Sometimes clients lack the discipline or knowledge necessary to handle their personal finances effectively. As a result, they may struggle to live within their means. By helping clients to budget their money, you can ensure your clients are financially on track for retirement and other long-term goals.
“The more successful we can make our clients, the more successful we become,” says Ross Flintoft, senior financial consultant with Investors Group Inc. in Edmonton. “Budgeting is one of the cornerstones of what we, as financial advisors, can help people do.”
Encouraging your clients stay on a budget can help them develop healthy financial habits, prevent debt problems and increase their savings.
Here are three tips for helping your clients stick to a budget:
1. Gather data
The first step, whether you’re serving an individual or a couple, is to accumulate all of the relevant facts surrounding your clients’ financial situation. Inquire about their primary sources of income and find out where your clients are spending their money. Don’t just focus on fixed expenses such as mortgage payments, Flintoft says. It’s also important to know how much clients are spending on entertainment each month.
Help clients put their spending in perspective by discussing the goals they hope to achieve. Most people are saving for retirement, Flintoft says. Buy you also should ask whether your clients plan to buy property, return to school or fund their children’s education.
Based on the information you have gathered, you can project whether your clients are on track to meet their goals. Showing your clients their financial situation in writing often serves as a reality check, Flintoft adds.
2. Assign homework
One way to educate clients about overspending is to ask them to conduct some basic research on their own.
“If you give clients homework, it keeps them engaged and helps them stay focused on their budget,” Flintoft says. “If you don’t give them homework, they may lose track or forget [your budgeting conversations].”
For Flintoft, “homework” may include creating a detailed list of monthly spending. This exercise is especially important for clients who live paycheque to paycheque.
Alternatively, you can ask your clients to prepare information that will guide your next meeting. For example, Flintoft asks clients to bring in statements indicating their Canada Pension Plan (CPP) contributions. Using the Service Canada website, you can help them determine whether they will qualify for the maximum benefit and estimate their projected CPP benefits at retirement. Many people believe they will qualify for more money in retirement than they can realistically expect, Flintoft says.
3. Conduct a semi-annual review
For clients who have trouble sticking to a budget, Flintoft recommends conducting a semi-annual review. When coaching clients, Flintoft says, he almost plays the role of their “guilty conscience.”
For example, if a client wants to make a major purchase, such as a new car, you can help put things in perspective. Your role, , Flintoft says, is to ask questions in a way that will help your clients understand how splurging on major purchases will affect their financial plan and their long-term goals.