No matter your client’s age, setting financial goals can help determine their financial planning route. Furthermore, success to one individual may not be a success to another. That is why it is important in your role as an advisor to guide your clients through this process. To make it easy and concise, we looked at six factors to consider to assist in the development of financial goals for your clients.
What is important to your clients and what motivates them to establish this as a goal? What are your clients’ short-term and long-term goals? Are they planning to save for a new house, an emergency fund, retirement planning, etc? These are all important factors to ask your clients. Asking your clients what motivates them is also important. This drives your clients to become more involved in their financial plan and make it more likely they will be active participants.
While you have this conversation, emphasize SMART goal planning. In other words, make sure their goals are specific, measurable, achievable, realistic, and timely. In order to really determine whether their goals are SMART, ask yourself the question that follows.
What is their financial situation and can a realistic plan be created? We cannot determine if their goals are measurable and realistic if we do not know the financial side of these goals. Begin by discussing their income, their current budget or their lack of, and their net worth. If your client lacks a budget plan, establish one with your clients and remember to use the 50/20/30 rules – 50% is allocated to necessities such as housing and utilities, 20% is associated with savings, and 30% is used to cover your client’s lifestyle. Once you understand their finances, discuss with your clients whether their goals can be reached in a timely manner.
Follow the discussion with prioritization. Discuss with your client the importance of three factors in establishing financial health – retirement planning (including health care costs and assisted care costs), emergency fund planning, and debt repayment. These three factors should always be a priority. When planning for retirement, experts state that individuals should save at least 15% of their annual income. Experts advise individuals to save enough to cover at least three to six months of expenses, approximately $500 each month. This income can be used in case of job loss, loss of a family member, or other large life events. As for debt repayment, experts advise individuals to pay high-interest debts such as credit cards, followed by low-interest debts such as student loans.
Once these factors have been established with your client, you can prioritize the goals that follow.
Sometimes automatic deductions are best for your client. If your client is forgetful about manually deducting certain amounts of income from their paychecks, advising weekly or monthly automatic deductions may be useful! It ensures that your clients remain on track and removes the burden of reminding your clients to deduct income.
Check your client’s progress. Make sure to review and update your client’s financial plan at least annually. This will ensure that you consider the life events, changes in habits, and changes in health that occurred in that year and make adjustments to their plan. For example, if your clients experienced a job loss or a wage increase, this calls for an update to their financial plan. If things have remained constant, it reassures the clients that they are making great progress toward their goals.
A financial plan is easier to construct when the goals of your clients are made clear and realistic. Using these tips, we hope that your meetings are productive and meaningful for your clients.
Genivity is here to help. We place emphasis on helping advisors with goal-based financial planning that incorporates health wealth factors to provide personalized reporting. Using our HALO report can help determine the importance of health in your clients’ financial planning. Similar to retirement planning, emergency fund planning, and debt repayment, health wealth factors are also factors to consider when establishing financial goals. Genivity puts these factors on display for your clients to consider while establishing their financial goals.