A Teach­able Mo­ment for All

Not pro­vid­ing guid­ance on bud­get­ing and cash flow man­age­ment is a dis­ser­vice to clients.

Financial Planning - - CONTENT - By Scott Schutte

Not pro­vid­ing guid­ance on bud­get­ing and cash flow man­age­ment is a dis­ser­vice to clients.

YEARS AGO, I WAS AP­PROACHED BY AN IN­VEST­MENT ad­viser seek­ing to re­tire and tran­si­tion his prac­tice. Af­ter six months of com­mu­ni­ca­tion, ne­go­ti­a­tions and meet­ings, he de­cided to tran­si­tion his busi­ness to my firm.

I asked him why he had cho­sen me from among all the qual­i­fied ad­vis­ers he had in­ter­viewed. His an­swer came as a sur­prise to me.

He said that I was the only ad­viser who was “mil­i­tant about cash flow man­age­ment and bud­get­ing,” ad­ding that I “walked the walk” with my per­sonal fi­nances.


I learned from talk­ing with other ad­vis­ers that it’s a sad re­al­ity that many live be­yond their means. I find it wor­ri­some that bud­get­ing and cash flow are chal­leng­ing for many. It means they may not be pro­vid­ing guid­ance on these topics to their clients.

In my opin­ion, a plan­ner who is not pro­vid­ing guid­ance on bud­get­ing and cash flow man­age­ment is do­ing a dis­ser­vice to clients. Why? Be­cause these are among the main fac­tors im­pact­ing the suc­cess of a fi­nan­cial plan.

Many ad­vis­ers feel there are other ways for clients to learn about bud­get­ing. But, think about it. You can’t ma­jor in fi­nan­cial re­spon­si­bil­ity in col­lege. There­fore, it’s up to the ad­viser to teach clients this skill to en­sure they don’t amass bad debt or make poor spend­ing de­ci­sions.


Here’s what I’ve learned from work­ing with every client and their chil­dren on how to bud­get:

Fo­cus on phi­los­o­phy, not line items. You want to ed­u­cate your clients on the why and the how of bud­get­ing, but not be an ar­biter of their spend­ing.

You def­i­nitely don’t want to be in the mid­dle of a de­bate be­tween a hus­band who wants to buy a boat and a wife who dis­agrees. That isn’t pro­duc­tive for your re­la­tion­ship with your clients and doesn’t help them on their path to bet­ter de­ci­sion mak­ing.

Have rule of thumb con­ver­sa­tions. Rather than send­ing your clients an ex­pense work­sheet, ed­u­cate them on guide­posts they can lever­age. I also re­fer to these as rules of thumb.

Even clients who are great at manag­ing their bud­get can learn some­thing from these tried-and-true prin­ci­pals. I of­ten sug­gest they use them to ed­u­cate their chil­dren. The teacher can be­come a stu­dent when they talk to their kids about spend­ing and re­al­ize their own habits may not be as ideal as they be­lieved.

Some rule-of-thumb topics to dis­cuss in­clude: 1) the 50-30-20 bud­get­ing rule; 2) the 20/4/10 rule when pur­chas­ing a car; and 3) save 10% of your in­come for re­tire­ment.

We know rules of thumb are not a sub­sti­tute for cus­tom­ized fi­nan­cial ad­vice, but I have used them to change bud­get­ing be­hav­iors for mul­ti­ple gen­er­a­tions of my fam­ily and my clients.

Of­fer to ed­u­cate clients’ chil­dren. I usu­ally do this when the chil­dren are first en­ter­ing the job mar­ket. It helps them get on the right track and our firm cap­tures younger in­vestors who will grow as­sets over time.

Let’s face it, bud­get­ing is not par­tic­u­larly fun or ex­cit­ing. But it is a crit­i­cal el­e­ment of fi­nan­cial plan­ning that ad­vis­ers need to teach and prac­tice.

My pas­sion for this topic has helped my clients and my busi­ness. Win-win.

Scott Schutte is a manag­ing direc­tor and ad­viser at Light­ship Wealth Strate­gies in New­ton, Mas­sachusetts. To sub­mit a Selfie com­men­tary, email fped­i­tor@source­me­dia.com. Post your com­ments on­line at fi­nan­cial-plan­ning.com.

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