The Difference Between Financial Coaching and Financial Planning

Money Files

Many of my clients believe they need a financial planner because they feel overwhelmed by their finances or they’ve heard that you “should” have an advisor to help you make “good” financial decisions. When is the right time to seek out assistance with financial planning? What services does a financial planner provide that a financial coach does not?

In today’s episode, I’m talking to my friend Ellen, a financial planner, about who you need on your numbers team.

In this candid conversation, we discuss the difference between how she supports her clients as a financial planner and how I support my clients as a financial coach. We’re also debunking common financial misconceptions and talking through some of the greatest lessons we’ve personally learned on our money journeys.

Understanding the difference between a coach and a planner will help you make an informed decision on whether you’re looking for support to learn how to better manage your finances day to day or support in preparing for retirement. 

In this episode, you’ll learn…

  • The difference between a financial coach and financial planner [04:28]
  • My personal experience with choosing  a financial planner  [10:57]
  • What questions to ask of a financial planner before working with them [14:44]
  • How to know when you need a financial planner [15:21] [19:11]
  • The difference between fixed expenses and variable expenses and how to consider them with budgeting and savings [15:52]
  • What it really means to max out your 401k [20:53]
  • The importance of giving yourself grace and being curious in your financial planning journey [27:43]
  • What to focus on annually when it comes to your long-term financial plans [40:19]
  • Understanding how much money you truly need to live when you retire and how to plan for that [44:57]
  • Ellen’s advice for what she would do differently [50:04]

Tune in to this episode to learn the difference between financial coaching and financial planning, and how both can benefit you.

Are you ready to experience less stress with your finances? Apply to work with me, and let’s change your relationship with money.

Did you enjoy this episode on the differences between financial coaching and financial planning? Check out this episode on taking a full-time job while growing a business!

Transcript for “Ep 30: The Difference Between Financial Coaching and Financial Planning”:

Keina: Hi and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work every day with professional women and solopreneurs to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances. 

Hi and welcome back to another episode of Money Files. Today, I’m with Ellen. Ellen’s a financial advisor, and I thought it would be cool to have a conversation about basically a numbers team. A lot of my clients come to me and they refer to having a numbers team. I think people do a lot of Google searching and they don’t know who they’re looking for. So sometimes they think they’re looking for an advisor, but then they find me. So I just want to demystify some of those things. So I asked Ellen to have a candid conversation with me about basically the difference between coaching and advising. So do you want to introduce yourself, Ellen? 

Ellen: Yeah, hi Keina, thank you so much for having me. And I’m going to make a minor correction because you called me a financial advisor, which is true.

Keina: You’re right. I did. You’re a CFP. 

Ellen: Well, actually, I prefer the term financial planner. It more closely, it more accurately describes the work that I do with my clients. But also, I think something that your listeners should know is that the term financial advisor is completely unregulated. So anyone can call themselves a financial advisor whether or not they have any credentials. So anyone can call themselves a financial advisor. That’s completely unregulated. And whether that person sells car insurance or they are advising large institutional clients, anybody can call themselves financial advisor. 

So one thing that is important for people to look at is: What kind of experience does an advisor have? What kind of credentials do they have? I’m a big fan of the Certified Financial Planner designation because I am one and also because the CFP board has done a lot of work to professionalize. And one of their long term goals is actually controlling use of the term financial advisor to make sure that consumers are well served by the individuals who are providing advice. So the long winded answer. 

Keina: I’m glad you made that distinction because I think that’s very important for people to understand. And there are a lot of people that have the title of financial advisor with no additional credentials behind their name and another mentor of mine, her name is Saundra. I actually went through one of her coach trainings, her financial coach training. And so she has advisors and planners that go through that. And just thinking about… I think you bring up a good point in thinking about like if you do engage with a financial planner or you engage with a financial advisor, like what do you actually want out of that relationship? 

Which is one of the things that I always, in talking to people, I want them to understand and think about what they yeah, what they just want out of a relationship. For me, and I think the reason we connected over a really long coffee chat and stayed in touch over the years is because I think when clients are working with you and anyone who I’m like in the financial circles with, I love when they’re also like educators because I think finances are really scary and I think you do a really great job of educating people as well. 

Ellen: Thank you. I really appreciate that. It’s something that I care about, and just as a human being I always want to understand the why. Don’t necessarily have to get into the weeds of things but I need to have a basic understanding of why am I doing what I’m doing, you know, some oppositional defiance. That’s a whole other topic. 

Keina: Yeah. Well, you know what I do, and I do know what you do, even though I called you an advisor. What would you say from your lens… What’s the difference in between like a coach and what’s the difference in between a planner? 

Ellen: So I think that you could look at it sort of in the same lens of what’s the difference between a life coach and a therapist. Right. So, you know, therapy deals with looking in the past and coaching deals with looking forward. On the financial side, financial coaches can help people get into the weeds of their budgeting, their money mindsets, whereas a financial planner or a financial advisor is going to deal more with, alright, you have these assets, what are we going to do with them? And that can be investing, figuring out how much you need to save in order to reach your long term goals. It’s taking what you already have and figuring out, what are we going to do with it? 

