do, you’ll find the person you are helping will disengage, as they do not feel a connection to their current problems. Additionally, they may not see how the advice you are providing will solve their problem or help them meet their personal objectives.
First things first
Instead, this is the time where you clarify your understanding of the problems they are facing and the goals that they have for the future. For Sarah, her near-term focus is making her property tax and HELOC payments so she doesn’t lose her home.
That becomes priority number one; all other priorities are subordinate. Second, and perhaps equally as important, it is that she is able to keep the water, lights, and power on. Third, she needs hazard insurance for her home. The last thing we need is for a disaster to put financial recovery out of reach.
Fourth, we sort her debt obligations smallest to largest. Many of her debts have gone to collections due to several months of surgeries, rehabilitation, and poor financial choices while she was grieving. Note, I did not mention food in this list. We’ll come back to that later.
I counseled her on dealing with creditors i.e. get everything in writing l, and not to trust them! Furthermore, advised only talking with creditors if there is enough money left over when her other priorities have been paid. Then, and only then will she call and make payment arrangements with the highest priority creditor.
Long term, she wants to get out of debt and in a situation where she is able to start saving for the future.
Step 3: Meet here where she is (metaphorically speaking)
With the understanding that handling the household finances is new for her I wanted to keep things simple. I printed my spreadsheet, and sat down to have a conversation with her. I used a pen and paper to make notes as we discussed, pausing only to ensure she can read my hasty handwriting!
I make the above point, because many of us personal finance nerds have highly optimized spreadsheets sticking out of our socks. You need to know who you’re mentoring. For Sarah, this would have been a big distraction and we want to her to focus on the big picture.
The idea is for her to keep that page by her bedside as her operating manual. We even penned a few phrases she could use on the phone she could use when talking with the tax office, for instance. She wanted to know what words to use to ask for a payment plan.
Step 4: Tell her where she can focus to reduce expenses
Typically, this is where you want to help to optimize specific budget areas. If you find that car payments are an area of focus, you might advise her how she can save money on cars. If groceries, share some tips to get per meal costs down.
Sarah didn’t have any of those bigger budget categories like car, groceries, or mortgage. Her home is paid off, car repossessed, and people have been bringing her meals.
Since her situation is quite unique in this regard, my advice was focused on the bills she should be sure to pay and the ones she shouldn’t. Later, as she gains some traction she can start systematically attacking her outstanding debts.
I advised that if she can pay her debts, she should. Despite her condition, she did make the commitments. That said, given her situation she may want to negotiate the balance of some accounts. The longer the debt is in arrears the more likely the creditors are to settle for pennies on the dollar.
Step 5: Tell her what she should NOT do
It is important to proactively identify the things that may get your mentee off track. Be very upfront in listing those things that she needs to avoid and explain how and why that will derail her plan.
For Sarah, these included:
· Allowing the creditors to get under her skin and manipulate her into working things out of sequence
· Sending money to a creditor without first verifying they are authorized to collect the debt
· Paying any negotiated fees without receiving a copy of that negotiated deal in writing
· Allowing her destructive daughter and boyfriend back into the home
Provided she can avoid these things she can certainly stabilize and even recover her situation.
Step 6: Give her hope
When I was a child, a quote from the movie Alice and Wonderland really stuck with me:
“Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get to.
Alice: I don’t much care where.
The Cheshire Cat: Then it doesn’t much matter which way you go.
Alice: …So long as I get somewhere.
The Cheshire Cat: Oh, you’re sure to do that, if only you walk long enough.”
Sadly, this describes most people’s financial planning. They don’t have any idea what they are striving for. Given that, any decision is a good one!
My point is not to speak poorly of Sarah here. As we have established, there are a lot of reasons Sarah didn’t know where she was going financially that we’re not ENTIRELY her fault.
Without a plan, however, Sarah will continue to be reactive to the “here and now” and never successful in planning for “there and then.” My point is, having a plan for the future helps clarify your decision making.
Have you ever tried to convince somebody to do something that you KNEW would be a good thing for them? Let us know in the comments. I’ll bet that even though they listened to you, they didn’t change anything. The truth is, they didn’t take your advice because
· It wasn’t important to them OR
· They didn’t believe they could accomplish it
For the reasons I focus on listening to ensure I really hear what’s important to them. With that understanding, I can use their language and rationale to motivate and steer my recommendations. Also, with that perspective, I can safely tuck away advice that they are not yet ready to hear. There is an old saying:
“People convinced against their will are of the same opinion still.”
Now, here is our opportunity to put some jet fuel in that 747 we just taxied to the gate: Using some high level estimates, I let her know how long I expect this plan will take. If it’s a relatively long time, I am always sure and sprinkle in some milestones along the way.
For Sarah, probate findings notwithstanding, I believe she is capable of getting completely out of debt in 3-4 years. Within a few months she should have her property taxes paid and be on her path to saving for the following year!
Hearing this plan and timeline was a huge burden lifted off her shoulders as for months prior she was unwilling to even open up the bills for fear of what she would see.
Step 7: Stay engaged
Sarah’s a tough lady, even if you ignore the past year she has had the toughest life, from childhood-on of anyone I have ever met. Despite that, she is always positive and always looking to bless the lives of others.
This leads me to my final point. It’s going to be important to follow up with your mentee to help her through both the fine details of her plan as well as keeping her grounded in the bigger picture.
The only certainty about plans is they are wrong the second the ink dries on the paper! That’s not to say the plan was bad, but rather that life can, and will throw you curveballs.
It’s important that you establish accountability, a follow up cadence, or a means for her to contact you for help. After all, you didn’t develop your financial acumen in one day. You can’t expect your student will either.
Other ways to help mentor
If you don’t have the time, a more scalable way you can stay engaged is by gifting or recommending a few books. You have heard it said:
“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
My wife and I used to keep several books in our trunk, just in case we ran across someone who could really use them. I would encourage you to do the same if you are serious about changing the lives of people you coach.
If you need a few suggestions, there is comprehensive list of personal finance book recommendations on my page. You can even get a free PDF copy the list to share with friends, family, or those you mentor. I would encourage you to grab your next read and a few extras to help someone in need.
Changing a pattern of decision making doesn’t happen overnight. It is not easy, but it’s worth it!