Do you track your clients’ net worth?
For a lot of advisors, this is how they gauge whether their clients are doing well financially. Primarily because that’s how the financial services industry has trained people to answer the question: “Am I doing okay?”
Side note – there are variations of this question that are ultimately trying to get to the same point. “Am I on track? Have I been making good financial decisions?” And so on.
I understand why this has been our primary metric. But I’d argue that it’s a vanity metric and at the end of the day it doesn’t actually tell us if someone is doing okay and if they’ll continue to do okay.
It’s the equivalent of saying someone with a six-pack is healthy. They may look good, but underneath those abs their body may be completely out of whack.
I’m going to continue with this health analogy for a bit so stick with me.
To be holistically healthy, you need to address both mental and physical health.
Just like there are multiple areas of the body that need to be healthy independently of each other and need to function properly together, there are many other areas that need to be working properly with finances to truly be financially healthy.
I’m going to draw some comparisons, then present a question for each area. These supporting questions will then help us answer our big question above: “Am I doing okay?”
The financial equivalent of mental health will be your client’s financial purpose and goals. It will take understanding your client’s money history and beliefs and answering the question – “Why is money important to you?”
The financial equivalent of diet will be your client’s cash flow and how they use it. What’s coming in and where is it going between four categories – saving, spending, debt, and taxes. The big question here is – “Am I using my income wisely?” Just like everyone’s diet will vary based on their health goals, the way a client uses their income will vary based on their financial and life goals.