Financial Therapy: A Combination of Behavioral Therapy & Financial Advice
Posted on October 18, 2022 in Debt
Financial therapy is a type of modern therapy that combines behavioral therapy and financial advice to improve your financial well-being by focusing on your money-related thoughts, feelings, and behaviors.
- What is Financial Therapy?
- What is a Financial Therapist?
- When Should I See a Financial Therapist?
- Who Should Seek Financial Therapy?
- How Do I Choose a Financial Therapist?
- 5 Strategies For Overcoming Money Fears
Many people feel a wide range of emotions when they think about money. For example, if you are considering investing your funds, you may be excited at the idea of building wealth while creating some financial stability. But on the other side of things, you may be anxious and fearful about what unknowns the future holds. A study done by the Financial Industry Regulatory Authority in 2021 suggests that people who experience long term financial anxiety and stress are less likely to plan for retirement.
If this sounds like you, it might be a good idea to explore what drives those fears in order to change your financial future. That is where financial therapy may be able to help.
What is Financial Therapy?
If you have never heard of financial therapy before now, that’s okay! The practice of financial therapy is relatively new, with the Financial Therapy Association being established in 2010. But what does financial therapy do? Well, it combines behavioral therapy with financial coaching. This unique approach helps to improve your thoughts, feelings, and behaviors that relate to money. Financial therapy truly marries the disciplines of behavioral therapy and financial coaching together so that you can bridge the gap between your emotional and financial health.
What is a Financial Therapist?
A certified financial therapist is someone who meets specific requirements in four areas: financial therapy, financial planning, financial counseling, and therapeutic competencies. This certification comes from the Financial Therapy Association, and it is something that both financial and mental health professionals may pursue. The key difference between a financial therapist and a financial advisor is that a financial therapist’s job is to explore your feelings and beliefs that guide your financial habits, while financial advisors help you reach your financial goals.
It is important to remember that not everyone who calls themselves a financial therapist has been certified by the Financial Therapy Association. For example, some behavioral therapists will focus on finance but do not have financial qualifications. On the other hand, some financial professionals are not therapists, but they can potentially help you explore your emotions behind money.
When Should I See a Financial Therapist?
You may want to see a financial therapist when you are trying to understand your worries and fears around money. A certified financial therapist will be able to help you through this process in a calm and safe way. Let’s say for the sake of argument that you have $50,000 saved in cash. A part of you wants to invest this money in the stock market because you know you need to save for your future, but another part of you is terrified of losing it all to bad investments. A financial therapist will be able to navigate you through your thought process behind that fear, and hopefully you will be able to devise a strategy that allows you to invest in your future.
Who Should Seek Financial Therapy?
Anyone who has anxieties or worries about money may potentially benefit from financial therapy. You may even start by listening to podcasts about financial therapy. That being said, it might be particularly helpful for an individual to seek financial therapy if they have negative feelings or limiting beliefs around themselves and their finances. For example, you could simply be afraid of making your first investment. Or perhaps you are a high earner but you do not invest much because you are fearful you will not get a good return.
A financial therapist will help you get to the root cause of your fears, and discern where they come from. It could be that you are afraid of the unknown, that you do not understand investments and how they work, or that you have a lack of self worth to work through. After that, setting small goals may be the next step forward.
How Do I Choose a Financial Therapist?
Choosing a financial therapist is a big decision, because you are investing time and money into a person that you need to help you. For that reason, you should look for some of the same things in a financial therapist that you would look for in a traditional behavioral therapist. You need to find someone with whom you can be vulnerable and who specializes in your problem area, or what you believe that to be. Searching the Financial Therapy Association ensures that you are dealing with someone who is credentialed.
5 Strategies For Overcoming Money Fears
Unfortunately, if your investment journey stalls because of limiting beliefs and fears, you will not be able to reach your financial goals. It is even possible for your fears to keep you from enjoying the fruits of your labor. So how can you move forward in your investment journey in spite of your financial fears? These tips may help you figure that out, along with working with a certified financial therapist:
1. Understanding debt stress
If you have any type of debt, the idea of investments and savings is going to cause you stress. Financial therapy can help you understand and evaluate potential options for debt relief. Without debt and the stress that accompanies it, you may find yourself able to invest in your future more readily.
2. Identifying limiting beliefs and emotions
People have a wide variety of emotions that are tied up in money. Some people watched their parents struggle to make ends meet and believe as adults that money is scarce and must never be spent. Perhaps no one in your family owns assets and so you are afraid to invest. Or you are simply afraid of losing money. A financial therapist will encourage you to ask yourself the hard questions about your relationship with money, so you can begin to repair it.
3. Envisioning your retirement
Retirement planning is a low priority for a lot of investors, and that can be due in large part to the fact that many people struggle to focus on the future. There is also a lack of education around things like compounding interest and why investments do better when they are started young. Financial therapy will help you to put yourself in the shoes of someone you know who is at retirement age and how they are currently living to determine if you want that to be your future or not.
4. Starting small
Taking baby steps to change your financial habits is not a bad thing, nor is it anything to be ashamed of. A financial therapist will help you do research about whatever is creating negative emotions for you regarding money. Once you understand and comprehend the things that seem scary to you, you may be able to move past them.
5. Considering passive investing
Passive investing is a hands off form of investment that has less risk than some traditional investments. It may be a good idea for those who struggle to understand the financial world. Things like robo-advisors or mutual funds are examples of passive investing. A financial therapist will talk you through some of these options, and you may be able to find one that is right for you.
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