Some financial planners consider budgeting and cash flow the cornerstone of a client's financial plan; for others, the focus is on long-term planning, and they let client cash flow sort itself out. In many situations, planners seem to be uncomfortable in giving spending guidance to clients; as the saying goes, "It's their money; who am I to tell them how to spend it?" Yet at the same time, most would probably agree that clients can't just save their way out of their fiscal woes; you only free up money to save by first determining what to NOT spend it on.
So does that mean in the end, planners can't have a broader impact until they are more active in helping clients actually set spending policies?
The inspiration for today's blog post comes from a recent conversation I had with someone about how financial planning can expand its reach and relevance, and why it is that folks like Suze Orman command such an incredible audience relative to the reach of the typical financial planner. As I've noted before in this blog, is there something we can/should be learning from so-called "personal finance celebrities" like Suze Orman, Dave Ramsey, and others?
For instance, I find it notable that Suze Orman's most popular segments is "Can I Afford It?" where callers share their financial situation and something they want to spend money on, and Suze flat out tells them if they may or may not buy it! What kind of person wants to go on public television to have Suze Orman yell at them about their spending habits? Well, apparently quite a few, given the popularity of the segment!
Even more significant is the fact that so many viewers tune in to watch this! Obviously, the advice isn't necessarily directed at them - since it wasn't their call-in question or spending item - but I think ultimately many viewers find deep personal relevance to the segment, because as Orman talks through why someone can or cannot afford their desired item, she shares with everyone a process to determine what is reasonable spending.
And that seems to be something we generally lack in both our general financial education, and in the services we often deliver as financial planners. What guidance do we provide about how much an individual should spend on a car relative to their income or wealth? Or on a home entertainment system? Or the latest computers and gadgets? I can already hear some of you now - "but it's their money, it's not my role to tell them what they can or cannot spend it on!" - but are we sure that's not our role? After all, THESE are the real money decisions people have to make in the real world from day to day; if we refuse to provide guidance to clients on this, do we make ourselves less relevant? Is that why financial celebrities like Suze Orman, Dave Ramsey, and others sell more books and have more viewers tuning in than the cumulative number of clients that all CFP certificants serve in the entire country?
In addition, it's worth noting that while Orman tells people what they can and cannot spend on, it's ultimately not about judging their spending itself; just whether they can afford it. As the segment itself proclaims, "[Suze's] not going to judge, just look at your numbers and give you her stamp of approval... or denial." It's all about spending relative to income, and spending on a particular item relative to the rest of the individual's spending needs. Why can't financial planners deliver a similar value? And again, given the astounding number of viewers/readers/followers Orman and others similar to her have... does that mean our clients might actually be craving this guidance, and we're ignoring their needs?
So what do you think? What role should planners have in providing spending advice to clients? Should planners develop a standardized set of guidelines that tell clients what portion of income can be reasonably allocated to various types of expenses, and what is too much? Is it possible do give spending guidance that is relevant and definitive, yet not judgmental?