Take Responsibility
After 37 years of practicing comprehensive financial planning, I have seen every conceivable situation and every excuse for not being financially fit. When people finally take responsibility for all of their decisions and actions, then things begin to improve.
Sure, life does deal us harsh blows (and I’ve had my share), but, the winners in life are successful based on how they look at the situation and how they respond.
One technique that I have used as an exciting doorway into a person’s life is by examining their cash flow. Everything is exposed; there is no place to hide. People have to stare into reality – often for the first time.
We have clients think of their cash in three different buckets, or accounts:
1. The static account is their 30-day money. This is what it takes to run their household for a month – the mortgage, utilities, car payments, insurance.
2. The control account is their seven-day money. These are the funds that they will spend today or within the next week. These are lifestyle types of expenses – dining, recreation, hobbies, groceries, and gas for the car.
3. The dynamic account funds all future expenses, from trips and gifts, to cars, education and retirement.
While the dynamic account funds their future, the static account is a reflection of past decisions and the control account illustrates the present.
The figures themselves describe the client’s values and priorities. From something as basic as cash flow, we understand the clients’ money decisions better than we ever could have before.
As clients look at the summary, the conversation changes from frustration, confusion, or even fear, to their goals, what is important, and what they want more of in their lives. They understand that not only is net worth built from the dynamic account, but that they have control over their financial lives, and they start to work toward the goals that have been discussed and developed.