'This is a chance to help clients make their lives better'

Advisor explains how financial planning basics during quarantine can give people back a sense of control

'This is a chance to help clients make their lives better'

In many ways, most of us are part of a gilded generation. Not only have recent wars broken out far from our doorstep but the last pandemic of this scale, the Spanish flu, took place more than 100 years ago. In short, arguably aside from SARS, we have never had to hunker down in fear like this before.

Compounding heath concerns is the economic toll. Markets have crashed and businesses have folded. Millions are now seeking employment benefit both in Canada and the United States.

Darren Coleman, of Coleman Wealth and one of Raymond James’ leading advisors, recognises that this is an emotionally difficult time for his clients. In part one of his interview with WP, he talked about how social distancing can be used as a retirement drill to determine clients’ readiness for their post-work life. In part two, he explained what he’s been advising clients to do during this uneasy quarantine period.

Coleman believes that, once we are allowed within six feet of each other again, people will be split into two main groups. The first group will have “couch-potatoed” through the crisis in their pyjama bottoms, exhausted Netflix and likely gained 25 pounds. The second, and he adds hopefully the majority, will actually use this as an opportunity to make their life better. This could mean cleaning the garage, learning another language or instrument or, crucially, having better financial control over their lives.

“We know financial literacy is not nearly as good as it ought to be, so some of this just starts with the basics,” Coleman said. “If we can get people to begin examining where their money goes, we can give them some ways to control spending and navigate back to a place that gives us some harmony.”

None of the current COVID-19 situation is anyone’s fault so many of us are feeling powerless. Examining your finances and making changes for the better gives people a feeling of control, which Coleman believes from a mental health perspective is extremely important.

With the world on pause, he tells clients to break cashflow down into three broad categories. The first is long-term savings – what’s going into their RRSP or TFSA or company retirement plan? The next category he calls lifestyle, which is all the money they spend “on stuff”. This can include mortgage and rent, the cable bill, Starbucks … basically, what they spend on living.

The final category is what’s spent paying down short-term debt or just money in the bank, which almost nobody has. This can be credit card bills or car loans, for example.

Coleman said: “I'll bet most people when they look at all their expenses, it adds up to more than 100% of what they make, so that’s a problem. When we get back to normal, if we know where our money was going, we can be a little more thoughtful about what it is being spent on.”

The ratio his team usually recommend is 10% towards long-term savings, 70% on day-to-day living expenses, and the other 20% should go to paying off short-term debt. If there is no debt, 20% should be put aside to make sure there’s no future debt.

Coleman added: “If we can give people these tasks, clients can move forward positively. It gives them a sense of control today and maybe help them navigate through the crisis. Most importantly, it gives them a view of when all this is over. How can they be better financial consumers when this is all finished?”

The virus outbreak – and the economic ramifications – will be a financial issue for the majority, whether that’s through decreased retirement savings or job losses. The portfolio manager says advisors should be on hand to help people make good decisions to ensure they come out of all this positively. Another immediate task he has suggested clients do is to pull together all their financial information.

He explained: “What I recommended to people was, instead of watching that next episode of Tiger King, maybe they could grab a spreadsheet or a file folder and just start recording all the financial information that we always ask them to write down somewhere, but then no one ever gets around to doing.

“The account numbers and the passwords and all the information that we walk around with between our ears and in our phones that if someone else needed, they wouldn’t be able to get.

“We do that for a few reasons. One, because few people have ever done it so it's a good thing to have that information, especially if there's a health crisis. The other thing is that it gives people a feeling of control, which I think from a mental health perspective in this environment is extremely important.”

He added: “This, and cash flow budgeting, are designed so clients can learn from it. It's one thing to look at it and be worried but I think what's really healthy is that people keep their feet moving and start to realize that they want to find a positive response to all this.”