As we approach the end of the year, many of us find it to be a natural period of reflection. Advisors can use this time of reflection to discuss the topic of overspending with clients. This is not typically an easy conversation for advisors to have with clients. Today’s CNBC article Advisors know when to talk to clients about overspending” discusses the topic and provides examples of how five advisors helped clients get a handle on overspending, summarized below.
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Client situation: A couple near retirement without adequate savings because they were spending almost everything they earned. Spending too much on children and grandchildren was especially apparent.
Advisor: Sarah Carlson Rieger, President of Fulcrum Financial Group
Approach: “I told her being responsible about her money was an opportunity for her to be an example, to do something to positively affect their lives in the future.”
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Client situation: A couple with five children facing bankruptcy after making several missteps including expensive food, buying into a timeshare, making huge donations and a bad business deal.
Advisor: Sheryl Garrett, founder of the Garrett Planning Network.
Approach: “There’s real value in going to someone’s home.” Sheryl saw too much money was going to food by visiting the clients at home. Sheryl helped the client reduce spending by $1,600 a month and avoid bankruptcy with the help of simple solutions like feeding the family of seven with homemade meals. “Sometimes it’s being an accountability coach or professional nag.”
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Client situation: No specific situation given, but in general, he asks clients to track spending and evaluates what they spent in the last 24-36 hours.
Advisor: John Buerger of Altus Wealth Solutions
Approach: John uses the spending reflection to start the conversation about overspending. “Would you like to figure out where that money is going so that you can start spending it on stuff that matters to you?” “If you understand the basics of behavioral finance, you know that 95 percent of the decisions you make with your money are made subconsciously and emotionally.” “We are wired to seek pleasure and avoid pain.”
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Client situation: A general example of a client with a love to splurge on expensive items, like designer shoes.
Advisor: Jeffrey West of Financial Compass Group
Approach: “I used to think I needed to scare clients into saving, but now it’s a reward system—and it’s a success system.” Jeffrey uses his “shoebox budget, asking clients to bring in four shoe boxes to represent savings buckets. The first box is for necessities, the second is for discretionary items, the third is for long-term savings, and the forth is a reward box. West focus on spending rather than saving because people spend every day and it’s easier to grasp. Jeffrey asks his clients “Do you want to spend now, or do you want to spend later?”
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Client situation: A working husband and retired wife couple. The wife was overspending on gifts for the couples children and grandchildren.
Advisor: Erika Safran, founder of Safran Wealth Advisors,
Approach: Erika tries to get to the heart of the clients motivation for overspending and approaches the topic with compassion. “I realized that she needed a purpose that could make her feel useful in her retirement.” She recommended the client explore volunteering to gain that feeling of purposes without a price tag.
Silver, Easy Money and Golden Years include automatic shortage solutions to calculate required reductions in spending in the case of a shortfall in retirement. This could be a great tool to help facilitate a conversation about overspending and help gain client by-in to change behavior.
Do you have a go-to approach to discuss overspending with your clients? Please share your methods in the comments section.