Money or Behavior?

No one is in the financial services business long before having a conversation with a prospect or client clawing through money problems. Credit card debt, a house-poor mortgage, student loan payments, private school tuition, car payments, and the basic cost of groceries, utilities, and clothing can be a craggy mountain with no summit in sight.

Frankly, money challenges confront most, if not all, of us from time to time. For some, however, the inability to manage money is crippling and ultimately destructive.

How does a financial advisor respond when a conversation shifts to the cashflow, not-enough-to-go-around, money-deficit topic? The client who trusts you will not be surprised when you ask them to go through the next three steps.

First, gain more information about both income and spending. Ask tough questions in a matter-of-fact way. Jot down sources of income. Ask whether they use a budget and how often it’s reviewed. Ask if they recall saying “No” to a purchase or experience because of cash flow issues. Have there been recent unexpected expenses?

Second, when you have that information, categorize them. Your firm probably has a downloadable form you can use to enter the data. Then look at that data for anomalies. What percentage of their spending is allocated to housing? Non-discretionary food, clothing, childcare, insurance? Dining out? What percentage of their spending would include eating out, entertainment, and other discretionary items?

Lastly, schedule a visit with your clients to present your findings. How do they receive your analysis? Notice the emotions expressed when they realize where and how they are spending money. Ask specific questions about your findings. Tell me more about your vehicle costs and related expenses. Were you aware that you are spending X dollars a month eating out? Listen. Let your clients talk. Nod. Convey appropriate curiosity and care.

Where is all this going? In having worked with hundreds of clients with incomes and lifestyles across a wide spectrum, I discovered that most people’s behavioral patterns create money problems rather than there being a shortage of money driving them to leverage their future with plastic. According to a recent Bankrate study, “68 percent of people [surveyed] would be worried they wouldn’t be able to cover their living expenses for a month if they lost a primary source of income tomorrow.”

In my experience as an advisor and in managing our personal finances, spending on lifestyle and behavioral choices, more than income, is the elephant in the room. Facing the unvarnished numbers and accompanying behaviors may be the most needed conversation advisors can have with their clients.

It’s not money. It’s lifestyle and behavior. Period!