Financial planning can be a tough sell. It’s been said a budget is something everyone wants until they actually get one.
You have advised your clients well. However, they see the lifestyles their neighbors are leading and wonder “Why can’t we do that too?”
It’s likely everyone they know is in a similar economic range. They wonder, “Where did we go wrong?”
Years ago, my wife and I would drive through our area in Bucks County. Lots of big houses everywhere. New luxury cars. “Do these people have printing presses in their basement, just turning out money?” we thought.
Then came the Great Recession, the foreclosures and For Sale signs. Apparently they didn’t have printing presses in their basement.
Here’s how your client can live like their neighbors. (It’s an opportunity to communicate why it’s a really bad idea.)
1. Assume the good times will last forever.
You get a good bonus. Your boss loves you at work. The stock market will continue going up. Live from paycheck to paycheck. Assume your next bonus can pay down debt. What could possibly go wrong?
Your advice: Understand why a cash reserve is important. The economy and stock market run in cycles.
2. Don’t save for retirement.
It’s so far away. We will worry about that later. Our parents will die. We will inherit their homes and assets. Our parents are our retirement plan. They just don’t know it.
Your advice: The goal is financial independence. Once you get there, you can stop working if you choose.
3. Live on credit.
It’s so east to pay with plastic! I pay my bills so they keep raising my credit line. I’m earning so many air miles. My concern isn’t paying down these cards, it’s just servicing the debt. Isn’t that the way big companies and governments do it?
Your advice: The debt you don’t pay off compounds at a high rate of interest. Divide that rate into 72 to learn how long it will take to double!
4. Get more credit.
You keep getting offers for new cards in the mail or online. It’s a sign of our success people are eager to lend money to us. They must think we are responsible.
Your advice: you only need a couple of credit cards. You should shop around to get the lowest interest rate possible.
4. Access your home equity for stupid stuff.
We really should take that vacation of a lifetime. The folks across the street went on safari in Africa. We need to do something cool we can talk about. What’s the biggest suite on that ship?