The One-Page Financial Plan

Carl Richards wrote the book The One-Page Financial Plan: A Simple Way To Be Smart About Your Money. It’s a good read and I’d recommend it. I LOVE the idea of a one-page plan. It forces you to simplify and be concise. It also requires a certain amount of flexibility because, obviously, not every situation is going to be covered in a single page plan. Below are some important points from Carl’s book that I want to share.

The One-Page Financial Plan

Before I go on, this post is definitely not intended to replace reading Carl’s book, The One-Page Financial Plan. If you are a reader, like I am, I recommend adding this to your list of books to consider.

In fact, I suspect that some of the more interesting points that I’ll mention below just might motivate you to want to read the book to get more detail.

Who is Carl Richards?

Carl Richards is a Certified Financial Planner who works for Buckingham Asset Management. I’ve seen him speak (and even spoke with him briefly) and he’s a very intelligent and super-nice guy.

He’s best known for making complex topics simple. Carl can take a napkin and a sharpie pen then proceed to simplify a financial topic so almost anyone can understand it.

Just check out some of the images he draws to see what I mean.

A solid financial plan

When I heard Carl speak I remember him saying something along the lines of: Good financial planning is making the best guesses you can today and being prepared to adapt to changes over time.

He’s right of course. Many financial professionals might not want you to believe that, but most planning is “best guesses” and “adaptation.”

We know what the stock market has done in the past, but we aren’t sure what it will do in the future. Economists can look at the past to estimate what the rate of inflation might be in the future, but they don’t know for sure. According to recent data, the average American can expect to live to 79 years old, but we don’t know for sure – something medically might change or an accident might happen.

But we need a plan. So we make the best-educated guesses we can. Then expect to adapt as needed.

Great advice.

In the introduction of the One-Page Financial Plan book Carl writes:

“Remember, the One-Page Financial Plan isn’t about getting things ‘right’. It’s about realizing that you will always get things at least a little wrong…. In other words: life will happen.” – Carl Richards, One-Page Financial Plan

Take a moment to think about the wisdom there. Wrapping your head around this line of thinking might justify the cost of the book in itself.

Ten steps to your financial plan

The book lays out ten chapters, similar to steps, as part of the process of building your financial plan.

Understand your why

As we’ve written before…

“In order to stick with a plan or a budget long enough to see real progress you need to know your why.”

Chapter one recommends asking yourself the question “Why is money important to you?” and then digging into the reason(s). The exercise there to help explore and get to the roots of why money matters to you are very helpful.

Set goals

It’s hard to map out a path when you don’t have your destination clarified.

You might not have a clear picture of your destination. Or you might only have short-term goals at the moment. That’s okay. Remember, it’s about the best guesses. You can make changes and adapt later if needed.

What’s the starting point?

Even with the destination in mind, you can’t map out the path quite yet. You need to know your starting point.

The book explains – simply – the basic information that you’ll want to understand your current financial situation. As you might guess this includes a statement of net worth. I’ve written before that net worth is perhaps the best measure of someone’s financial fitness. It’s key for a starting point and helps track progress along the way.

Understand your cash flow

Certainly, you knew this was coming. It’s hard to have a good financial plan if you don’t have a grip on where your money is going. Having a budget not only allows you to track your spending, but it also helps you direct your money where you want it to go.

Like Dave Ramsey says: “Tell your money where to go, instead of wondering where it went.”

Save money

When you have a handle on your cash flow you can set some savings goals.

The One-Page Financial Plan talks about how much you might want to save. It fully acknowledges that there is no single right answer that fits everyone. It’s about you and your personal priorities.

Saving something is key.

Big financial goals – buying a house, paying for college, getting debt free, retirement – will all require saving as part of the plan. Get used to the idea. It’s not a bad thing. It’s a good thing! Saving is a big part of moving along the path to your goals.

Protect yourself

Have enough insurance to protect yourself.

You don’t want to over-insure but you also don’t want to be under-insured.

Appropriate levels of insurance in certain areas can be the difference between financial freedom and disaster.

Health insurance, automobile insurance, life insurance, homeowners or renters insurance. These are a few of the key insurance policies that most people should have. What you need depends on you and your situation.

Debt: The wealth destroyer

Of course, a good financial plan is also going to touch on the topic of debt.

Making payments, now and into the future, for something you bought in the past, is rarely good for your finances. Sure, there is often a “need” for debt – specifically borrowing to purchase a house. But honestly more people have quite a lot of consumer debt that doesn’t make financial sense.

Understanding your debt, having a plan to deal with it, and setting guidelines to avoid building additional debt, are important planning topics.

Invest intelligently

Besides writing the One–Page Financial Plan, Carl Richards coined the term the behavior gap (and he has a book of the same name).

The behavior gap concept helps clarify the reasons that INVESTOR returns consistently lag INVESTMENT returns. Investors are often their own worst enemies. This chapter helps readers understand some basic investing concepts so they can make a plan and stick with it.

Get help

Dave Ramsey recommends everyone have an accountability partner. Carl recommends people consider a financial advisor – and gives tips on hiring a good one.

Of course, another option is working with a financial coach – like myself. Read this if you are wondering exactly what is financial coaching.

The important thing is to have someone to help you out.

Good financial fitness isn’t a math problem. It’s a behavior problem. It’s rooted in our past experiences, our emotions, our beliefs, and more. Having someone “outside” the direct situation to help give some perspective can be very valuable.

Do it

The last step is to follow the plan you set. Follow it through the good and the bad. Whether the market is up or down, follow the plan.

Unless something changes in your life, causing priorities of key factors to change, stick with the plan. A plan that isn’t followed is worthless.

What’s next?

If these topics interest you, consider buying Carl’s book: The One-Page Financial Plan.

It’s a fairly easy read and has some good sharpie-images mixed in to help clarify certain points.

I enjoyed it and think you might too.

Have you read it already? If so, what did you think?