To Avoid Mid-Course Corrections, Simplify

Help your financial planning clients stick to their plans by streamlining key parts of their cash flow.

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You’ve done your homework, you’ve worked with your client and built out a cash flow plan, and you understand their short and long-term goals. You’ve gotten them to commit to saving the right amount of money each month. They have the right types of protections in place, and it looks like they can achieve everything – as long as they stick to the plan.

As you know, things come up in life. Clients make changes without talking with you, changes that increase their likelihood of needing to make a mid-course correction years (or months!) into executing on the plan. It could be an emergency that comes up before they are fully funded on their short-term savings. Or it could be that as their income grew, so did their lifestyle.

So how can you help your client be successful without overburdening them with a ton of accounting work, logging in all of the receipts for every little transaction?

Here’s our recommendation: Simplify as much as possible to reduce the chances that they cannot stick to the plan. The easiest way to do that is to automate as much as you can — to ensure that they meet their legal, contractual, and savings plans without thinking about it — and then have them set a single budget amount for everything else.

Let’s say, for example your client has $20,000 monthly income. By the time they’re done with taxes, mortgage/rent, car payments, saving for retirement, and everything else they have to do, they’ve spent $15,000. All that’s really left each month to decide on is $5,000. They’ve already decided on the other $15,000, so teach them to forget about that amount and focus only on the $5,000 that’s not already allocated.

What do they do about the $5,000 and how do they allocate it? The simplest way is to get them to set up a checking account or a credit card that is dedicated to the items they’re allowed to make decisions about on a daily basis. A dedicated account for groceries, dining out, entertainment, clothes, coffees… whatever they need to decide on daily. Each month (or each paycheck) they should transfer the amount that’s set aside for these things into this account (or pay the credit card in full). If they’re using a bank account, once they get to $0, they’re done. On a credit card, once they get to the amount of spending, they’re done.

The beauty of this is that there’s a single number to track. They don’t have to worry about tracking every category of spending, and you’re not trying to coach them into budgeting their Starbucks purchases. Just one number to consult each day — are they above that number or below it? That’s all that matters.

For clients who want to go a step further, they can try tracking a small number of categories. Perhaps they choose to track groceries, dining out and entertainment. A spreadsheet (Google Sheets if they want to share with their spouse) or an app like Good Budget are a couple examples of tools they could use. They shouldn’t track everything, just the categories that are their Achilles heel or items where they want to cut back. The rest is automated, so as long as they stay within their amount on what’s left, they can be successful with their plan.

Detailed recording of all expenses has its benefits, but simplicity is the key to your clients being successful with the long-term savings plan you have helped them create and avoiding a mid-course correction. A mid-course correction hurts both your client and you. For your client it means not meeting their goals for you it means cancelled policies and/or not meeting contributions to assets under management.

Automate the mandatory expenses and savings (which don’t need to be reviewed anyway) and isolate day-to-day variable spending in a dedicated account to give them a single number to monitor making it easier to stay in budget. That’s a winning formula for cash flow management that supports a successful plan.

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