• Quality Para Planning

The Importance of assessing your client's budget requirements

Budgeting is of key importance when gathering data from your clients. Having accurate and clear information on the amount of income your client's need to meet their living expenses may provide you with a sound basis to recommend the investment of surplus cashflow, and subsequently the accumulation of wealth over time.

Identifying the ability to save surplus income either personally, or within superannuation, rather than to spend these funds ad hoc, or hold them in cash where they are eroded by inflation, can help you lead your clients onto a path of financial security over time.

Conversely, it may help you identify a need for your clients to reassess their required living expenses if it means that they may face significant financial hardship in future as a result of overspending now.

We understand that a lot of clients struggle to estimate the amount of income they need to meet their ongoing costs of living. We note that many of you provide your clients with Excel spreadsheets, or forms, to complete to help them break down what they spend over the course of a year. This is of significant value to your clients and helps you readily demonstrate that the advice you are giving is in their best interest as your recommendations ensure they remain in a cashflow positive or neutral position.

Advice that results in your clients having a cashflow deficit as a result of your recommendations (and that is not readily justified or is unfounded) will result in a poor outcome for your clients and does not demonstrate meeting Best Interest obligations and responsibilities as an adviser.

Budgeting resources are readily available on the internet. One of our favourite Budget Planner tools is available on www.moneysmart.gov.au/budgeting/budget-planner. This online tool is simple and quick to use, and can be edited as needed, and helps your clients identify if they have a cashflow surplus or deficit.

In addition to helping your clients save funds for their long-term goals, having a clear idea of their own spending requirements may assist them in working out how much they need to set aside as an adequate cash buffer. These funds set aside will give your clients peace of mind knowing that if they lose their job, or if their business is quiet, they will have time to arrange for another source of income or time to access capital in order to meet their needs.

Understanding your client's budgeting requirements helps you provide them with security, the ability to accumulate wealth, and the foresight to understand if they have adequate funds available to meet their ongoing expenses.

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