Keina: I like that. I also like to tell people I feel like I get my clients ready to work with a planner. 

Ellen: Yep. 

Keina: In the sense of… you need money to invest and you don’t have money if you’re not managing your day to day finances well. And even if you do have money, because I have some clients that they have a financial planner, but their day to day relationship with money like overspending or not feeling really confident about their financial choices, or maybe they’ve inherited money and they have thoughts about how they’ve acquired the money, or there’s people in their family that want them to do certain things then we’re kind of able to talk through the emotional side of money. 

Ellen: Absolutely. I think that in what you’re talking about with like inheriting and stuff like that. Those are behavioral fallacies, like when someone… mental accounting, right? “Well, that money can only be used for this.” or “This money can never be touched.” There are a lot of ways that our brains trick us into making good and bad decisions with money that a coach can help with. And I think coaches also get paid for their time, whereas most financial planners aren’t necessarily… we’re not I’m not billing by the hour… In all of my conversations with folks, I get paid based on the assets that I manage versus the time that I spend with people. So they aren’t on a clock and we aren’t necessarily trying to solve a single problem. We’re going to be working together for a really long time, decades maybe. Right. Whereas I think for most people, they need to work with a coach to work through some specific issues. And you’re not necessarily going to have a lifelong relationship with a coach. 

Keina: I think another thing that you said earlier when you were talking about telling people how much they need to save to work towards a specific investment goal, I think for a lot of people that can feel very arbitrary, like, oh, you need like you could go and tell someone, you need to make a budget, but then they’re looking for like the how of it. And so I get to take the time to actually help people implement the how. 

Ellen: Yep. 

Keina: And help them make that like realistic. Or you might tell them max out your 401k at work and they’re like, alright, well, what does that mean? So actually helping them, I think, put action that feels really like concrete and tangible behind some of like because I see working with an advisor or a planner like you’re looking at, you’re like 65 year old, 70 year old, 60 year old self. 

Ellen: Sure. 

Keina: And I get to look at clients like, tell me about your UberEats. 

Ellen: The now. Yeah, yeah. You’re dealing with the now, I’m dealing with the future, the future state. 

Keina: Yeah. And I think both are really important because I know even in talking to you, you pose questions for me that maybe I don’t have all the answers for, but it’s made my brain think about like, how much do I want to spend in retirement, right? Like I’ve heard, I feel like we all have this idea of retirement, but what does that actually mean? And so to actually put some tangible numbers behind what that looks like so I can have this like backwards plan. So I know what I need to do now so I can get to where I want to be later. 

Ellen: Right. Well, a coach can get into the weeds with people about like, do I should I spend this versus that? And I actively avoid getting to a point where I’m making value judgments based on what people are spending. Right. I’m completely, I’m completely agnostic. You’re going to spend or save whatever you want to, I don’t want to be in a position where I’m telling someone that $12 you’re spending on Netflix or whatever Netflix, right, like you should take that and you should be investing it. 

Because number one, that’s that, that feels very self-serving to me. But number two, I want them to work with a coach to really deal with what is valuable to them with their current cash flow so that we can talk about, alright, we’re going to take this piece and do that. Travel is something that’s really important to you. So you’re going to have an annual travel budget. Well, I can also with the planning piece, I get into the weeds with people around, alright, if you save X number every year for the next 30 years, here’s what your retirement could look like. Here’s what your travel budget can look like then, right? I give people sort of the options of here’s my best advice, here are some different options. And then it’s up to people to make those final decisions because those are the things that they have to live with. 

Keina: Yeah, I like that. And just for the record, I don’t tell people that they can’t spend whatever it is. That’s a choice that you get to make. 

Ellen: Right. 

Keina: If you’re watching Netflix and that, you know, warms your heart, do it. I might also say to you, can you borrow someone’s password? 

Ellen: Yeah, that’s funny. I literally I just gave my neighbor our Netflix log in just this past weekend. 

Keina: Fiscally responsible. 

Ellen: Well, no she’s retired and so it’s like, oh, you don’t have Netflix? Here. Here’s my user I.D. and password. No one from Netflix is listening. 

Keina: Oh, that’s too funny. So we were talking about this, and I can give my personal experience. I think another question that people often have is like, when do I need a financial advisor? Like, what does that look like? I know for myself, just to give people some perspective here. I feel like I started looking for a financial advisor in my twenties because it was something that I heard I should have. And then I was talking to one of my girlfriends at the time that I worked with and she gave me like the name and number of someone that her family worked with. And I remember talking to the adviser, spoke to the adviser. And I mean, I was budgeting at the time and his advice was like, build up your emergency fund and keep following your budget. And we checked in. He, like, set a goal where he would like check in with me once a year. And like that was my first type of engagement with an advisor or a planner because he’s actually a CFP as well. 

