As planners, one of the fundamental steps in working with a new client is understanding where they stand on the financial planning pyramid.
While various versions of this pyramid exist online, I’ve developed one that encompasses the most common stages clients encounter during their wealth-building journey. I’ve included it here in case it helps.
My goal is to guide each client towards progressing to the next stage within five years of our collaboration.
Stage 1 – Struggle
At the base of the pyramid lies the 'struggle' stage. Here, we find clients who may be burdened with significant debt, facing cash flow issues, or barely making ends meet.
This stage isn't exclusive to low-income individuals; even high earners with six or seven-figure incomes can encounter financial difficulties. Sudden changes in circumstances, such as a mortgage burden or increased expenses, can lead to financial struggles.
Helping clients break free from the 'struggle' stage requires creating a realistic and personalised financial plan to alleviate their challenges.
Stage 2 - Comfort
Above the 'struggle' stage, we have the 'comfort' stage. Clients in this category are no longer facing immediate financial crises and lead relatively comfortable lives. They might enjoy perks such as gym membership, a nice car, and a couple of holidays each year. However, the danger here is that they may become too complacent.
While seemingly secure, many 'comfort' stage clients neglect important aspects such as pension savings, investments, and insurance coverage.
Our role as financial planners is to make them aware that their current situation might not be as robust as it appears. Unexpected life events could lead them back to the lower stages of the pyramid.
Stage 3 – Growth
The 'growth' stage serves as the engine room of financial planning. Clients in this stage experience steady income, decreasing mortgage debt, and increasing capital. They have a clear financial plan and are working towards their 'financial freedom' number.
Staying focused and disciplined is essential at this stage, as distractions and the temptation to overwork and invest more can hinder progress. As financial planners, our task is to emphasise the importance of adhering to the plan, showing clients that balance and prosperity await them if they stay committed: that they’ll be able to spend more time with their family and friends, work less, and enjoy their wealth.
The trouble is, it’s never that easy. We all know how short-term issues and ‘noise’ vie for their attention – the most recent being the sudden lure of 6% interest rates on savings accounts, which is making some clients question whether cash might be preferable to stocks.
This is where we come into our own – without a planner by their side there’s no one to help these clients with accountability, encouragement and focus.
Stage 4 - Financial freedom
Next comes the 'financially independent' stage.
These clients possess substantial dividend-generating investment portfolios and no longer rely on active income. They could run away to the Bahamas and spend the rest of their lives on the beach if they wanted to, but that doesn’t mean they’re free from financial worries.
In fact, they often grapple with new challenges: navigating the crossroads between continued work and retirement and safeguarding their wealth.
Our job here is to help them figure it out – often encouraging them to seek the best of both worlds. If they get fulfillment from work, there’s no need to give it all up. People think they have to follow the rigid paths of those around them. But there are ways to create their own.
Helping these clients to free themselves of comparisons to others and long-held beliefs and expectations is key here. After a lifetime of working towards financial freedom, spending that money is incredibly hard – but helping them enjoy their money is essential.
Stage 5 - Abundance of money
The pinnacle of the pyramid is the 'abundance of money' stage. Clients in this stage have more than enough wealth to meet their needs and desires. Yet, they may struggle to find fulfillment and joy in their wealth. At this point, money loses its value as a primary focus, and it’s time that becomes the most precious commodity.
But often clients don’t realise they’re at the ‘abundance’ stage – this is where we need to step in to support them in seeing that.
By helping clients to identify meaningful ways to utilise their wealth, whether it's supporting causes they care about, or navigating the complexities of gifting money to loved ones, we can help to give money its meaning once again.
By guiding clients through each stage of the financial planning pyramid we can help them understand their current stage, support them in building confidence in their financial situation, and outline the necessary steps to progress towards their next milestone.
I’m a big fan of the financial planning pyramid – as just one tool in our financial planning armour.