“A kid grows up a lot faster on the golf course.  Golf teaches you how to behave” -Jack Nicklaus

Have you ever hit the ball so badly that you only hit seven greens in regulation and a handful of fairways?  Ruined your round and score, right. But what about the up and down percentages and total putts?  I can’t tell you how many times I immediately blamed my ball striking as the reason for poor scoring when in fact it was short game statistics at fault.  Well, the same goes for spending habits. When we deal with clients on a goals-based approach without conducting extensive cash-flow analysis, we miss way too much of the real picture. I prefer to approach clients first and foremost on a cash-flow basis before we ever bring goals into the conversation.

But, Houston, we have a problem.

Advisors and planners usually don’t approach a client by pursuing the practice and usually have two common answers for why (based on FA-mag surveys in February 2017 issue).  The two common answers:

1. Clients really don’t want to know what they’re spending. They are living in ignorance—and for the time being, ignorance is bliss.

2. When I did provide cash-flow analysis, it was garbage in, garbage out. Because clients wouldn’t bring accurate information, the exercise was futile.

Consequently, many advisors have given up on the effort. This is a major mistake and limits success toward progress for both client and advisor. There is no progress without first benchmarking where a client is right now.  There are plenty of activities that require knowing the baseline in order to improve on that baseline.

March Madness is wrapping up as I write this and one of my golfing buddies who retired from Division III college basketball coaching told me how he approached something similar. He said, “I spend a lot of time in the winter as a shot tutor for basketball players, and when I begin working with somebody, I’ll ask, “What is your free throw percentage right now?” They’ll usually say, “Around 70% or so.” I’ll throw them the ball and say, “Here, I’ll rebound the next 100 and we’ll know for sure.” Why? Because we can’t measure progress until we know where you are. What’s the baseline? And we can’t build confidence upon a false premise.

And it’s not just financial status that cash-flow analysis exposes. The analysis also reveals a client’s regimen and habits—the forces that either create wealth or impede its creation. As an advisor, I need to know as much as possible what a client’s habits are. In fact, what I learn may change and has changed my mind about whether I really want an individual for a client.

When you talk to a doctor who is trying to improve your health, they don’t cut the conversation short after finding out your current status. The good MDs will inquire into your health regimen and health habits. They ask questions about how much you work out, eat, drink, smoke, etc. While many patients lie when answering these questions, doctors don’t stop asking—they just try to get a sense for who is telling the truth. Here is a short list of the regimens and habits you’ll want to be privy to:

  • Automated savings—How much hands-free saving is going on?  Most of us put our 401(k) contributions on auto pilot and should do the same into a savings account for emergencies. The more, the better. What aspects of your savings and investment program have been automated.
  • Monthly spending—This is where we meet the greatest resistance.
  • Large purchases—We always ask, How often do you make large purchases? Can you give me an example of your last two or three, and how you decided upon those purchases?
  • Travel and entertainment—What would you guess you spend a year on travel and entertainment? Do you have a second home, time share or regular vacation habit and budget?
  • Giving habits—Are there any charities that you support yearly or monthly? What do you estimate your annual giving to be? Do you have any charitable aspirations that you’re aiming toward?  (Keep the receipts as you may be able to write these generosities off when you file taxes)

Sometimes my clients benefit most from the conversation they want to have the least. From my experience, if someone is a spender before they retire, that doesn’t magically change after they retire. To get a picture of detailed cash flow, I recommend that my clients use the Mint app to track and visualize their spending.  (Full disclosure, we do not receive compensation in any way from the company.  It simply is a good place to go to track your habits)

There are really only four things we can do with our money.  We can owe somebody, grow and accumulate it, use it for day-to-day living expenses, and give it.  Every dollar has a job function and many people have no idea which dollars are going where, just like I usually have no idea where all of my lost golf shots are really happening during the round.  I always resort to bad swings but then realize I need to simply categorize and count them in a realistic manner.  Something we’ve learned in our many years of financial advice is that a client’s habits are more important than a client’s assets. It is those habits that either create or erode wealth.

If you have formed good habits, then a good advisor will reinforce your disciplines. If not, today is the best day to start.  Take control of your finances.  Give us a call if you have questions, concerns, or need a boost of confidence. You can’t make progress until you know the place they’re starting from.


Blake Parrish
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com

Certified Financial Planner Boardof Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”