Editor's Note: This article is part of a Financial Adivsor series "How I Solved It." Advisors describe a problem client and what they did to help.
When a couple starts making big money, especially after age 45, they often don’t believe they can’t afford their lifestyle and it may take years or a crisis to get them to look at the math, this advisor has found.
Then, “between taxes, housing and tuition, you can feel like you’re broke with a $1 million salary,” said Peggy McGillin, a CFP and the principal and founder of Journey Wealth Partners, an independent investment advisory and planning firm in Concord, Mass. “If both people don’t shoulder the reality of the situation, it can be a marriage ender.”
When she met this couple three years ago, the spouses (a doctor and a business executive) had started pointing fingers at each other for overspending. The truth is, they were both “robbing from their savings,” said McGillin, and both in denial. Their spending exceeded their take-home pay and was about double what they could afford. They had some money saved in their retirement accounts but were exhausting their taxable accounts.
There wasn’t “gambling or mink coats or diamonds,” said McGillin. Instead, the couple was overdoing it on the high costs of city living, private school tuition for their children, frequent dining out and travel. After helping them establish savings goals for college and retirement, the couple “shared a vision for the future and were very excited,” she said. “But they didn’t stick with the plan.”
They reconnected with her when they got serious about fixing their finances, and by then were seeing a marriage counselor and planning to divorce. She’s helping them get their spending under control, become accountable to a budget, and jointly fund college savings and shared expenses (private school tuition, mortgage and utilities). She’s also helping each spouse invest assets separately.
“I give them guardrails and systems and tools and encouragement,” said McGillin, who is showing her clients what they can afford to spend each month.
As part of its services, Journey Wealth Partners has a bookkeeper categorize clients’ spending, which McGillin finds is more accurate than an automated service. McGillin is helping the couple evaluate expenses three months backwards and forward so they can determine which spending is necessary or mindless.
The couple’s goal is to reduce monthly spending by nearly 50 percent -- from about $37,000 to $20,000. They plan to sell their house but continue to live together, probably in a condo, until their middle-school children go to college. This will enable them to continue to fund private school and save for college. They recently shortened one vacation and cancelled another.
McGillin also sees her job as a bit of a therapist, coach and friend. It requires “tough love and it’s pretty darn personal,” she said. “You can’t have a zillion clients and do this kind of work.”