The One-Page Financial Plan

In his upcoming book The One-Page Financial Plan, Financial Planner Carl Richards lays out his approach to helping clients with their finances. His methods are certainly far different from the mutual fund salespeople I’ve dealt with in the past. The book gives you a roadmap for figuring out what is truly important to you. The idea is this will put you more at ease with your finances and make future decisions more clear-cut. The book is very well written without much math, making it an easy read.

For Canadian readers, this book contains a few references to 401(k)s (the U.S. version of a Canadian RRSP). Other than that, almost everything in the book applies well to investors in any country.

Richards finds that most new clients expect to hear some sort of financial trick or a hot tip that will make them lots of money. Of course, that doesn’t exist and Richards goes through a set of steps that puts choosing investments last instead of first.

His process begins with the simple question “why is money important to you.” This usually gets some superficial response like “freedom.” Richards then asks more questions until he finally gets what he calls the client’s “values.” In one example, a client’s values included saving enough money to start a family. These values “serve as the lens through which you can view your entire financial plan.”

Next come some financial goals that include specific timelines and costs. It’s normal for the initial list of goals to be in conflict with each other because they all compete for money. This is when you go back to the values to see which goals are most important.

Together, your values and goals form your one-page financial plan. “Make sure to give yourself permission to not obsess over [your goals]. Remember that they’re guesses.” Your goals and priorities may shift over time. When faced with financial decisions in the future, you can pull out your one-page plan to guide you.

The next step is to take a close look at your current financial state. This is a fairly simple process, but people have great difficulty with it. “As soon as we start looking at our assets and liabilities, we’re forced to deal with a lot of mistakes and missteps we may have spent months or years trying to forget.”

When it comes to justifying purchases, we frequently “decide what we want, often for emotional reasons, and then we go looking for evidence to support the decision.”

In his pitch to get readers to do some budgeting, Richards says budgeting “allows us the opportunity to see the gap between what we say is important to us and how we spend our money.”

One of Richards’ clients told him that he and his wife sometimes do a “spending cleanse.” “Every once in a while for several days, sometimes as long as two or three weeks, they do what they can to avoid spending money.” The idea is to “shock you out of a [spending] rut you may have been in without even knowing it.”

Richards uses what he calls the “72-hour test” himself. When shopping online, “instead of buying immediately, I keep items in my shopping cart for 72 hours before I hit the checkout button. I was amazed at how quickly this changed my habit. Most of the time, the stuff sits in my cart longer than 72 hours, and I forget about it altogether.”

When it comes to quick financial fixes, Richards says “Stop hoping that a home-run investment will solve your savings problem.” “Stop waiting for the golden ticket; just start saving.”

On the subject of found money: “I strongly suggest putting tax refunds, inheritances, or money you receive as gifts right into savings.”

“Whenever people tell me they’re thinking of buying Apple or Samsung stock because they love their new smart phones, I ask them, ‘Have you read their latest annual report?’” “No one has said yes.”

“It turns out that there’s not a single variable that will help you identify how a mutual fund will perform—except for one. Cost.”

“Instead of getting hung up on predicting when the next downturn will occur, simply accept that it’s inevitable, and focus on sticking to your plan when it does.” I find this kind of attitude comforting. Instead of hoping that stocks keep going up, just give in to the certainty that a crash is coming at some point, followed by a recovery.

Some questions to ask a financial advisor: “Do you get paid (or win) anything based on the products you recommend to me?” and “Do you receive compensation for our relationship from anybody other than me?”

Overall, I quite enjoyed this book, and I think thoughtful readers will get value form it. The book is scheduled to go on sale 2015 March 31. The best part to me was the exercise of trying to identify my financial “values.” If my wife and I can agree on these, the rest of the planning comes fairly naturally.