What to ask clients to start their financial plan

Clients are often concerned with the past, such as filing the previous year’s tax returns, rather than the future. Accountants can be extremely beneficial to these clients by providing them with forward-thinking services. It means financial planning.

There are many reasons why clients often think they don’t need financial planning services. They may feel that the good times will last forever, that retirement is too far away, or that they should focus on immediate concerns rather than future events like college or marriages. Even if your client doesn’t think they need financial planning, you can take a proactive approach that shows you’re invested in your client’s future success.

To show your client that financial planning is critically important, start by asking the following questions:

How confident are you of having a comfortable retirement?

You can also ask them how long they plan to work or if financial independence is a goal.

Why: Ultimately, most people are unprepared for retirement. According to Synchrony Bank, the average retirement savings for an American between the ages of 50 and 54 is $146,068. The 80% rule is often used to determine retirement income based on a person’s current income, while four to five percent is often considered a prudent level to leverage retirement assets.

How: You can use Monte Carlo simulation programs to examine your client’s current retirement assets and expected future savings and growth and compare them to expected expenses, adjusted for inflation over time. This will give you a good idea of ​​the life of your customer’s money.

What’s your plan for eliminating credit card debt?

Many Americans have revolving credit card debt. According to creditcards.com, the average credit card interest rate is 16.2%. Now compare that to what your client makes in money, which is next to nothing.

Why: According to valuepenguin.com, the average credit card debt for Americans between the ages of 45 and 54 is $7,670, and 51.7% of people in this age bracket have revolving credit card debt. Personal interest is not tax deductible. Many people make minimum payments while increasing their balance. If the Fed raises interest rates, those rates will also rise.

How: Start by determining the scope of the problem for your customer. How many cards do they have? What prices do they pay? Look at their monthly statements showing how they could pay off the balance quickly using the examples provided. Can they make balance transfers to other cards with lower introductory rates? Help them develop a debt reduction plan.

How much will it cost to prepare your child for a career?

Most people don’t consider the overall cost of raising a child to college age. Some assume that their child’s tuition will cost the same as what they paid for their own education, but they may not consider whether their child’s career will require a higher degree.

Why: According to the most recent USDA figures, the average cost to raise a child to age 17 is $233,610. US News & World Report reports that the average tuition cost for in-state students at a public school is $10,338, while out-of-state students pay an average of $22,698. Private college tuition costs average $38,185.

How: As tuition costs will continue to rise, your client needs a tax-efficient savings strategy. They must also develop a thorough understanding of how financial aid programs work.

What would happen if you suddenly encountered a career setback?

Although this question can be difficult to ask, it is important to consider it. What would happen if your client lost their job due to a company downsizing? Even if their spouse is working, they might need two incomes to make ends meet.

Why: Millions of Americans have been laid off during the pandemic and businesses have closed. Many companies are looking to rehire, but often for low-wage positions. Maybe your client realized that their “permanent job” might not be so permanent.

How: Your client needs a reserve fund, which typically includes six months of income. Since this can be difficult for many customers, they should consider their available credit. Having a home equity line of credit is a good idea. Your client should also understand the rules governing retirement account loans. More importantly, they need to plan ahead and have a strategy for finding a new job.

How would your family be taken care of if you weren’t in the picture anymore?

You may have young clients who are just starting their careers and married life. Often they have young children. They may own a home and have mortgage debt. When we are young, we assume that we will live forever. What if we don’t?

Why: CNN reports that a young family should have insurance that covers at least 10 times their annual income, while 20 times is even better. Your client will need a cash reserve to generate a return to replace lost income.

How: Begin by discussing the importance of being able to replace income. Think about “what if” strategies and discuss the pros and cons of term insurance and whole life insurance.

What are your long-term plans for your business?

If your client owns a business, most of their wealth is likely tied to the business. Their children may not want to carry on their legacy, so they need an exit strategy.

Why: In 2015, the Vancouver SW Washington Business Journal reported that 90% of American businesses are owned or controlled by families. Of these, 30% belong to the second generation and 12% to the third generation. Your client must either prepare the business to move to the next generation or plan their sale.

How: Let your customer do the talking. Will their family inherit the business and, if so, how are they preparing for that day? If the business is to be sold, it must be put in optimal conditions to obtain the best price. Start talking about ratings and how they are calculated.

In itself, financial planning does not seem to be an immediate need. But the more in-depth and precise the discussion, the more pressing the need becomes.