The First Cut is The Deepest

When it comes to building Financial Plans for our clients, the aim is to incorporate all their hopes and dreams into one snazzy cashflow model that works perfectly.

However, as you begin mapping out the numbers, it sometimes becomes clear that your client might not have quite enough.

What to do?

For many, the instinct is to cut back on expenses across the board. It’s a tidy, accountant-like solution: if there’s a shortfall, you trim a little bit from everywhere until the budget balances out.

But isn’t that a little bit, well, blunt?

When I first started working with Paraplanners, I noticed this was often their approach. Faced with a shortfall, they would make proportional cuts to spending across the board, thinking it was the best way to solve the problem.

But what I quickly realised was that this method, while logical, often led to a plan that felt, well, a bit deflated. It’s like hiring an Architect to design your dream home and, when the budget falls short, they respond by making every room smaller.

The result…

A house that’s just a little less good everywhere.

But when I challenged the Paraplanners to be a little more elegant in their solutions, I realised it wasn’t them – it was me.

They didn’t know where to cut first because I hadn’t told them. And I hadn’t told them because I hadn’t asked the client!

During the Financial Planning sessions, instead of just asking what they wanted out of life, I should have also been asking them what wasn’t important to them.

• What would you live without if you had to?
• What are the non-negotiables in your life?
• If something must give, what would it be?

So, I started doing so and christened them ‘Design Levers’, i.e. which Lever do you want me to pull first to make your Plan work if we have to?

It’s also crucial to recognise that priorities will likely change over time. What feels essential to your client’s now, might not be as important down the road.

Hence, it’s also important to ask the question ‘What is important to you now that you don’t think will be as important in the future?’

As the saying goes, ‘There’s many ways to skin a cat’, but if you don’t have those conversations with the client in the Financial Planning sessions then you handicap the Paraplanner when it comes to knowing where to cut first – and when.

• Perhaps downsizing your home isn’t an option today, but could it be in the future?
• Would they consider tapping into home equity later in life?
• Part time might not work now, but would they consider it for a couple of years after retirement?

By identifying these potential ‘Design Levers’ now, we have the ‘go-to’ solutions if things aren’t lining up as we would wish.

Knowing that you need to cut is one thing – knowing where to cut is another.

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