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The One-Page Financial Plan: A Simple Way to Be Smart About Your Money Hardcover – March 31, 2015
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“In a world where financial advice is (often purposely) complicated and filled with jargon, Carl distills what matters most into something that is easy and fun to read. The true measure of a brilliant book is whether the material is as relevant to an industry expert as it is to a layperson. The One-Page Financial Plan unquestionably is. Buy two copies—one for yourself and one to hand to the nearest pundit.”
—Morgan Housel, columnist, The Wall Street Journal
“There are very few financial writers who have been more influential for me than Carl Richards. Carl has done more to simplify the investing process than anyone else in America. His trademark combination of wit and illumination make The One-Page Financial Plan an instant classic in the genre. Don't invest another cent before you've digested this highly readable lesson.”
—Joshua M. Brown, CEO of Ritholtz Wealth Management and author of Backstage Wall Street
“No one in the financial industry communicates like Carl Richards. And this is a skill especially evident in The One-Page Financial Plan. If you’re skeptical that an effective plan for your life and your money can be limited to a single page, I encourage you to put Carl’s process to the test. I’m confident that, like mine, your time and effort will be well rewarded.”
—Tim Maurer, wealth advisor for Buckingham Asset Management and Forbes contributor
“Feeling tormented by your finances? Read this book. Now. The One-Page Financial Plan helps you identify what you truly want from life, get crystal clear about the financial position you are starting from today, and develop a simple, actionable plan to narrow the gap between the two.”
—Manisha Thakor, Director of Wealth Strategies for Women at Buckingham and the BAM ALLIANCE
About the Author
CARL RICHARDS is a certified financial planner and a columnist for the New York Times, where his weekly Sketch Guy column has run every Monday for over five years. He is also a columnist for Morningstar magazine and a contributor to Yahoo Finance. His first book, The Behavior Gap, was very well received, and his weekly newsletter has readers around the world. Richards is a popular keynote speaker and is the Director of Investor Education for the BAM ALLIANCE. You can find his work and sign up for his newsletter at behaviorgap.com. Richards lives with his family in Park City, Utah.
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1. Defining WHY money is important to you is the single biggest factor in a financial plan.
2. Having a written plan, even if it's on a napkin, makes a huge difference in achieving success. If not written down, you'll forget the plan and prevent people from asking you meaningful questions about the plan.
3. The silver lining to our financial mistakes ... which we ALL make ... is to leave a trail. A written timeline of what we did right and what we did wrong.
If you had told me I would benefit from a financial planning book written by a man who went bankrupt, I would have laughed in your face. But I did, and I'm grinning with enjoyment, not laughing at him.
Richards is a certified financial planner, New York Times and Morningstar columnist and the author of a few books. In One Page Financial Plan, he echoes a sentiment I often hear from Morgan Housel: namely that it’s better to be generally right than precisely wrong when it comes to your money.
Richards begins at a place few financial books cover, by asking his readers one over-arching question that would guide the rest of the advice of the book: Why is money important to you? Acknowledging that few financial advisors or books ever cover this type of personal feelings, Richards explains that answering this question is paramount before one can plan their finance. He writes:
"The reason I ask my clients this question is because it helps us understand their values. Often, the process of asking 'Why?' – 'Why is money important to me?' or 'Why have I been so anxious about money lately?' or 'Just why do I work so hard anyway?' – uncovers deep desires and fears that we are often too busy or too scared to think about. While the process can be uncomfortable, recognizing what really matters to you is the first step toward making financial decisions that are in sync with your values."
This allows us, Richards goes on to explain, to identify our priorities, prioritize our goals, and then to balance trade-offs. For instance, if one identifies going on long summer vacations with their family as a top priority, it then makes it easier to not buy a new 4K television when our “old” HD television still works.
Another thing Richards makes clear early in the book is that there are other important aspects to financial planning than just money. It also involves our time, skills, and energy. He writes:
"It may help to think about the different kinds of human capital in units – units of time, units of energy, and so on. Each day, you take some of your units and exchange them for units of money. You then take those units of money and spend them on something. But every time you exchange a unit, there’s a trade-off, and we often fail to look past the immediate return to the potential long-term consequences. When we think about money only in terms of dollars and cents, we risk depleting our stores of energy, time and skill."
