August 2018, Volume 7 Issue 02

The Importance of Counselors Preparing a Good Budget/Financial Analysis for Clients

Counselors who conduct any type of one-on-one housing counseling sessions are required to prepare a budget or financial analysis for their client, as outlined in the Housing Counseling Handbook 7610.1 (Rev. 5). A budget or financial analysis is a review of the client’s unique financial situation, including but not limited to their income, expenses, spending habits, and credit. The client’s spending habits should be analyzed to see if they are more suited for renting, as opposed to purchasing, a home. Counselors are encouraged to utilize the budget templates in their Client Management System and, where feasible, customize them to suit the needs of their clients.

The budget is an important component of the one-on-one counseling session and is necessary so that the client and counselor can review the client’s current spending patterns and create a spending plan that allows the client to take charge of their financial situation in both the short- and long-term. They also discuss the client’s financial goals and develop an action plan for overcoming challenges, so the client can achieve their goals. Budgets allow both the client and counselor to clearly identify what the client’s affordability is, determine how achievable their housing goal is, and identify if/where adjustments are needed. The elements of a good budget are:

  1. Accurate Spending Categories: Even though budget templates are very useful resources, they do not always align perfectly with every client’s personal spending habits. When creating a client budget, the counselor should ensure that all expenses – including those not listed in the template – are included in their client’s budget so that an accurate financial picture is painted.
  2. Realistic Income Projections: Accuracy is a must; not only for expenses, but also when recording income. The amount of money that the client will actually have to spend should be used when preparing the budget. Whenever possible, it is best practice for the counselor and the client to use recent paystubs as a basis to project income, as opposed to just estimates. This will make the budget more accurate and useful. Taxes and other deductions, like contributions to an employer’s 401(k), should be taken out of the computation for the budgeting exercise. If there is irregular income, the counselor may consider basing the monthly budget on the average amount of money the client makes each month.
  3. Categories for Irregular Expenses: When creating a budget it's easy to just think about monthly expenses, but counselors and clients should remember to include those expenses that may only come around quarterly or less frequently (i.e., once or twice a year). For example, the client may pay car insurance every six months, while homeowners’ association fees are due annually. To ensure that the counselor and client account for those expenses accurately, those figures should be annualized and then divided by 12 when preparing a monthly budget.
  4. A Line Item for Savings: If feasible, savings should be a part of every budget. Savings should be treated like an expense and should be meticulously added to budgets that can afford it. Counselors can include a line item for general savings, as well as a category for the client’s emergency fund or savings for a down payment on a home, if applicable.
  5. Tracking Cash Purchases: While every dollar spent doesn’t need to be tracked down to the penny, counselors should try to accurately account for cash spending. Cash spending can easily become the biggest leak in many budgets. If clients record cash spending for a week or two, they are usually able to determine their average cash outlays and can have the counselor record cash expenses appropriately in the budget.

Budgets for each household should be counted under “Impact and Scope of One-On-One Counseling Services” when preparing the HUD-9902 reports, as outlined in the HUD-9902 Desk Guide. Counselors do not have to verify that the household actually implemented and sustained the budget. So long as the budget is “sustainable” – meaning realistic and doable for the household – it should be reported. HUD expects that this impact will apply to nearly all one-on-one counseling clients because the HUD Housing Counseling Handbook requires the establishment of a household budget that the client can afford. If the budget was developed during the counseling session, the outcome may be recorded at the time of the one-on-one counseling session. Keep in mind that in some situations (e.g., fair housing work), the budgeting exercise may not be appropriate nor feasible. The counselor does not need to wait until follow-up to learn about and report this outcome.

Frequently Asked Questions (FAQs)

What is a sustainable budget?

A sustainable budget is a budget where a client’s income meets or exceeds his or her expenses. It can be based on estimated or actual expenses and income. A budget may also be considered sustainable if the budget demonstrates that the client can or cannot afford to live in their current housing and shows the client a path to a positive net income. A sustainable budget is one which gives the client clear choices in difficult situations.

Occasionally, once a counselor has developed a budget with a client, they learn that the client’s income does not support their expenses. How should this be reported in Section 10c (sustainable household budget) on the HUD-9902 form?

The purpose of developing a budget is to assess a client’s income and expenses and determine any changes a client may need to make in order to achieve an improved bottom line. For example, the budget process may reveal that the client cannot afford their current housing or that they need to pay off debt or reduce non-critical expenses such as cable bills. Using an action plan can provide options to help a client achieve a sustainable budget. Developing a budget in these cases may demonstrate that the client’s finances in their current state are not sustainable. However, as long as the budget provides the client with a clear path to a positive or zero bottom line, HUD would consider it a sustainable household budget that should be reported in Section 10c of the HUD-9902 form.

Similarly, for clients that are unemployed with no income, it may still be possible for the counselor to develop a sustainable household budget with the client. For example, the client may have savings or assets they can tap into or may be able to obtain a loan or temporary financial assistance to help them through their gap in employment. In that case, the counselor may be able to develop a budget to demonstrate how the client can reduce expenses and achieve a zero bottom line long enough for them to regain employment. The budget can also demonstrate the impact of a second job or rent collected from an adult child in the home, which demonstrates the impact of various choices that the client can make. Again, as long as the budget provides the client with a clear path to a positive or zero bottom line, HUD would consider it a sustainable household budget that should be reported in Section 10c of the HUD-9902 form.

couple being counseled