And then when I actually left my job, it became more apparent to me like, oh, I actually am going to engage with a planner because I have these assets that I want to roll over. And so that was kind of my first go around, if you will, with a planner. And then now that I’m like fully working for myself, the importance of having a planner is also to continue to make sure that I like, do I want to do a solo 401K, do I want to do a SEP IRA? But continuing to make sure that I have some type of retirement and investment strategy. 

So my, like when I’m having conversations with friends, I always think about and talk to people about like you may want to just even start a conversation because it’s so relationship based and the person can help you in terms of like maybe asking you questions that you hadn’t thought about. And then generally speaking, if they’re what I call a good person, then they’re going to provide that education because they know the value of building a relationship with you. And then at some point in time, they probably are going to be someone who gets your business. And by business I mean what you referred to earlier, which is like assets under management, which for anyone listening is just like you roll over, however much money is being invested over to that specific person. 

Ellen: And I’m going to insert here, there are a number of different ways that advisors get paid. It’s important for you to understand that. I get paid for assets under management. But there are advisors who are fee only they they you pay them to build a plan. They’re advisors that get paid based on trading. So if they make a transaction, they get paid. Understanding how that works with the person that you’re engaged with is really important. And those are definitely questions that you should ask. 

Obviously, I think it’s money well spent because there’s a lot of disinformation out there. I have a couple of clients who every once in a while will like forward me like information that they saw on TikTok. And let me just tell you, there’s some really bad advice floating around on social media. And it might sound, it might sound good, but it only sounds good. It’s not it’s not accurate. It’s not feasible. And it’s not individual to the person who is hearing it. And one of the benefits of working with a financial planner is that you’re going to receive advice specific to your situation. So something that works for someone else might not work for you, might not be in your best interest. 

Keina: Yeah, not having that cookie cutter experience. Can you, you mentioned like questions you should ask, but can you pull out again, just like when you were talking about fees, like what are good questions for people to ask? 

Ellen: I would just straight up ask: How do you get paid and what will I pay you? Because those can be, those aren’t the same question, right? Sometimes people are going to, sometimes you’re going to write a check. Sometimes it’s going to come out of the balance of your account. Sometimes it could be the investment itself has an underlying cost that pays the advisor. So you can’t see the you can’t see the fee. 

Keina: Going back to the original question, like how does someone know when is it best I guess like for someone to engage in a relationship with an advisor or a planner?

Ellen: So my first advice is always make sure that you’re maxing out your retirement plan provided by your employer. Well, actually, let’s start, first of all, you’ve got to have an emergency fund. You need to have a minimum of three months of fixed and variable expenses in a savings account set aside specifically for emergency purposes. So, do that. 

Keina: Hold on. I’m going to pause you. What’s a fixed expense and what’s a variable expense? 

Ellen: Sure. So a fixed expense is stuff that you pay every month: your rent, your mortgage, your car payment, anything  that you know is going to happen on a monthly basis. Your variable expenses are how much do you spend on groceries? How much do you spend on going out to eat? The things that aren’t necessarily the same amount, that you have a little more control over what happens from month to month. You want to make sure, there are other expenses, of course, that you maybe only pay once every six months or once every year: your insurance, maybe a property tax or something like that. Figuring all of those things together and having about at least three months, if not longer. There are some people that need to keep 12 months or even two years worth of funds set aside because their income can vary wildly and their expenses can vary wildly. 

Keina: Yeah, another term I use is like non-essential/essential expenses. Like I feel like if you lost your job tomorrow, you’d probably figure out how to cut off Netflix, right? You could consider that that’s non-essential. Or maybe you would stop saving towards your travel fund or something like that. But really being able to see what are the things that I need, I always like, what do you need to keep the lights on, right, and a roof over your head. Those are your essential expenses. And the ones that aren’t, your non-essentials are probably more like discretionary types of things. And to your point, too, of the three to six months, I think like that’s like the baseline average that people talk about. But I’ve also heard and it makes, for myself it makes a lot of sense where you start to talk about like 12 months or 18 months worth of emergency fund. 

I think also asking the question like how long would it take to replace your salary? So if you’re, I don’t know, making $300,000, how quickly could you find another job making the same amount if you were to lose your job and maybe having three months of savings isn’t going to actually sustain you enough? You may need a year with an emergency fund, especially when you I mean, I think that’s where I come in as a coach is when we’re looking at your expenses, looking at like, are you spending every single thing that you make? Because that’s another really great question to be thinking about as you’re thinking about your personal finances. If you bring in $5,000 a month and it’s costing you $5,000 to live each month, then it’s a much different conversation than if you are making $5,000 a month, but you’re only using $2,000 and you’re able to save another $3,000 a month. 

Ellen: Right. Right. Now, I have to tell you, there are clients that I tell that they should spend more money. So it’s not I don’t I don’t always tell people to spend less. There are people that I tell that, hey, you’ve got this money, you need to you need to do something with it, whether it’s for themselves or travel or philanthropic ventures. It goes both ways. I tell people they need to save more, and I tell people they need to spend more. 

