Soaring gasoline prices have been a wake up call to many people. Watching pump dials spin like some out-of-control slot machine that ends with a never-before-imagined dollar total has caused many to rethink the cost of their daily driving and vacation plans. The good news is that cost increases in this single area have convinced many clients that they need to rein in spending in all areas of their lives.
It has been estimated that fewer than 35 percent of Americans utilize any form of personal budgeting. As a nation, we are experiencing the lowest savings rate in decades. The first wave of boomers is turning 60, with many financially unprepared for retirement. Personal debt is at an all-time high. As a trusted financial advisor, you may find the word “budget” increasingly enters into the conversation.
Budgeting itself is a simple concept. Track expenses, place limits on each item (where possible), compare the expense total to available income, make adjustments and live within one’s means. The act of budgeting in the real world is, however, much more complex. Many clients have tried and failed to stay on budget in the past — it’s a discipline they just don’t seem to want to master.
Creating a process that will lead them to success is never simple, but it can be done if you persevere. Much good financial planning starts with a clear statement of the problem. But when the problem is so common and apparent (at least to us), financial advisors may jump right over the problem-statement step and present a solution: “You need a budget!” The client may not see it so quickly — or as cut-and-dried.
A first step is to come to consensus about the characterization of the concern. For example, are the clients carrying too much debt, spending too much each month, not actively saving in a consistent way, adjusting their lifestyle higher with each new salary increase, or some combination of these? What problems will occur as a result of these continued behaviors? Get specific about the reasons you feel a budget is necessary.
Make the numbers personal through a goal-setting process. What is it that your clients want? What can money do for them? Both material goals (meeting everyday expenses, purchasing a new car, saving for a cruise, retiring in Tahiti, affording trips to visit grandchildren, remodeling the house, etc.) and emotional goals (feeling secure, finding peace of mind, the freedom to choose) need to be discussed and identified. Once their goals have clarified, clients can understand and commit to the dollars and numbers.
Getting to Yes
Even with a clearly identified problem and well-articulated goals, you may experience continued resistance from clients when the discussion about formulating a personal budget starts.
You must work to change client attitudes about budgeting from being a money-watching, self-sacrificing chore to becoming a pathway for achieving a number of passion-producing goals.
To overcome the negative aspects that clients may have with the word “budget,” try changing its name to “Spending and Saving Plan.” Where a budget prompts negative feelings to many, spending is usually a joy.
Once clients are on board with the reasons for and positive feelings about their Spending and Saving Plan, it is time to get on with designing a customized personal plan. Concepts common to every successful plan include:
o Tracking spending;
o Prioritizing needs and wants;