The reality for most of us is that we weren’t born into a life of luxury, therefore we need to save to achieve our financial and lifestyle goals. At this stage I run the risk of telling you something you already know, but I’m going to do it anyway, because my experience is that many financial advisers, while believing in the power of a savings plan, don’t directly help their clients with it.
Before I get shot down, let me go on record as saying I think we all want to help our clients with this type of advice, but we haven’t done it so far because we haven’t been able to do it in a way that is efficient and adds value to the client at a cost the client views as fair and reasonable. The evolution of technology means we now can.
Getting started
Committing your clients to a budget is harder than it sounds. Most people like the idea of ‘having savings’, they just don’t like the ‘saving’ part. The solution is to give clients a budget they like with a balance that covers living and lifestyle spending as well as savings.
Living expenses cover the stuff they have to spend money on to live – that is, food, financials, health, housing, loans and banking, transport and utilities. Our tips are:
- Don’t underestimate how much things cost and know when they fall due (monthly, quarterly, etc.) You don’t want them getting bill shock.
- Suggest having a bank account specifically for storing the money they’ll use to cover these expenses. We usually call it ‘bills and expenses’. This account is only used to pay bills, nothing else.
- Minimise where possible, but don’t let them adopt a ‘baked beans by candlelight’ approach instead of putting food on the table and paying the electricity on time.
Lifestyle expenses cover the stuff they spend money on to have a life. Usually this includes: personal spending, looking good, going out, staying in, holidays, presents, etc. Our tips:
- Set a maximum monthly amount for each category. This needs to be enough to allow them to have a lifestyle they are happy with but ensures there is savings available each month
- Suggest using a few separate bank accounts for different kinds of expenses. Our clients usually have a personal spending account each, plus one for going out and one for holidays. Some also have ‘looking good’ accounts. The key here is find a combination that suits them and keep it simple (that doesn’t always mean fewer accounts).
- Trial different ways to spend. Cash, debit and credit can all work, but it depends on the client. The safest place to start is by using a combination of cash and debit, but over time good spenders could start to use credit (to maximise the benefits of offset accounts and frequent flyer programs, etc.).
Savings is simply what they need to save each month to achieve their goals. Usually this includes: principal repayments on the mortgage, future education costs, maternity leave funds, investments, etc. The best method here is to:
- Help them identify actual amounts to be saved for each goal. This will avoid a ‘save what is left’ approach. Break the amounts into monthly figures that can be included in their budget.
- Identify where the savings are to be stored until ready to be spent. Bank accounts or investments are the usual options, just be clear on which savings method is to be used for which goal.
Tracking progress
Technology now plays a major role in helping you build an offer in your business that helps clients with tracking progress and will give you an opportunity to charge a fee in return for ongoing coaching.
Many people implement a budget but don’t measure their success. By using technology solutions such as Xero’s Cashbook, you can efficiently and accurately track your clients’ spending and savings each month. They can easily interact with the system and you can run it in your business without prohibitive levels of time commitment or costs.
Measure success
Over the course of the year, you need to provide options to show the client how successful they have been in hitting their spending and savings goals. The options here range from weekly right through to annually. The general consensus is that providing monthly reports (using Xero’s reporting tools or for those wanting a little more, Spotlight reports) with either a quarterly or half yearly progress meeting, is the way to go.
Our client engagement and satisfaction increased when we started sending reports monthly and conducted quarterly progress meetings – some of these are done face to face and others are done using GoToMeeting. This is supported by the October 2013, Association of Financial Advisers White Paper (Connecting with Clients) which suggest that, “there is a strong relationship between satisfaction and number of ways a practice communicates with its clients”.
No matter which option you choose, the simple fact that you are willing to help your clients with this aspect of their finances will open up a new door for your business. It will hopefully introduce new ways to increase profitability and client engagement. Who knows, maybe your clients will suggest their family and friends get your help to walk on the pathway to wealth when implementing their plans for 2014.
About Steve Crawford
Steve Crawford is the owner, creator and lead trainer at Your Spending Coach and is also the owner of Experience Wealth Advice.
Steve created Your Spending Coach to provide guidance and solutions to other advice professionals to have successful conversations with their clients on budgeting and cashflow.
He is also Victorian director at the Association of Financial Advisers.