Keina: Because I mean, I see that as well, because there’s people that have a lot of guilt about spending. I’m like, you have the money, spend it. 

Ellen: Yeah. 

Keina: In fact, tell me what you spent it on. I’ll see you next week. 

Ellen: Yeah. Yeah. 

Keina: All right. I cut you off. But the things that we need before we seek out a relationship with, like, a planner or advisor. So an emergency fund, we’ll start at 3 to 6 months. 

Ellen: Have an emergency fund. In addition to that emergency fund, I want to see people maxing out their 401K, 403B, TSP, Simple, whatever employer sponsored retirement plan they might have. I want to see them maxing that out before we talk about investing funds elsewhere, primarily for a couple of reasons. Number one, I want to make sure that you’re not leaving any money on the table, that you’re maximizing every dollar that your employer will put in.

Also, those 401Ks, 403Bs, TSPs are much lower cost investments. So it’s especially while you’re in your accumulation or earning years, that’s a really efficient way to to save more. So I want to see you maxing all of that out before I want to talk to you about what you’re going to do with excess dollars. 

And there are a couple of ways for you to find somebody. Sure, you can go on the Google and search, but if another if a family member is dealing with someone and even if you’re still maybe even if you’re not maxing out your 401k, but your parents or your grandparents or an aunt or uncle work with someone. The advisor might be willing to talk to you because there’s a family connection. So you might be able to bend someone’s ear for a little bit before you’re really ready to become their client. 

Keina: Can we go back to something that you said? Because I feel like this is another miss. People are misinformed about this. You are talking about maxing out your retirement vehicle at work. 

Ellen: Oh, yes. Oh, gosh, yes. I ask that question and people are like, yeah, I’m putting in the whole 3%. No, no friends. That is not maxing out. This year, if you are 49 years of age or younger, you can put $20,500 into a 401k. And if you are 50 or older, you can put $27,000 into a 401k. That’s what I mean by maxing out. It’s whatever percentage of your income you have to be saving to hit that. So if you’re making $270,000 a year, and you are 51, you should be saving 10% into your 401k. 

Keina: And because I was a math teacher, for those of you who need to do a calculation, take the max amount, which for this year is $20,500, and divide it by your gross amount. Gross because it has more letters, that’s the amount of income that’s more, not the net. That’s after the taxes. Take that $20,500 and divide it by your gross. Multiply by 100, and that’s the percentage that you should be working to over time if you’re looking to max out. Also knowing that the max contribution changes from year to year, I mean, it didn’t change while we were in COVID. It was like 19,500 for two years. 

Ellen: Every couple of years. So it’s the IRS has a table and it increases every couple of years. 

Keina: They just make stuff up as they go. So make sure you check the numbers. Because that was something that I was really misinformed about in my twenties. I thought that I was maxing out, and I always heard people talk about, make sure you at least get the match. I also heard that. So I always had my like employer match, but I didn’t know back in my twenties that I could be putting in $17,000, $18,000. And so I wasn’t increasing that from, from year to year, like I would have if I could go back in time. 

Ellen: So I want to give you like my very best advice for a younger person listening to us right now. So first of all, make sure that you’re making some sort of contribution to get your employer’s maximum contribution. So if you have to put in 3% to get their 3%, or if you have to put in 10% to get their 5%. Eat ramen If you have to to get that amount. Two reasons. Number one, if you don’t, you’re leaving money on the table. Number two, the younger you are and the more you save now because of the power of compounding, and I’ll let math teacher Keina say more about that. The more you put in, the younger you are, the bigger your pot’s going to be later in life. And the most powerful time for you to save is when you are just starting out. And, look, I know how difficult that is. My first job out of college, I don’t want to date myself. I was 25 when I… Look, I did not do what I’m telling you to do because I didn’t know about it. But I started saving in my 401k when I was 25 and for the next, I think it was probably like seven years, I did not take a raise. Every time I got a raise, whether it was 1%, 2%, 3%, I increased my 401K contribution by that amount within a couple of weeks of having gotten it. Now I did have the good fortune of working in financial services and being able to have seen what people at both ends of the spectrum, older people with large retirement fund balances, people in the middle who were inheriting money and what they were doing with it. And I wanted to make sure that I was putting myself in as best a position as possible to live life on my terms later in life. My parents are both not good money decision makers. I didn’t really grow up knowing any of that stuff about money. I happened in the finance by degrees in communication. So it’s very accidental that I even ended up in the career that I’m in. If you’re willing to make a smaller sacrifice now, you’ll have less that you’ll need to sacrifice later to have a retirement or reach other financial goals that are important to you. And it doesn’t really matter what they are, right. Like it doesn’t have to be retirement. Your goal can be to buy your first house or make it through college, whatever it is. The sooner you start saving for it, the better off you are. 

