Using Burn Rate (Br) To Guide Conversations

Factors to Consider when Assessing Burn Rate (Br)

Understanding the correlation between these factors and your clients’ spending habits will help you determine if the given Burn Rate is appropriate or not.

Savings Rate: Higher Sr = Lower Br

Cost of Living: Higher COL = Higher Burn Rate

Age: Older = Lower burn rate

Family size: Larger family = Higher Burn Rate

Healthcare needs: Higher needs = Higher Burn Rate

Questions to guide conversations

1 – Gather a Monthly Spending Estimate

While an initial spending estimate is often inaccurate, it reveals important information about the client’s understanding of their spending habits.

Example: A client gives you a monthly spending value of $9,000. Then after conversation and maybe transaction analysis, you discover that they are actually spending around $12,000 per month. This gives you the opportunity to dig in and find out why there was a discrepancy.

Many clients include debt payments in their estimates which need to be excluded from Burn Rate, so clarify what their estimate includes.

2 – Track Actual Spending to Verify Estimate

After getting a spending estimate from your client, you may want to have them track spending over a few months and get a more accurate spending number. This can be accomplished by having the client start free services like Mint, Personal Capital, or even their own bank’s dashboard.

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