He then gives a few examples like earning money isn’t always worth the time spent away from family. Yes, I know this might sound rather obvious, but I still appreciated it. I’ll take every reminder that I can get that I need to spend more time with my kids rather than endlessly surfing away on the internet or watching Sportscenter or even posting on Motley Fool boards. There’s plenty of time for those things after they’re asleep and there will be plenty of time for those things when they’re older and won’t enjoy my company as much!
In the second part of the book, Richards tackles spending and saving. Richards doesn’t propose anything radical here, and tackles usual suspects like budgeting. Once again though, what I do appreciate about Richards is how he drags our values into the discussion. He writes:
"Budgeting isn’t just about numbers. It’s about awareness. In fact, budgeting equals awareness. It’s purpose isn’t to punish ourselves for spending money; it’s to become very aware of how we’re spending our money so that we have enough for the things that matter most.
"I think anyone who takes the time to think about it would agree that spending money in a way that’s aligned with what we value will bring us more happiness."
Richards does suggest a few techniques to get to spend less besides the tired take your lunch to work, skip the coffee house latte, avoiding online impulse purchases, etc. One of these ideas is what he calls a “spending cleanse”. During this period of anywhere from a couple days to a couple weeks, the idea is not to spend any money. He suggests you pay your bills in advance, stock up on groceries and to go the entire period without spending. This means no eating out and finding free ideas for entertainment like taking your family to the park or going for a bike ride.
Richards approach to saving money is similar to the rest of his approach. Depending on your values and capability, will depend upon how much one can save. In the end his conclusion is: Save as much as you “reasonably” can. He does dive into this a bit more, asking questions and examining habits that are supposed to get the reader to determine what “reasonably” means to them but is careful to never assign a one-size-fits-all savings percentage rate. He does include a few tips for saving more, including saving one time windfalls, automating savings, and setting short term goals.
In the final part of the book Richards discusses investing. A lot included here is good, solid advice but don’t expect any fundamental analysis or advice on how to find great stocks. Indeed, skipping to the end, Richards doesn’t go past recommending owning a mixture of stock and bond funds, which should be determined on how aggressive the investor wishes to be.
But Richards does offer big picture advice that can definitely be applied by Foolish investors. One of the things I appreciated most was his take on making up for lost time by trying to find the “next big thing”. He writes:
"When we get behind on our savings goals, we start to feel the pressure to make up for lost time. That pressure can often lead to spending hours looking for that home-run investment. It’s a bit like a gambler doubling down to dig out of a hole. Stop hoping that a home-run investment will solve your savings problem. Maybe it’s un-American to say this, but no matter how hard you work trying to find the next Apple, it’s highly unlikely you will. Not impossible, just highly improbable. Stop waiting for the golden ticket; just start saving."
Instead, Richards encourages us to find a long-term strategy and to filter our investing ideas through that lens:
"Rather than making decisions based on short-term thinking and emotion, we want to make sustainable investment decisions. We want a plan in place that reflects our goals and values – and we want to stick to it.
"When we commit to a plan, we’re less likely to fall victim to our desires for instant gratification. We can feel confident that our plan is designed with our unique goals and value in mind; we realize maybe we don’t need to hit the jackpot after all."
Another idea he tackles is paying down debt early, like a mortgage, as a form of investment. While this might not always give one the greatest return on investment, Richards acknowledges it can give an investor peace of mind which is not to be underestimated.
There are a number of other topics discussed in the book, not all of which I have the time to review here. For instance there was a very helpful chapter on choosing the amount and type of life insurance.
While this book might not get into the nuts and bolts of investing or financing, it does cover the basics fairly well. And I like how Richards harps on adjusting your money habits to your own personal values. While this book might be a bit too basic for some longtime investors, it would be perfect for that younger family member or long-time friend who took a late interest in financial matters.
You will do well to follow the principles in this book.