Keina: Yeah, my finance professors… The one thing I remember is the time value of money. And doing it early. But I also like for anyone who’s listening, who’s like, Keina, I don’t have this time value of money. I would argue that you do no matter where you are, right? Like, yes, it would be great if we could all do this at 22 if you’re listening to this. 

Ellen: Yeah. 

Keina: But I was reading I think it’s in the book, Psychology of Money, and I feel like all of these tools are also new. Like, you probably know this off the top of your head better than I do, Ellen, but like the Roth IRA, for instance, came out in the late nineties. 

Ellen: Hmm. 

Keina: I think it’s the late nineties. Don’t quote me. We’ll say it’s the late nineties. But I say that because I think it provides perspective, like generational perspective. Like my parents, for instance, my parents are both military. And when I look at my grandmother, who had a really great job, she’s like part of a pension. She had stocks, she had access to all this. Like there wasn’t this like 401k conversation. And even for my parents, there really wasn’t a 401k conversation because my dad’s retirement was coming from the military because he’s retired. Then he did get a government job and had access to a TSP. But I feel like, generationally, people that are in their forties, thirties, twenties. Like this is new, new material for lack of a better term. 

Ellen: Yeah. Absolutely.

Keina: And so being able to give yourself some grace and knowing that like now I can be really thoughtful with the questions I want to ask. Today I can go and increase my retirement contributions. I can figure out what the max is. And also, as you’re like asking these questions, I want you to also know that this is a part of like building that financial confidence for yourself, like feeling really confident to go into the, not even really confident, just curious and confident, to go into the portal and say like, oh, let me let me figure out what benefits I do have as it relates to my 401k or 403b, whatever that investment tool is for you at your job. And something that I’ve seen with clients and I’m sure you’ve seen it, Ellen, is like also make sure that whatever funds, whatever money is going over there is actually invested in funds. 

Ellen: Yeah. Yes. 

Keina: Because sometimes the money’s just sitting in cash. So you’ve been “doing the right thing.” But your $10,000 that you’ve been investing isn’t actually invested. It’s sitting in cash. 

Ellen: I won’t get into the weeds about some changes that the retirement planning industry has made to make sure that people don’t end up in that position. But steps have been taken to, number one, try to make sure that a lot more plans have opt out, not opt in. 

Keina: Mmm hmm, I saw those changes. 

Ellen: Yeah. And then also default investment options that are tied to your age so that if someone can’t decide what to do, they’re defaulted into something that is appropriate for them based on their age. 

Keina: Yeah. I’ve also seen that they’re doing increases automatically for people. 

Ellen: Yes. Yeah, yeah. That, too. And if you do have the benefit of an employer sponsored plan, then there probably almost certainly is an advisor attached to that plan. Call them. You’re already paying for them. Right. Like your plan is already paying for their advice and guidance. They’re there for you.So they can probably they should be able to help you with some of the basic stuff. And they would have other resources for you to check out. 

Keina: Something else, because I feel like I was the campaign manager at work for making sure everybody was contributing to their 403b. But I think something else that’s really important is we’re like having this now what I feel like is a retirement conversation is that… Ask at your employer if you do get matching funds, ask when you’re vested. 

Ellen: Yes. 

Keina: So like at the employer that I worked at, I think they had like a 6% match or something of that nature. And not until you worked at the company for three years could you take that money with you. So if they were contributing 6% for me or whatever that looked like, it wasn’t until year three that I could actually take the money with me. And I say that because I would watch people. I’m like, you’re two years and five months, like stay another seven months, so you can take the money with you. 

Ellen: Right. 

Keina: That’s like my one kind of like piece of advice for everyone in addition to like, please make sure you’re contributing. And literally, I was the girl running around making sure everybody was contributing. 

Ellen: Thank you. 

Keina: You’re welcome. And two is like when you’re switching jobs, sometimes, like, I learned this, like, later on in life is you need to look at your overall, like, value proposition. So when someone offers you, maybe you’re making $80,000 right now, but that company is doing a 10% contribution, and you don’t have to do anything. Right? And then you go and you’re like, oh, this other job is going to pay me $95,000, but I don’t have access to retirement because they’re not maybe there’s no really like employer sponsored benefit in terms of your retirement. Just being able to look at like part of growing up and being better financially is not just looking at that number overall, but also look at your benefits. And that could be health care. I feel like Ellen and I have had a lot of these types of conversations, but specifically talking about this retirement piece, look and see, like, is this kind of like apples for apples because your employer is paying some portion of, your employer’s paying you and some of it doesn’t look like what comes in your paycheck every two weeks.

Ellen: Yes. Correct. 

Keina: Some of it’s like a hidden compensation. 

Ellen: Total compensation. Your paycheck is only part of your compensation. 

Keina: Yes. Yes. 

Ellen: And the paycheck is not the end all be all because the value of some of those other compensation pieces can far outweigh just what’s in your paycheck. Well, it’s kind of getting back to literally wealth over now, like choosing the option that benefits you more long term versus the immediacy of having another dollar in your hand. 

