June 23, 2011
Finding Motivation to Control Spending
In a May 5 Squared Away blog post, I provided a list of financial planners’ five favorite tools for helping people control their spending. In this post, I’m providing their motivational suggestions.
Here are the five tips, based on my informal survey of planners. Each tip includes the psychological rationale behind it.
Find the “Aha! Moment.”
Some clients respond when they see, in detail, how much they’re spending and what they’re buying. Bonnie A. Hughes, a northern Virginia planner, is a big believer in mild shock therapy. She’s had great success by showing clients how much their income would fall if they were laid off, divorced, or dropped out of the workforce. Or she shows them just how much they’ll need in retirement, and it’s usually a big number.
Reason: The Aha! Moment provides the self-motivation that clients must possess and that planners can’t provide.
Unearth Emotional Causes.
Financial planners are not therapists, but clients benefit from understanding the reasons they overspend. They may range from parental guilt or stress reduction to serious issues such as childhood sexual abuse or a troubled marital relationship.
Reason: Individuals who understand the emotions behind their behavior are better able to change destructive patterns. This also can help planners customize effective tools to help them.
Prioritize Spending on Children.
Overspending on children is easy to rationalize. One trick is to focus on the big picture: college. Then prepare projections to show how much parents need to save per month to afford college. If the parents are not hitting that target, suggest that they think about how disappointed their children will be if they continue buying iPads and snowboards and can’t send them to the college of their choice.
Reason: All parents have guilt that they’re not a good parent, or that other parents are doing more for their children. Put that guilt in perspective.
Make Clients Accountable.
Set up monthly or quarterly meetings to focus on cash-flow management and clients’ progress toward their savings goals. This also allows clients to refine budgets as they achieve certain goals or as more monthly expense data come in.
Reason: Many individuals respond to gentle coaching and working on a problem with someone else; they count on their planner to hold their feet to the fire to achieve their plans.
Tell Clients It’s Okay to Stumble.
Like an alcoholic, clients fall off the wagon. Assure them that their determination will pay off, that once they get into a healthier routine, it will become easier.
Reason: Changing destructive behavior is a process. Clients should not feel ashamed if they don’t meet their or their planner’s expectations.