Is Your Financial House in Order?
As a psychologist, I do not remember sitting in a single lecture or reading a single article or being in a single supervisory session where money was on the agenda. I do not even recall inquiring about the financial life of my clients other than to establish insurance coverage eligibility. To be honest, I never really gave money much thought until the dot.com bust of 2000.
During the mid to late 1990s, the stock market was soaring. Everybody was talking about stocks and internet companies. People were happily opening up their mail from brokerage firms and delightfully checking their retirement portfolios online because it was all great news. Suddenly, like a destabilizing jerk on an 80 mph roller coaster…the bottom fell out!
Similar to previous booms, busts and manias, stocks rapidly evaporated in value wiping out the balances of retirement accounts, investment accounts, and emergency fund accounts. I remember reading about the dot.com bust in the newspaper, The Times-Picayune in New Orleans, where I was practicing clinical health psychology. Then, calls came into my office requesting that I work with individuals, couples, financial advisors, and small business owners who were experiencing psychological distress ranging from sleep disorders to anxiety as well as depression about retirement dreams deferred, college education put on the back burner, and a host of other issues related to money.
Recognizing the limitations in my education, training, and experience related to the intersection between psychology and money and the increasing number of request for providing “financial psychology” services, I entered into a five-course graduate certificate in financial planning at The College for Financial Planning in 2000 to increase my knowledge about money, finances, and financial planning. In 2009, I earned a M.S. in Financial Planning from The College of Financial Planning. In between 2000 and today, I have practiced “financial psychology” as a private practitioners and in collaboration with a wealth management firm (Aequus Wealth Management). I have also had the opportunity to publish articles about “financial psychology” in peer-review journals such as The Journal of Financial Planning and editor-review journals such as Strategic Financial Planning. I also review articles for The Journal of Financial Therapy which is the peer-review journal of The Financial Therapy Association and Professional Psychology: Research and Practice.
What I have learned along my journey as a “financial psychologist” is that I am not alone as a psychologist who has not really sat down and thought about not only money issues related to their clients but their own money opportunities and challenges? Hence, the title of this article and upcoming workshops and coaching-Is Your Financial House in Order?
If you are like many individuals regardless of your occupation but also a psychologist, the answer is probably either no or not as much as I would like to be given my current situation or age. A comprehensive answer to this question is beyond the scope of this article but here are Five Steps to move closer to getting your Financial House in Order. Before describing each one of these steps, the benefits of getting your Financial House in Order are numerous ranging from assuring the financial well-being of you and your loved ones and being able to work with a wider range of clients, including high-net worth and ultra-high net worth, as well as not being “tripped up” by your own financial issues when working with those of your client.
The Five Steps to getting your Financial House in Order are presented below:
- Determine your total net worth by adding up all of your assets (e.g. home, car, jewelry, etc.) and all of your liabilities or bills (e.g. mortgage, credit cards, loans, etc.). The goal is to have a positive net worth. This means that your assets are greater than your liabilities. This number has an impact on your credit rating, terms given to you by lenders, and even your psychological well-being not to mention relationship well-being.
- Calculate your monthly cash flow by adding up all of the sources of income coming into your home (e.g. wages, rental income, royalties, etc.) and totaling all of your expenses or bills (e.g. mortgage, utilities, cable, groceries, gas, etc.). The goal is to have a positive cash flow. This means that your monthly income from all sources exceeds your monthly expenses. This number has an impact on your credit rating, terms given to you by lenders, and even your psychological and relationship well-being.
- Get an estate plan even if you do not perceive yourself as rich or needing such a plan. At a minimum, you need a will, a living will, and health care powers of attorney regardless of your net worth, monthly cash flow and income. These documents are of greater importance to your loved ones than you. However, you do benefit from knowing that if a sudden health event were to arise that your wishes would be not only respected but protected.
- Obtain adequate insurance to transfer risk from you to insurance carriers. If you have sufficient net worth, then you can elect to self-insure which will save you in monthly premiums but cost you in decreasing your net worth. If you are like most people, the best option is to purchase insurance to protect you and your loved ones against the consequences of catastrophes. As a professional psychologist, you need malpractice insurance, umbrella liability insurance, disability insurance, business insurance as well as typical insurances for adults including life insurance, automobile insurance, health insurance, dental insurance, and property & casualty insurance. The greater your net worth, then the more important insurance becomes as a wealth preservation tool.
- Get a financial plan based upon your life goals and specific financial goals to assist you in achieving your life goals. Your financial plan will include a net worth statement, a cash flow statement, an estate plan, an insurance protection plan, a retirement plan, and an investment plan based upon developing an Investment Policy Statement. Depending upon your unique needs, your financial plan may also include a focus on socially responsible or sustainable investing.
As you decide to get your Financial House in Order, you have several options as to how to seek financial advice. It is highly recommended that you seek the services of a fee-only Certified Financial Planner (CFP). A fee-only CFP gets compensated for helping you develop your financial plan and making the best investment and retirement decisions based upon your unique financial plan. A fee-only CFP does not get paid for selling financial or insurance products like mutual funds, ETFs, and insurance plans.
Do you really need to get your Financial House in Order? Let’s assume that you conclude that your net worth is not great enough, that your income is not high enough, that your situation is simple, and that you can “do it yourself” with all of the tools on the internet and guidance from brokerage firms like Fidelity or Merrill Lynch, then what happens if you have a “Sudden Money” event.
A “Sudden Money” event occurs when you have a financial windfall resulting from an inheritance, settlement, or taking a lump sum distribution from your retirement account. A “Sudden Money” event also occurs when you experience a major setback financially such as being fired, losing your largest client, suffering from an illness or injury causing you not being able to work, or a break-up in a long term relationship. These are also known as “Money Shocks.” This is a specialty within financial planning which focuses on financial life transitions planning.
In my experience, you also can benefit from financial planners who work collaboratively with other professionals such as tax accountants, estate attorneys, insurance professionals, and financial psychologists. A fee-only CFP who has assembled a brain trust under your direction for your benefit is the starting place to begin to get Your Financial House in Order.
Unlike many things in life, procrastinating with your money and finances does not make it better.
Wm. Marty Martin, PsyD, MPH, MA, MS
Financial Psychologist/Sudden Money Advisor
Cicily Maton, CFP
Certified Financial Planner/Sudden Money Advisor
Michelle Maton, CFP
Certified Financial Planner/Sudden Money Advisor