Keina: And I think sometimes, like, people aren’t having those conversations, but it’s something that I figured out. I was like, oh, and I really figured it out too, when I started working for myself and I’m like, hmm, I was making this much. But then they were also paying my health care. They were also giving me this much in retirement. And so that number, like maybe I was making $115,000. And when I consider what the total compensation package was, I was making $140,000. 

Ellen: Right. Yeah, I am also we have some, some younger people in the office and I go around and, and not only make sure they’re contributing their 401k, but also talk to them about like the different health care options and taking advantage of a high… If you if you’re someone who doesn’t have a lot of health concerns that require you to make frequent doctor’s visits, using the high deductible plan and making an HSA contribution and understanding that the money that you put in the HSA stays there for forever. You don’t have to take it back out and that you can use those high deductible plans and have the HSA money for 20 years and use that as a health care savings for retirement option. So that’s a soapbox I like to get on. 

Keina: Well, I told you, Ellen’s a wealth of knowledge in terms of educating, which I appreciate, because there’s like things… I know in talking to you when we first met, it’s like, oh, I never considered that an HSA or like how that could play a role. And so much of it, once again, it’s about this newness of the tools that we have available to us and being willing. That’s why I’m a big proponent of financial conversations. It’s not always about how much money you make, but you can learn something from someone else. You’re like, oh, okay, let me do some more research or ask another question about that. 

Ellen: So these are like the not sexy things that actually make a really big long term difference. And somebody sent me like a TikTok video about some person saying, you want to be you want your child to be a millionaire? Well, start a business and pay them this and make contributions to a Roth for them. And I’m like, well, okay, well, if you don’t have an extra $6,000 in your cash flow to create a business that isn’t going to make any money whatsoever and then make a contribution for your kid, which, by the way, an infant can’t work. And with a Roth, there has to be actual compensation, right? Like there has to be a paycheck. You can’t just. Where’s this money coming from? Right. Like this magical oh my child’s going to be a millionaire by the time they turn 18. How? Like that sounds sexy. But it doesn’t work. It works for very limited situations. 

Keina: Is what you were saying earlier. Like working with a financial planner can give you a plan so you have something that’s specific to you. Yes. And I think debunk some of the things that whatever the Internet is telling us, we should do it like on Instagram. That doesn’t really make sense because there’s so many questions you can’t ask. Something that I appreciate you talk about, Ellen, is that like people need to make sure that they are funding their retirement and not worried about their kids’ like college plan savings because you can’t take a loan out for retirement, but you can take one out for college. And I think that that hurts a lot of people and it stings. But it’s so true because I like have this conversation with some of my clients because I’m like, I need you to take care of yourself first. 

Ellen: Yes. 

Keina: Because when you’re 65, I want your kid to know that mom and dad aren’t going to need money. 

Ellen: Yep. 

Keina: Because you were so worried about their college fund. And not to say that, like, not everybody wants to give their kids, like, a loan free college experience, but we can figure out how to make that work at some other point in time. But take advantage of that like we were talking about compound interest and the time value of money, like focus on your retirement right now and take care of you. 

Ellen: Yes. Put your mask on before you try to put somebody else’s mask on. You have to take care of your own situation. If you pay for your kids to go to college and they get a degree in underwater basket weaving, then you’re going to be living with them because you don’t have any money and where are they going to be living because their only marketable skill is underwater basket weaving. 

Keina: And so something else that I would like to say in this conversation is sometimes the clients come to me and they’re like, I need to be investing, Keina. Because I feel like there’s a world of day traders out there right now. And I’m like, If you are investing in your retirement through work, you are investing. I do not need you to get a stockpile account and buy a share of Apple because it went through a stock split. Like focus on your retirement vehicle at work. Use it, leverage it. Call yourself an investor because you have that money there. 

Ellen: Absolutely. Yeah. Get off of Reddit and look at your 401k account. Yeah. You absolutely you are an investor. And the number of times I’ve seen people try to day trade and just lose everything, it’s it again it’s not the sexy option. Making repeated measured contributions to the accounts that are going to sustain you later. It’s not a you know, you’re not shorting Tesla. That’s the difference between gambling and in actually saving for the future. 

Keina: Mm hmm. And knowing that, like, especially the market that we’re in right now, knowing that investing is a really long term strategy. 

Ellen: Yes. Yeah. I mean, you look at what’s happening in the market. And, you know, we’re talking in July of 2022. So ya know, as of this second, the S&P is down 18.66% year to date. For those of us who are still in an accumulation or savings phase, that means that we can we’re buying more shares with the dollars that we’re saving into those 401k or SEP or whatever accounts that we’re using. Volatility is actually our friend. And, you know, does it hurt to look at our statements? Sure. But in the long run, these things are actually kind of good for us. 

Keina: No, I haven’t. I haven’t looked at mine. I just figure I’m buying everything on sale.

