Editor's note: This article is part of a Financial Advisor series "How I Solved It." Advisors describe a problem client and what they did to help.
Sometimes the most basic, fundamental problems are the hardest to solve.
Take, for example, the problem of budgeting. Bridget Grimes, president of WealthChoice, a boutique advisory in San Diego, says that helping clients live within their means is a surprisingly frequent challenge. (Grimes is a speaker at FA's upcoming Invest In Women conference.)
She recalls one client in particular who "lived on her annual stock bonus and her monthly salary, and was still in the red." As a single mom, she had a lot of responsibilities and expenses. "She was super stressed about always being behind," says Grimes. "Even though she made good money, it was never enough."
Telling the client to be careful, warning her of the consequences of overspending, just didn't do the trick. Her expenses were many and varied. "So we tracked expenses for a few months to get a very clear picture of where she spent her money," Grimes recounts. "We categorized the expenses, and then she knew exactly where the money was going."
Categories might include education/child care, medical bills, groceries, entertainment and restaurants, and so forth.
It can be surprising how far reality differs from estimates, especially when the bills fluctuate from month to month. So getting a hold on actual expenses can be as crucial as it is difficult.
Instead of asking the client to carry around a notepad and jot down every time she spent money, Grimes used software from eMoney Advisor, the Radnor, Pa.-headquartered provider of scalable wealth management technology, which has a suite of financial-planning applications. "I would suggest using eMoney’s tracking software to all planners," she says. "It truly can help, and budgeting is a necessary planning step so that we can find the money clients need to fund important goals."
As a result, the client agreed to work on lowering expenses where she could.
The next step was creating a realistic budget. To work, a budget has to be not just aspirational but enforceable. "[We] had her just living on her salary, not touching the bonus," Grimes explains. "We needed the bonus for some larger expenses."