The people who become financial planning clients are fortunate. They typically grew up learning the value of a dollar and basic money skills - how to earn, save and budget. The next step for them is to seek out expertise in comprehensive wealth management to take advantage of all the services offered by financial planners.

But there are many people with more basic needs. These people have never mastered remedial asset management skills, and most financial planners don't provide services to help them. Today's difficult economy has boosted demand for what we call budget coaching, which means there's a huge underserved population looking for the kind of help not normally found on our profession's service menu. So how can planners fill the void?



There are four steps involved in budget coaching: gathering information, tracking expenditures, developing and documenting a budget and creating a follow-up plan.

1. Gathering information. An advisor can offer patience, listening nonjudgmentally to the stories, excuses, blame and tears, but must persist until there are numbers on a budget. Clients leave this first meeting with a copy of your work together, plus an assignment sheet that may include a myriad of issues uncovered during this time.

For example, do they have life insurance other than through their employer? If not, it becomes an assignment - and a teaching opportunity. A financial advisor can refer them to colleagues who sell insurance, but why not take the opportunity to teach them how to be smart consumers by doing the research themselves? Guide them to useful websites and encourage them to come back with questions about life insurance and how it works.

2. Tracking expenditures. For the next 30 days, clients must write down every penny they spend or earn. This follows the successful Weight Watchers formula: "You bite it, you write it!" It's also the part of the budget coaching process clients often dislike.

By the end of the tracking period, many clients are making decisions to spend or not based on having to make yet another entry on their log. Reality hits hard when the real numbers from mindless spending finally jump off the page. And it's quite motivating for a client to harness the outflow.

3. Documenting the plan. Once the tracking period is over, it's time to craft a budget. With practice, you should be able to create one in less than an hour.

The framework can come from any number of resources. The National Foundation for Consumer Credit Counseling has a great budget worksheet, and the Financial Literacy and Education Commission has an income and expenses worksheet at Both are easy to download. Be creative in arranging the categories and remind clients of this top priority: You can't spend more than 100%!

Each family has different spending and saving priorities that will be reflected in the way they allot their money. Here are some important categories you'll need to help a client make a good budget:

* Housing (mortgage or rent, property taxes and utilities);

* Transportation (mass transit or auto payment, insurance, fuel, repairs and registration);

* Food (groceries and dining out, although restaurant spending may be put into the recreation and entertainment bucket);

* Insurance (medical, dental, vision, life and disability premiums, long-term care);

* Debt service;

* Health care (copays and other out-of-pocket costs, braces, eye care, prescriptions and counseling);

* Entertainment and recreation (vacations, hobbies, gyms, pets, music and movies);

* Saving (retirement and investments, annual periodic expenses, emergency fund and holiday spending); and

* Child care and student costs.

4. Creating a follow-up plan. Since the goal is to empower clients and not create a co-dependent relationship, tell them it's up to them to decide when they want to come back for another visit. How long do they need to complete the assignments? Do they want to call or visit in person?

Some people get their budget assembled and are off and running. You may not see them again unless there's a major change in their life or they lose control. But others need someone around to keep them on task and accountable. You might arrange periodic conference calls to check in.

Another tactic for gaining control of client cash flow is to identify two to four categories where spending gets out of control easily, such as eating out, activities, groceries and clothing. Use envelopes or a wallet with identifiable pockets to separate the allotment for those categories. When it's gone, it's gone - you may re-allocate from another category if you choose - but spending choices become much more purposeful and deliberate this way.

For couples who track spending electronically, there are web-based programs like Mvelopes that will sweep all transactions into a spending register and deduct what is spent from its respective category. When any category is depleted, the Mvelope (listed like a directory, only with mini-envelopes instead of file folders) turns red until you refill it with more money.

Your clients can access this program from any computer or personal electronic device in real time. It helps keep busy family members from doubling their efforts or overspending before the fact.



Depending on the outcome of the preliminary budget exercise - meaning positive or negative cash flow - the assignment sheet will reflect other tasks. With positive cash flow, it may be necessary to tighten the accounting of the money going out and redirect it to the client's stated goals: retirement or college saving, for example.

If cash flow is negative, it's time for a brainstorming session. Aside from obvious (obvious to the financial planner, that is) changes like adjusting withholding or employer retirement contributions, you can call a family meeting.

Have your client bring everyone together so that they can all play a role in changing the financial situation. They should all have a chance to sacrifice or make an extra effort for the good of the family.

A debt consolidation loan may seem like a great solution, but it may be the wrong one. After all, the spending behavior is what got your clients into a hole in the first place. You won't be much help to them over the long term if you proverbially give them a fish. Instead, teach them to fish by helping them change their habits.

One good idea is to map out a so- called debt snowball plan using or Working with these kinds of programs can help them take the first steps.

Besides getting out of debt, the two major areas of essential change are saving and giving. Financial planners have forever been pushing the idea of having three to six months of savings available in liquid cash. In tough economic times, six months of savings hasn't always been enough, but is a substantial cushion (for more information on emergency funds, see "Preparing for the Worst," by Scott Schutte, on page 119).

Unfortunately, establishing an emergency fund can run up against human psychology. Many times families will put a large sum of money directly into savings on payday, but rob from it all month long. A more workable approach is to put an amount away that is insignificant enough that it won't be depleted.

Setting the money aside in a credit union account or another bank that requires extra effort to withdraw the cash may be a helpful approach. Savings should begin even while clients are getting out of debt, but it should not be a main focus.



Finally, a complete budget and cash flow plan includes the topic of giving. It does not matter whether it is an annual gift to a favored cause, a client's alma mater or a weekly or monthly tithe to a place of worship. Charitable giving in a financially stable household should be regarded as a key part of establishing financial balance and priorities.

It's been said that people will share information about their sex life much more easily than their financial life. Whether that's true, the level of trust we reach in helping people manage their cash flow puts us in a special place. Financial planners shouldn't shy away from this role, fearing it's either too personal or too invasive to hold clients accountable for day-to-day money management skills.

When clients have exhausted all the plans that haven't worked for them, or see future goals not getting closer, they will be able to listen to your best pre-planning advice. Once they learn the budget coaching steps, they will practice better habits. It doesn't matter how good a financial plan is if spending is out of control. The leaks will drain all the assets and planning away.


Pamela Christensen, CFP, runs Financial Disciplines in Roseville, Calif., which offers budgeting and financial counseling services based on referrals from financial planners.

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