As newlyweds, Galen Nuttall and his wife weren't making much money, so visits to Starbucks occurred at most twice a year, usually over happy hour. But as their income increased, so did their trips to coffee houses; the family Honda was traded in for an Audi, and their condominium became a four-bedroom house. Former luxuries had now become necessities.
Now a financial advisor based in Belleville, Ont., Mr. Nuttall has pared back to a Honda – which he may get rid of altogether since he works from home and rarely drinks coffee anymore. “What I’ve done is consider what it is I enjoy about each of those things and ask myself, ‘Is this a want or a luxury? Would this money be better off going somewhere else?’ "
Mr. Nuttall’s personal experience in battling the phenomenon of “lifestyle creep,” which occurs when standards of living rise along with discretionary income, has enabled him to empower his own clients to curb their spending habits.
For most people, the urge to blow a bonus or salary raise on a better vacation or nicer car is hard to resist. But financial advisors can help clients forego immediate rewards for longer-term benefits by guiding them to a deeper connection with the process of building their own wealth.
Making financial goals as visual and visceral as possible is key to success, says Mr. Nuttall, who adds that in an industry defined by numbers, the power of telling a good story cannot be underestimated.
“Numbers are important, but it’s like my doctor going into a long diatribe about the chemical compounds that go into the medicine that’s going to save my life. What I really want to know is, ‘Am I going to be okay?’' " says Mr. Nuttall, who works for Freedom 55 Financial.
“Humans do better at remembering stories and emotions than facts and figures. The more we can put what we do in the realm of story, anecdote and metaphor, the more people will relate to what we’re saying.”
For instance, for a client who expresses the desire to travel more in retirement, Mr. Nuttall will ask them to focus on how it might look and feel, right down to the airline they would take, and how the sun would feel on their face while lying on the beach. “I ask them, ‘How will you feel about yourself when you are on that beach?’ I get answers like ‘accomplished, happy, proud,’ and so on. Then I ask them what unique name they would like to give this goal.
“I had a young couple name their retirement plan, ‘Tom and Jane's excellent adventure.’ I thought that was really cool.”
Forecasting is another powerful tool used by advisors to provide a clear picture of how quickly and tangibly wealth accumulates. To shift his clients’ mindset from spending to saving, financial coach Craig Dunkerley uses forecasting tools and frequently refers to the rule of 72 to demonstrate the power of compounding.
“The more frequently your money doubles, the more quickly you can get to your goal wealth,” says Mr. Dunkerley, who is also the CEO of the Toronto-based Blackthorn Group of Companies and an international best-selling author.
Using a salary raise as a springboard for investing can make a significant difference in future wealth, while for clients who are already in the game, it’s an opportunity to increase their portfolio value. But Mr. Dunkerley urges his clients to see the bigger picture when it comes to building that wealth mindset.
“Why are you waiting for your boss to give you a raise?” he asks. “In many cases, that raise is likely quite small. Give yourself a raise. Create your own economy.”
The tax advantages of having a business are significant, he says. “A client starting a business can generate tax refunds of 10, 20, 30 per cent or more. Money that you had previously given away is now coming back into your pocket and can be a huge annual kick-start to your investments.”
While his middle-aged clients struggle with these ideas due to rising debt levels and competing demands for their time, millennials are more receptive to the possibilities of eschewing the corporate 9-5 in favour of building their life and wealth on their own terms, he says.
They’re also more concerned about their future in their 20s and 30s than previous generations, Mr. Nuttall says. “The millennials I’m talking to quickly realize that they are on the hook for just about everything. They aren’t likely going to have any pension; group benefits are getting scaled back, and sometimes they have to foot the whole bill for their coverage.”
But a solid financial plan will be successful with clients of all demographics, says David Boyd, vice-president and portfolio manager at the Boyd Wealth Management Group (BMO Nesbitt Burns).
Mr. Boyd favours using Naviplan, a financial planning software that incorporates all financial aspects of a client’s situation including salary and debt, return on investment, inflation, future education costs, CPP and OAS, retirement age and the net annual retirement income that the client requires.
“All of these variables can be manually adjusted in order to illustrate how changing one will impact how much money is left in retirement and at what age that money will run out,” he says. The plan is updated every three years, or sooner in the case of a major life event.
“I believe that if an advisor takes the time to explain the importance of such a plan, clients will be receptive no matter which demographic they are in,” Mr. Boyd says.
“Being able to determine what is important to the client and then providing the service to reinforce it is paramount.”