Ellen: So the old adage is buy low, sell high. But our human nature leads us to want to buy high when it feels good and sell low when it feels bad. So part of being part of working with a financial planner is helping you make better decisions, even especially when times are tough and talking through, okay, the economy is doing this, the market is doing this. What is the long term? What does the long term outlook really, really look like? One thing I like to tell people, because if you watch the news, the world is ending. So the good news is that the world can only end once and it hasn’t happened yet. So we’re not there yet. And if it does end, the stock market will be the least of our concerns. 

Keina: That should set you off for a really good whatever day you’re having right now. You should be fine after that. But no, two questions. I was going to say the first one, like, if I am listening to this, what are some things? Because just thinking about like kind of long term, I’m paying attention to my future self. What should I maybe be focused on annually when I’m kind of thinking about my long term numbers? Are there any like things that you encourage people to do, like year to year? 

Ellen: The thing that I would encourage people to do right now is look at your paycheck, see what you’re contributing to your retirement plan. If you are not at least getting your employer’s match, increase your contributions so that you are. On an annual basis, I would increase my contributions if I can. I look at my statement and just generally see how things are going. Sometimes it will be up, sometimes it will be down. Our mood should not be attached necessarily to those numbers. Annually, I try to get in touch with the advisor for my plan and ask them some questions. You know, I think there are some other annual stuff that probably that you could go over with people. You know, I always like to tell people to check out, I don’t sell insurance, but I talk to my insurance agent on an annual basis, make sure that my coverages are appropriate, maybe check and see if there are opportunities to lower some of those costs, things of that nature. 

Keina: So I said I had two questions, but then this other question popped in my head because I feel like I see all these models run off of $1,000,000 at 65. 

Ellen: $1,000,000 isn’t enough. 

Keina: Thank you. You didn’t even need my question. 

Ellen: Now, I mean, honestly, $1,000,000 is not that much money. 

Keina: Well, I think that this could be interesting to break down. I feel like I kind of have my own thoughts about what happens in retirement, but I don’t think we know what happens in retirement. Right. And so I’m sure somebody is now Googling, how much money do I need to retire? But say you do have $1,000,000 when you retire, what does it look like to draw down money from your plan to live off of? 

Ellen: Sure. So the general rule of thumb is that you should be taking probably no more than like 4% of the principal off of an investment like that to in order for it to for you in order for you to not deplete the principal. In order for it to last throughout your lifetime. People are living longer. When I’m doing planning with people, unless they tell me otherwise, I’m planning for them to live to at least 100. Hmm. 

Keina: Mmm hmm. Which is significant because you could basically work the same number of years that you were in retirement, or be living longer in retirement than you actually worked. 

Ellen: Yeah, sure. I worked at a nursing home the summer between my freshman and sophomore years of college, and that was a transformational experience for me. It’s actually, my first couple of jobs out of college where were in the communications field. But that one experience led me to make very different financial decisions as I was coming out of college and I had, you know, I borrowed the maximum dollars I could every year for college. So when I graduated, I had a not insurmountable, and certainly college was a lot cheaper then than it is now. But I you know, I just I had student loans and, you know, and a car payment and rent and all of that other stuff. But I was really focused on getting out of that debt as quickly as possible and was hyper vigilant about my budgeting and my spending. And I would I would not. That works for some people. It doesn’t now, I can tell you that now, as someone who’s mid-career, there’s no way I could live like that now. It was a lot easier to then. 

Keina: Yeah. 

[00:44:34] Speaker 2 Because I was at the beginning and I wasn’t making very much money and I had to be. I mean gosh, when I was in college, my grandmother would mail me a $5 bill every once in a while. And it was like I’m rich!

Keina: I’m rich! With $5, with some gas money. 

Ellen: I didn’t have a car in college, but we had a dollar theater. That was five movies, man. 

Keina: And like, if I was thinking about how much money I needed to retire, is there like a formula? Is there a way to be thoughtful about that? 

Ellen: So I would take a look at how much money I was spending. Right. Not my income, how much money am I actually spending. So let’s say, for example, your salary is $100,000 and you’re contributing 10% to your 401k. So that means you’re taking if you’re making $100k, and your contributing 10%, now your income is $90k, right? And then you have payroll taxes and federal and state tax and all of your other benefits. So let’s say that maybe after everything’s said and done, your take home is you’re spending $60,000 a year. You will very likely spend more as you retire then less. Right. Because now you’re going to go, let’s say you’re working 40 hours a week and now you’re retired. What are you going to do with those 40 hours? Are you gonna sit at home and watch the entire Netflix library? How long is that? How long is that going to really sustain you? We talk to clients about the sort of the three phases of retirement. The first phase is “go go” where you spend more. The second phase is “slow go” where you’re still spending but maybe you spend a little less. And then there’s the “no go” and maybe you’re staying closer to home. Right. And everybody’s coming to see you instead of you know, you going to see everybody. But each one of those phases can there can be significant costs associated with them. Right. If you have health concerns later in life, Medicare doesn’t pay for everything. Right. There are still you don’t when you hit retirement, you turn 65, Medicare is not paying all of your costs. There are some that are borne by you. Even insurance costs that are borne by you. So I think that the biggest takeaway is you can not retire and live on Social Security comfortably. The maximum, forgive me because I don’t know the exact dollar amount is, I think, the maximum, if someone were to retire at full retirement age today and if they were to receive the maximum Social Security benefit, which means that they their income has probably been somewhere around like $130,000, $140,000 for the past number of years. They’ve put the most in, they get the most back out, the max benefit, somewhere around $35,000. If you’ve been making $140,000 and now your income is only $35,000, you’ve got a really big difference between what you were spending and what you’re now getting in Social Security. You have to… Social Security was never meant to replace your paycheck. It was only meant to provide a supplemental benefit in addition to what you had saved to put away for yourself. 

