A few advisors and financial planners shared some ideas on how clients can keep their discretionary purchases under control.RgStudio/AFP/Getty Images
Earlier this week, I wrote about lifestyle creep; that happens when high-income earners spend more luxuriously as their wages increase, but neglect their savings. Sometimes, the spending isn’t one big thing but a bunch of little items that add up, often classified under discretionary spending.
Here are some ideas on how advisors and financial planners can help clients keep their discretionary purchases under control.
Lori Curtiss, a certified financial behaviour specialist, likes to start clients with a six-week exercise of tracking their spending, free of judgment. She also asks clients to log their emotions before and after they make purchases, large and small.
“Over time, they begin to see what brings them genuine joy and what tends to lead to regret,” she says.
From there, she helps them build a spending plan that aligns with their values.
It will take some practice staying on budget. Jacky Ip, founder and financial planner at InGauged Financial in Vancouver, says if a client overspends the first week, they can lower how much they spend the next week to make up the difference. If that keeps occurring, the numbers “will need to be adjusted so they can be more honest with themselves about their true spendings.”
After all, spending values can change over time, and Mr. Ip can relate.
For example, family travel was the top priority for the Ips with a five-digit annual budget. But the Ips had to revisit that line item once their two children started playing competitive hockey. They needed to find more cash flow for team fees and tournaments. They decided to reduce their vacation budget by $5,000 and reallocate that money to hockey.
Blake Corey, partner and senior financial planner at Venn Wealth Partners in Lethbridge, Alta., says he’s found that money apps only work with people for so long. Once they’re not as motivated, they may wane. It’s easy to turn off notifications or ignore them altogether. He prefers solutions that are simple, automated and realistic.
For example, he notes that some clients have a financial accountability buddy.
“Some people just need the assistance of a neutral party to follow up and check in,” he says.
Others simply automate savings, increasing the amount as they earn more money.
“If the only money they see is the net income after savings contributions have been made, they don’t need to feel guilty about spending what’s left,” Mr. Corey says.
Some change their daily limits on their debit and credit cards to remind them to manage their spending habits. Mr. Corey adds that clients who have many cards can eliminate unnecessary ones.
In the case of couples, some spouses use a joint credit card so they can see the balance of their combined spending and what they are spending on.
He also has clients review their online subscriptions and apps regularly.
Mr. Corey advises them either to prioritize the expense or cancel it, if not needed. He notes that many subscriptions renew automatically each month and may be for things that the client no longer even uses.
– Deanne Gage, Globe Advisor reporter
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