With July now upon us, many clients are facing a major life transition – the high school graduation of their children and their imminent departure to college. The half-way point of the year is always a good time to conduct a planning review, but it is especially valuable to clients who are about to send a son or daughter off to college.

By July, real numbers can finally be substituted for the estimates parents have used to calculate their college funding goal. Students will have decided upon their school of choice, with the single most important variable in college costs being whether they attend a public or a private university. With a school now chosen, parents can determine actual expenses, including tuition, fees, housing and living expenses.  The cost of books, school supplies, travel, and insurance can be calculated, and many personal expenses, including clothing, laundry, phone and computer bills, entertainment, parking and transportation, can be added to the overall costs.

Balancing out the seemingly endless list of expenses are any grants, scholarships, loans, awards, work-study programs, gifts and other sources of funding that the student has received.  The child’s summer and school-year earnings, if any, can also help to offset expenses. A relatively complete appraisal of the costs for college is now possible, but the advisor’s challenge is to find a framework for discussion and evaluation that will help to facilitate the family’s on-going financial decisions.

It is a truism of the financial planning field that you can’t manage what you don’t measure.  Advisors need clear, concise and flexible financial tools to help clients manage their goals and expectations as the first year of college approaches. Fortunately, such a tool does exist and it’s one that many planners already use in their client meetings. It is the household balance sheet that quantifies and summarizes an investor’s financial resources and expenses.

A mid-year review using a household balance sheet allows advisors to give quick, specific and contextualized guidance to families with a graduating high school senior. It permits revisions and changes to be made to the clients’ financial plan, reflecting the most up-to-date numbers available. It sets the context for whatever investment strategy is being pursued. And it keeps the focus where it belongs—on the family’s long-term goals —and not on the short-term results of any particular investment or market condition.  

During a post-high school graduation review, the household balance sheet can help clients make sure they are on track to achieve their goals in light of their new expenses. Perhaps the clients’ son or daughter has decided to attend a public university. In that case, the parents may find themselves in the enviable position of having over-funded their college savings, and will need to re-allocate these unneeded funds. On the other hand, with college costs reaching new highs, the family may need to look at different solutions for paying the bills.

Will a spouse have to go back to work? Will the student be expected to contribute more to offset expenses? Will loans be needed to cover costs? If so, tactical choices must be made in terms of which loans to take and who will be responsible for them. Clients may have to rebalance their overall financial plans to account for the impact that repaying the loan principal and interest will have on their cash flow.

After the advisor has collected and updated the family’s financial data, the next step is to use the balance sheet to track resources and goals over time. The review should look out over the next four to five years to establish budget needs for the duration of the child’s college years. This will provide the perspective necessary to help clients define and evaluate their goals, and determine where adjustments should be made.

The balance sheet also lets the advisor respond in a nimble fashion to different “what if” scenarios and question the parents may have. What if their child takes an unpaid summer internship? What if he or she wants to study abroad for a year? What are the financial implications of transferring to a different school? With its easy-to-read, one-page format , the balance sheet can be revised with far less time and effort than a voluminous and comprehensive financial plan. The advisor can, in fact, take advantage of this concise format to create a balance sheet specifically for the student, thus launching a relationship with the next generation.

A July review helps advisors give targeted advice to clients as they look ahead to their child’s college years. It also helps keep the focus on the parents’ long-term goals. After all, the high school grad will quickly enough become a college grad. Whatever happens over those years, the advisor armed with a household balance sheet is better able to provide relevant and actionable guidance to his or her clients. And this, in turn, provides students with an excellent model for how to make the financial decisions that they too will face soon enough.

Neal Ringquist is President and Chief Operating Officer of Advisor Software, Inc., a leading provider of wealth management solutions for the advisor market.