Help Clients Spring-Clean Their Financial House

By Eddie Gill

For many, spring is a time to refresh home and garden, but the turn of the season is also a great opportunity to assess your clients’ financial literacy. Every client has different needs and expectations when it comes to financial planning, whether it’s managing a monthly budget or planning for retirement. Providing clients with the guidance they need to improve their financial literacy will aid in their financial health and overall well-being.

Planning vs. Budgeting

Differentiating between budgeting and financial planning is an important distinction when it comes to financial literacy. While budgeting plays a part in financial planning, budgeting on its own is not a financial plan. Budgeting is an opportunity to list income and expenses and allocate the former to the latter, ensuring expenses don’t exceed income. When clients see where they are putting their money, they evaluate what is and what isn’t a necessary expense, which helps them make financially healthy decisions.

Financial planning involves setting goals for different stages of life. For example, someone in their 20s might be saving for a wedding, while someone in their 40s might be paying for their children’s college expenses. Along with planning for life’s milestones, other important financial considerations include insurance, investments, savings and retirement.

Cleaning Up Debt

Many clients think paying off debt must be their first priority when looking at their financial picture, but it doesn’t have to be an all-or-nothing proposition. Starting a savings or emergency fund and saving for retirement can be done in tandem with paying debt.

A client’s emergency fund should include a month’s worth of take-home pay. This can provide a safety net in case of unexpected expenses. Incorporating a savings element into monthly budgeting as part of a long-term financial strategy will ensure that clients are on track to meet their long-term goals while they are tackling debt in the here and now.

Credit cards and student loans are two areas in which clients often incur large amounts of debt that can seem insurmountable and derail their financial goals. Student loans and credit card debt typically have higher interest rates, so paying them down first can be a good strategy for eliminating debt altogether or improving credit ratings.

If clients have a number of high-interest credit cards, they can prioritize repayment by organizing cards by interest rate and paying them off from highest to lowest to ensure they are paying as little interest as possible. Progress toward reducing credit card debt can help boost credit scores for future big-ticket purchases, such as a house.

Student loans aren’t just for those in their 20s. People of all ages deal with student loan repayments, especially those who are putting children through college or going back to school themselves. Private loans often have higher interest rates, so those should be paid off first.

Once clients have a plan to reduce debt, budgeting can be a useful tool to avoid taking on more debt. Identifying the causes of debt and suggesting ways to change patterns of behavior are important discussions to have. By reducing debt, clients have more options in putting together a financial strategy that will protect them in the event of financial hardship and proactively meet financial goals for retirement.

Making Room For Retirement

Many clients overlook the importance of retirement planning in their 20s. Just because retirement is off in the distance doesn’t make it less of a priority. Retirement planning offers an opportunity for clients to live comfortably after they retire. Clients who are in their 20s are probably just starting their careers at a company that offers a 401(k).

Taking full advantage of a company’s 401(k) offering is a great way to begin preparing for retirement and potentially earning free money if the company matches contributions. If a client’s company doesn’t offer a 401(k), they have the opportunity to start contributing to an individual retirement account. Contributing to these accounts over the long term will allow financial security when it comes time for retirement.

As the client ages, it is important to continue helping them prioritize retirement planning. Clients in their 40s need to think about what kind of lifestyle they want to live in retirement and make adjustments to their retirement plan. Once a client reaches 60, they will want to have six to eight times their salary saved in their 401(k). These guidelines can help a client get the most out of their 401(k) and prepare them to live comfortably in retirement.

Another way to plan for retirement is through investments. There are opportunities to grow a client’s savings by selling their investments as the market rises. There are also risks that come along with investing, such as market crashes and dealing with inflation and deflation. When the market falls, clients can rely on other assets in their retirement portfolio, such as cash reserves or cash value within their life insurance policies, to tide them over until the market evens out again. By being proactive with retirement planning, inflation and deflation will have less of an impact on a client’s savings.

Financial planning is an important part of financial success, and planning grows in importance as a client reaches retirement. Taking time to budget, repay debts and contribute to retirement is just as important to a client in their 20s as it is to a client in their 50s. Increasing financial literacy allows clients to take control of their finances early and, in turn, successfully prepare for their financial goals and ultimately enjoy retirement.