The 'Phantom' Derailing Your Clients' Budgets

Amir Noor is the director of financial planning for United Financial Planning Group, having joined the firm in 2021 after leaving his prior role with Park Avenue Securities.

Noor has a passion for working with clients to develop holistic financial plans through a fee-based approach that allows him to keep the focus on client needs and outcomes. A key part of the planning process, Noor tells ThinkAdvisor, is the development of an accurate and actionable budget that guides and contextualizes clients’ spending behaviors.

As recounted in the Q&A dialog presented below, Noor is an advocate for the development and maintenance of more granular budgets that zoom in beyond the annual or monthly spending figure in order to give a truly accurate picture of a client’s balance sheet.

In Noor’s experience, in fact, many clients tend to substantially underestimate their spending if asked to make projections on a monthly or annual basis. He contends that refocusing clients on their weekly budget can be an incredibly powerful planning tool, one which other advisors should consider adopting.

THINKADVISOR: Why is budgeting such an important part of the financial planning process? What impact can a well-crafted and accurate budget have on a client over the long term?

Amir Noor: One of the most significant benefits I see with monthly budgeting is the effect it can have on saving and investing.

Part of the budgeting process I go through with clients is setting up their weekly savings goals. Once we have determined their income and expenses, everything leftover is used for saving, investing or paying off debt.

There are a few benefits here.

First, my clients are much more likely to hit their savings goals by saving weekly. Instead of accidentally over-spending each month and kicking the savings can down the road, my clients accurately predict their weekly spending and nail their weekly savings.

Furthermore, for clients that are investing, many choose to round up their weekly deposits. So, for example, we might calculate that they need to save $130 per week to hit their investing goals. But, most of my clients will round up to $150 per week, saving an additional $1,040 per year.

And while that may not seem like much, the effects of that extra $1,000 per year can be very significant over decades of compounding.

You have spoken about the “phantom month” that can come along with a more traditional monthly or annual budgeting process. Can you explain what the phantom month is?

A fairly standard approach to budgeting is to take the obvious monthly expenses — rent, mortgage, loan payments, etc. — and then figure out how much you spend each week on each item. Then, you multiply it all by four to calculate your monthly spending.

For example, if you spend $120 per week on groceries, you would multiply that by four to get $480 per month. If you wanted to estimate your annual grocery costs, you would multiply again by 12 to get $5,760 per year.