Some people are very disciplined financially. Other Americans live from paycheck to paycheck. According to CNBC, 63% of Americans fit into this category. (1) As an accountant, financial planning might be an additional service you provide. As a financial planner, Budgeting might be the subject of classes you teach at the community school. How can you help your client who cannot save?
- Remember the light bulb joke. How many psychiatrists does it take to change a light bulb? Only one, but the light bulb has to want to change. You need buy in from your client. According to the Trust for America’s Health, 41.9% of Americans are obese. (2) People need to be welcomed into a positive environment indicating their problems can be solved. Don’t ridicule them for having gotten into this financial position.
- Look for patterns. Let us assume you have buy in. Now you need to learn where their money goes. Ask them to supply a few months’ worth of checking account and credit card statements. This should give an idea concerning the patterns of how they spend money.
- Do they know where their money is going? Many people might not. Paying with plastic or tapping your card or phone is very abstract. Ask them to carry a pad and pen and write down the details every time they spend money. This is also done with some diet plans. It makes you aware of what you are doing. The simple act of writing it down might discourage you from spending the money. You can analyze the data together.
- Are there areas where expenses can be brought under control? We tend to forget about subscriptions that debit your account on a monthly basis. This includes the gym, programming subscription services, meal kits and even some charitable contributions. Is your client aware of every one? Can some be dropped?
- Are they incurring late fees? One of the easiest expenses to address is late payment fees. These can be a huge problem, especially on credit cards if their behavior gets them into the world of penalty interest rates. Can they setup their important bills on an automatic debit or payment system?
- What are they paying in credit card interest? Unfortunately, many people think of credit as a form of savings account they can dip into at will. Credit card companies often increase your credit limit. Your client might know about minimum payments, but not pay much attention to interest rates. Can these be consolidated and paid down?
- Pay yourself first. Does your client have a plan to put money away into savings or for retirement? Their company 401(k) plan is one of the first places they should consider. Does their firm have a company stock purchase plan allowing them to buy at a discount and sell whenever they choose? That might be a good savings vehicle too. The easiest money to save is the money you never see. If it can come off your paycheck before your earnings are transferred into your checking account, that is a good first step.
- Rediscover cash. Your client was given an allowance when they were young. Perhaps they should give themselves an allowance now. They should walk around with folding money and pay in cash where possible. This should eliminate the high credit card spends when they go out with friends after work.
- Discover charge cards. The original American Express card was not a credit card. You charged purchases throughout the month, then paid the bill in full at the end of the billing period. No interest was charged. These cards are still around today. Ideally your client limits the cards they carry to another Visa or Mastercard and locks the others away. This can help keep their charge card balances from growing.
- Make good use of their tax refund check. According to CBS News, about 75% of Americans Get tax refund checks. (3) This can be like “found money.” It can also be the start of an emergency fund or be used to pay down credit card debt. Encourage them to use their tax refund to improve their financial position.
Like dieting, getting onto a secure financial footing can be tiresome and painful. You can help your client make progress and head them in the right direction.
Related: Advisors: How to Get Yourself Fired
1. https://www.cnbc.com/2022/12/15/amid-high-inflation-63percent-of-americans-are-living-paycheck-to-paycheck.html#:~:text=Investing%20Club-,Share%20of%20Americans%20living%20paycheck%20to%20paycheck%20rises%20to%2063,your%20finances%20back%20on%20track&text=With%20inflation%20eroding%20wage%20gains,according%20to%20a%20recent%20report.
2. https://www.tfah.org/report-details/state-of-obesity-2022/#:~:text=Nationally%2C%2041.9%20percent%20of%20adults,obesity%20rate%20of%2045.6%20percent.
3. https://www.cbsnews.com/news/tax-refund-size-by-state-wyoming-connecticut-new-york/