Financial confidence: Doesn’t it sound great?

But what is it exactly? Let’s start with what it is NOT:

  • It’s not a high score on some financial IQ test.

  • It’s not beingone of the elite 1 percent in terms of wealth or income.

  • It’s not necessarily being completely debt free.

  • It’s not being as investment savvy as Warren Buffett.

  • And for sure, it doesn’t come with a winning lottery ticket.

The facts of money and wealth are only a small part of financial confidence. In addition, there’s a large subjective element. How we feel about our finances is what’s most important.  

When I think of the hundreds of clients I have counseled, one example of financial confidence comes immediately to mind.

I met Betty when she was ready to retire to Florida. She had a small IRA, some profits from the sale of her house in northern Virginia, and a well-maintained car that was almost 12 years old. Her Social Security benefits were going to be the major source of her retirement income.

Regardless of my ability to provide Betty with appropriate financial advice, there was no way I could make her rich. But each time we spoke by phone, she talked about her good fortune. She had a budget, she loved following the mutual funds we picked for her IRA, and she had a financial planner who put her interests first. Life was just fine by Betty. Her only complaint was that her neighbors would not let her retire from her condo board, even after three terms in office!

Getting to be financially confident like Betty can be surprisingly simple. It starts with a three-step process. 

  1. Empower yourself by visualizing what it would mean to be confident about a certain area of your finances. For example, consider your cash flow.  What would confidence about your cash flow “look” like to you?  Maybe it would be always having enough in your checking account to pay your bills as they come due. Or maybe it would be deciding where in your budget you have room to cut expenses.

  2. Be knowledgeable about your own financial situation. Knowing exactly where your income is coming from, as well as where it’s going, is important, as is understanding the difference between fixed and variable expenses.

  3. Find a financial professional who can provide prudent advice. Recognize how an expert can help you build a solid financial plan.  This help goes well beyond knowledge of facts and figures, to the planner’s ability to help you exercise good judgment when faced with difficult decisions. He or she can often help you avoid mistakes that are difficult to anticipate, as well as identify new and effective strategies for managing your finances.

Empowered, educated and engaged: This was the recipe for Betty’s financial confidence, and can be yours, too.