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“Money talks. But tell me why all it says is goodbye.” I love that expression! Edna O’Brien gets the credit. (1) It is tax time. Your client might earn a great income in theory, but very little might make it into savings and investments. It doesn’t stick around. This can be an even bigger problem if your client owes the government more money than was withheld. This might be because of short term capital gains from stock trading.
Financial planning reaches into all corners of the life of a client. One area is budgeting, but another is “where the money went.” Years ago, there were no credit cards. People spent what they had, then ran out of money. Today, automatic debits take money directly from your client’s checking account. Most transactions are paid using a credit card or a virtual wallet. Capital One reports 62% of transactions (in store or online) are paid by credit card. (2) Digital wallets are more popular than you might expect. 53% of Americans used them more often that cash or credit cards. (3) This become apparent when another statistic reveals PayPal is the most used digital wallet app.
All this means people are not counting out dollar bills to pay for things. When money is abstract, we lose sight of where it actually goes. Your client likely knows the major building blocks on the expense side of their lives. These include housing, transportation, food, utilities, insurance and medical care. They might wonder where the rest of their money goes.
Let us consider several questions, it is worthwhile for clients to ask themselves.
1. How much did my credit card balances increase, month over month, during the past year? Start by looking at beginning and ending balances owed on their cards. Look at each card statement, taking note of how much was made in payments and how much was added in new charges. If your client’s balances grew by an average of $1,500 a month, they are logically spending $1,500 more than they are taking in.
2. How much does your client pay in subscriptions? Let us term this as “money taken out of your account on a monthly basis.” Many automatic debits make great sense. You pay your car payment, power bill and homeowners insurance this way. What are they paying in streaming subscriptions, workout programs, meal kits and charitable contributions? This category includes Netflix, Amazone Prime and others. This is a convenient way to pay, but have they forgotten about some of them? Are they using them?
3. How much do you spend dining out? American spend more dining out vs. eating at home. The USDA did the research, indicating 55/7% of the food budget is spend eating away from home and 44.3% on groceries. (4) If you are a restaurant fan, this number could be very large. Calculate the number of times you eat out on a weekly or monthly basis. How would the expense differ if you had one of those meals at home?
4. How much do you spend on groceries? Everyone has been saying grocery prices have been rising. How much are you spending on groceries? This can be calculated by looking at your charge card statements, since it’s likely you pay that way. How does it change month over month? How much has it changed since last year? According to the USDA and USA Today, the average American family spends about $1,000/month. What can you do to keep your supermarket expenses under control?
5. How much do you pay in late fees? This might be a small number, but ask yourself “How much am I paying in late fees?” CNBC indicates 37% of us paid at least on in the preceding 12 months. (5) This might occur unintentionally when bill payments get stuck in the mail. Are some providers charging you a fee for sending out monthly bills to be paid by return mail? Consider putting recurring bills like utility payments on autopay.
6. Tobacco, alcohol and other habits. Do you smoke or drink at an above average rate? It makes sense to calculate what your habit is costing. It is your choice to continue (or not) but you should attach a price tag.
7. Charitable giving. Although this is an expense category most people would find it easy to eliminate, it needs to be there because everyone should give back in one way or another. Some people might volunteer their time. Others donate groceries to the food pantry or clothing to thrift stores. About 69% of Americans donate to charity. (6) The average level is 2% to 3% of their income. (7) Do you have a strategy foe giving back, either monetary or non monetary?
Your client might be new to budgeting. Maybe they need a refresher. A simple budgeting strategy is is the 50/30/20 plan. 50% goes towards necessities, 30% towards discretionary spending and 20% towards saving and investment. This is also termed Needs, Wants and Saving. (8) Sometimes clients need an approach best described as “Back to Basics.”
Related: 12 Questions Financial Professionals Should Resolve To Ask Themselves
- https://www.goodreads.com/quotes/789567-money-talks-but-tell-me-why-all-it-says-is
- https://capitaloneshopping.com/research/cash-vs-credit-card-spending-statistics/#:~:text=U.S.%20consumers%20use%20credit%20cards,in%2Dstore%20and%20online).
- https://capitaloneshopping.com/research/digital-wallet-statistics/#:~:text=53%25%20of%20Americans%20used%20digital,and%2052%25%20preferred%20Samsung%20Pay.
- https://www.escoffier.edu/blog/world-food-drink/consumer-dining-trend-statistics/
- https://www.cnbc.com/2024/05/30/37percent-of-americans-paid-a-late-fee-in-the-last-12-months-report-finds.html
- https://nonprofitssource.com/online-giving-statistics/#:~:text=By%20the%20end%20of%20last,a%20regular%20basis%20(69%25).
- https://www.philanthropyroundtable.org/almanac/statistics-on-u-s-generosity/
- https://www.citizensbank.com/learning/50-30-20-budget.aspx#:~:text=One%20of%20the%20most%20common,if%20it%27s%20right%20for%20you.