The pandemic has given clients lots to moan about. They are working from home, schools are closed and vacations are out the window. Clients might also complain about their money never stretching far enough. Time to look at the unexpected bright spot.
How Much Has Income Changed?
Many of your individual clients are working from home, unless they are essential workers. They are likely still being paid, especially if they are teachers or in a similar profession. What about those people furloughed or laid off? Barrons recently reported that “68 percent of unemployment recipients make more with their federal $600 per week payment than from their old job.” There are major exceptions, however. Broadway theaters are dark. Films aren’t being made in Hollywood. No one is holding industry conventions. If your client earns a lot and works in these or a similar industry, they are having problems. To simplify things, let’s focus on those clients who are being paid to work from home.
How Have Client Expenses Changed?
It’s somewhat comforting to know there is some good news during a time of uncertainty: staying at home has saved your client money. Here’s how:
- Child Care Expenses: These dropped dramatically. Everyone is under one roof now. You haven’t been sending your children to preschool.
- Going Out: You might be ordering takeout, but you aren’t sitting in a restaurant enjoying cocktails or a three-course dinner. Regardless of what curbside delivery costs, you are saving money. This is especially true if you dine out regularly.
- Vacations: Your client might be a retiree who travels often.They aren’t laying out money for cruises, buying plane tickets to exotic locations or staying at luxurious resorts. They are saving money by enjoying the financial benefits of a “staycation.”
- Movies, Theater, Concerts and Sports Games: These can add up, especially when you buy season tickets. Now, there’s no parking costs or dinner before the show. Your children aren’t lining up to see the latest blockbuster release each week.
- House Cleaning: You have been doing it, since your cleaning services wasn’t allowed in. You’ve probably been doing your own laundry, too. Working from home meant fewer trips to the dry cleaners, which were also closed. That’s more money saved.
- Weddings. If it’s your child, you underwrite the event. If you are a guest, you are often giving a gift at least equaling the estimated cost per guest. If it’s your wedding, the date has been pushed out. If you are a guest, the money is still in your pocket.
- Your Car: It’s being driven a lot less. Many insurance companies are sending rebate checks. You are buying less gas and taking the car in for scheduled maintenance less often. Your tires are lasting longer.
What Should My Client Learn?
As their accountant, you should point out this “found money” and proactively suggest a few courses of action.
- Start With These Points: You are eating out less, cooking at home more. You clean your own home. You are taking fewer vacations and perhaps working on your property instead. These lifestyle changes have saved you money. How many should become standard practice?
- Then, Move to the Retirement Preview: Your client had lots of free time. They made their own fun. Their monthly expenses shrank. You and your client have been talking about anticipated expenses in retirement. They’ve just completed an immersion course. Have that conversation again. They will be more attentive.
- Advise They Pay Down Debt: Suppose your client’s expenses declined by $2,000/month. Should they find different ways to spend it? No. They should look at their credit cards and the balances they are carrying at an average interest rate of 15 percent. Pay down those cards.
- Tell Them to Fund Retirement Savings: They are likely playing catch up. If they say they will contribute when their annual bonus comes in, gently remind them Santa might not be coming this year.
- Suggest They Set Up a Reserve Fund: During the pandemic, the stock market surprised everyone. It went up! The government sent out checks. What if these good things don’t happen again? Suppose they lost their job? Your client needs an emergency fund. Banks still have savings accounts. Yes, the interest rate might be almost zero, but the money is segregated. You don’t want to get at it with a debit card or checkbook.
The pandemic has taught us a lot of lessons. Some of them are financial.