Keina: I asked that million dollar question because I think that, like I said, it’s a model that I see a lot on a different financial website pages where they’re encouraging people to have $1,000,000 when they retire. And not to say that that won’t help you in some fashion, but I know for myself, I started to think about that. I didn’t know all the answers. It’s like, well, long term care. If I ever had to be in a long term care facility, those places could be $10,000 a month or whatever that looks like. And so. I just think it’s a while you have the time to make some adjustments to your retirement plan. Just if you have an advisor or a planner or whoever is attached to the plan at your employer, kind of working through that model. I know when I was thinking about for myself. I’m like, I think I want $10,000 a month to spend in retirement and I feel like that number could go up over time. Who knows? 

Ellen: Well, and you have to adjust for inflation. 

Keina: But to think like it just put me in a different space. To think about what that would look like and to think, oh, yeah. Like when you were talking about those three phases, I can imagine myself traveling quite a bit. Right. Or wanting to be able to to engage with and partake in different experiences. So as you’re thinking about right now, like, oh, I don’t get the 6% increase in my pay because I’m going to put it towards retirement. It’s really for that 65 year old you that wants to be in Greece with their girlfriends or whoever that is. So just to the name of wealth over now, being able to make some of those decisions, that delayed gratification, but ultimately will make sure that you’re financially prepared. 

Ellen: Absolutely. 

Keina: And for real the last question. Like, what advice would you give to yourself like ten years ago or in your twenties if you had to do something differently? 

Ellen: If I had known better, I would have started contributing to my employer sponsored plan as soon as I got a job. And you know, those couple of years, even though I was 25, if I had started doing it at 22, it would have made a massive, massive difference. I mean, I actually should probably go back and calculate because I could probably make some assumptions about the years between now and then. But it because of the power of compounding, it would have made it would have made a really big difference. I don’t know how much I could have contributed. I was you know, I was paying all of my bills and, you know, trying to pay off college student loans, etc. But I just I didn’t I didn’t know about that. And I wish I had at that point, I might have made some slightly different decisions.

Keina: Mm hmm. I feel like I have the same reflection, like, even if it would have been increasing by a percentage or two more. Because my thought is always like, I never would have missed the money because it would have just been like how I lived. 

Ellen: Yeah. 

Keina: So as I, eventually you would just hit a point where you’re like, oh, I don’t need to contribute any more because I’m always hitting the max. 

Ellen: Lifestyle creep is a real thing. 

Keina: Yeah. 

Ellen: It’s a very real thing. And maybe one caveat, and I assume that people listening to this understand that we live in the D.C. area. So income levels that we’re talking about this can be very different than in other parts of the country, whether that be higher or lower. I mean, the average income in our area is close to $100,000. And that’s certainly not the case for other parts of the country. So that to say that there are parts of the country that $1,000,000 would probably be enough for someone to live a comparable lifestyle in retirement. 

Keina: But I would be like, I can go to other places in the world. 

Ellen: Yeah. Yeah. 

Keina: Well, thank you, Ellen. And I hope if you’re listening that, you know, you grabbed some nugget and all in all, wherever you’re feeling or however you’re feeling about your finances. I also hope that you use the information to help you and not to beat yourself up, because I think we were just talking about how $1,000,000 isn’t going to be enough, which could send some people into a spiral. But just think about like what you can be doing today to shift how life looks like for you in 20, 30, 40 years. 

Ellen: So the one little, here’s a nugget for you, the best time, if you need shade, the best time to have planted a tree was 20 years ago. The second best time is today. 

Keina: Yeah. 

Ellen: Right. Like we. We can’t. What we did in the past, it’s done like we can’t. We can’t live there. If we want something different, we just have to start making different decisions now. And I’ve done that over the course of my life multiple times. Right? Like you, you things change. And so now you have to start making different decisions and you’ve got to allocate funds in different ways. There’s no. None of this is fixed. Right. We have when we are provided with new information, we can make different decisions. 

Keina: Right. And we’ll leave it at that. Thanks, Ellen. 

Ellen: Thank you. 

Keina: Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to and let’s get started.

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