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Help your clients create a budget in 5 steps

Helping clients develop and maintain an effective budget 鈥� no matter their money status 鈥� is one of the most valuable services financial professionals can provide. 

Building a budget is an important part of basic financial wellness, but many people don鈥檛 know how to get started. 

The value you provide by helping your clients with budgeting

Budgeting is a simple strategy that can have a big effect on a client鈥檚 financial behaviors and habits. Which, in turn, can affect the success of planning for retirement or being able to meet emergency expenses. The value you provide can:

• Empower clients to make well-informed spending choices and take proactive steps toward their financial goals.
• Redirect funds toward important financial milestones, such as paying down debt or boosting their savings.
• Give them a sense of control over their money, which can help reduce stress and build greater financial confidence. 

Help your clients create a budget in 5 steps

The foundation of any successful budget starts with understanding where a client stands financially. Here鈥檚 a step-by-step approach to helping clients build and maintain a budget that works for them.

1. Money coming in

Identify their guaranteed income streams, such as salaries, pensions, Social Security and annuities, as well as any variable sources like investments or part-time work. 

2. Money going out

For two to three months, encourage clients to keep a log of fixed expenses and variable expenses. 

Fixed expenses = Bills that are typically the same every month, like a mortgage, car payment, or utilities

Variable expenses = These are items that may change month to month

3. Look at the overall picture

Subtract the total expenses from the monthly take-home pay to show what鈥檚 left to put toward other goals. If you discover their expenses add up to more than their income, ask questions like: 鈥淗ow do these expenses align with your priorities?鈥� and 鈥淲hat is really important to keep?鈥� 

A 50/30/20 approach can be a helpful way for clients to visualize their budget. With this rule of thumb, encourage them to put up to 50% of their after-tax income toward needs, 30% toward wants, and 20% toward wishes.

• 50% Needs: Essentials clients can鈥檛 live without like food, shelter and clothing.
• 30% Wants: Things that are important but not necessary, like personal passions and hobbies. 
• 20% Wishes: Savings for unplanned expenses and long-term dreams, like buying a second home or seeing the world.

4. Set and evaluate goals

Life changes such as job shifts, medical emergencies, or major purchases can affect financial stability. It鈥檚 important to conduct regular reviews to revisit short-, mid-, and long-term goals to help make sure your clients are on track. 

• Short-term goals: six months to five years
• Mid-term goals: five to 10 years
• Long-term goals: more than 10 years

5. Create a savings plan

If expected expenses exceed anticipated income, work with your clients to close the gap. Help guide them in building an emergency fund that can cover at least three to six months of essential expenses. You can also help clients allocate a portion of their income to investments that match their financial goals and risk tolerance.

Sticking to a budget helps encourage mindful spending 

Encourage your clients to stick to their budget. Use it as an opportunity to teach them the value of mindful spending. They can make conscious choices about where their money goes and focus on what truly matters to them.

Budgeting is more than just tracking income and expenses; it鈥檚 about crafting a strategy that helps clients feel confident and secure in their financial journey. Give clients this budgeting worksheet as a starting point for your conversations. 

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