The One-Page Financial Plan Book Review

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I enjoy learning and discussing personal finance. The day-to-day things like budgeting, credit decisions, debt repayment. Where I start to get a bit intimidated is matters of investing. So, I admit, when I learned that The One-Page Financial Plan was written by financial planner, Carl Richards, I was a bit apprehensive about reading it.

Once people start talking stocks, bonds, derivatives (blah blah blah), I totally shut down, and I had no clue how to avoid the ‘shut down’ when I have to review the book!

I think I spent a few days just poking it with a stick. Once I finally got over my fear of touching it, upon a quick glance, the first thing that stood out to me was that One-Page Financial Plan was around 200 pages long. That alone made me feel a little less intimidated.

Also, as I flipped through the pages, I noticed there were a lot of very simple sketches and some on napkins (Yes – even less reading) and I felt even a little more comfortable taking it on.

One-Page Financial Plan Book

What was really helpful was actually reading the books tagline: A Simple Way to Be Smart About Your Money. As I read through the pages, the one thing I felt very confident about, is that the author delivered on the tagline.

The author says:

My goal in writing this book is to pull the curtain back a bit: to show you how real financial planning works, to give you an experience of what it’s like to work with a real financial advisor. Whether you’re working with an advisor or on your own, this book will help you understand the basic steps for creating a personalized plan that takes into your account your unique values and goals.

One-Page Financial Plan Review

Boy was I pleasantly surprised and never more happy to be wrong! It is evident from my fear that I had no idea how real financial planning works … I mean, they don’t just start talking about stock options? Firstly, I really like the author’s writing style. It is very simple, making the subject matter approachable.

Secondly, he does a great job of walking the reader through the steps of making an individualized  financial plan without making it seem like a rudimentary to-do list. Each step is wrapped in relevant stories and makes sure to delve into the reasoning behind making choices.

In One-Page Financial Plan, the author talks about his own financial missteps, and I really appreciated the humility and openness. And I have to tell you, he does eventually get to the bad ‘i’ word – investments, and it wasn’t painful! I didn’t scratch my eyes out and I didn’t just close the book and figure I’d ignore writing about it in this review.

Just like the rest of the book, what he does share is done in such a way that anyone can understand. It wasn’t bogged down with jargon and really helped me to feel more confident with investments going forward. Also, he doesn’t tell you what to do, but he does give the reader really good guidelines to do what’s best for their unique situation.

One-Page Financial Plan – Takeaways

A couple of things I learned:

1. It is important to know why money is important to me. (And not in a generic way, but to really get to the root of it)

2. I want to make sure my values and my goals align. It’s clear to me know how those bump up against each other in my life.

3. As with everything else … as we’ve always known … discipline is key.

If You Need Some Guidance

A lot of times, in areas like finances, the problem is that we know we need to get to point B but we just need some guidance to get there. For anyone, in any financial state, One-Page Financial Plan will help you to do that. After reading it, I felt like some of the jumbles in my mind got sorted out. I guess that’s what a financial advisor is supposed to be able to do for a client. Mission accomplished.

 

Carl Richards Carl Richards is a CERTIFIED FINANCIAL PLANNER™ and the director of investor education for the BAM ALLIANCE, a community of over 130 independent wealth management firms throughout the United States. He is the creator of the weekly Sketch Guy column in the The NY Times, and a columnist for Morningstar Advisor. Carl has also been featured on Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com.

5 Things To Do With A Windfall

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Even though tax season has come and gone for some, many people are still facing the prospect of getting a lump sum of money in the near future. Events such as graduations, birthdays, and unfortunately, deaths can lead to one getting their hands on a decent amount of money at one time.

Here are 5 great ways to put those windfalls to use…

Pay Off High Interest Debt

I think this one is at the top of my list because we, like many Americans, are dealing with a great deal of debt (just a hair under $90k at our last update).

If your debt carries interest, then it most likely makes sense to use any extra money to pay off debt. That is because you will probably not be able to earn more interest with your money than you are paying in debt. Also, for a number of reasons, having debt is akin to financial bondage, so even if your interest isn’t 30%, it can still weigh you down financially, emotionally, and psychologically.

Pile of Money

Save For Retirement

This is one of the most overlooked areas in finance. Yes, we hear a lot about saving for retirement with various commercials from the big money managers, and as the “baby boomers” generation moves into retirement age, we are constantly hearing about how they failed to save for their retirement.

However, every time I talk to someone younger than 45, they have very little saved for retirement and it’s not even on their radar! So, with this in mind, take the extra money and add it to your IRA, or throw it in the bank and use it to offset your income as you increase your 401k contributions.

Pay Down Your Mortgage

I listed mortgage separately from other debt, because they are usually taken out at much lower interest rates than credit cards, so people don’t consider their mortgage in their list of debts (which is a mistake in my opinion). Anything you can do to pay less interest overall and be in debt for a shorter period of time is a good thing!

Take your windfall and pay down the principal of your mortgage, as long as you don’t have any other debt that is charging a higher interest rate.

Save Money For A Big Expense

Many people are not able to save a large amount of money for certain large expenses such as, a new car, vacation, new computer, or some other big expense that’s expected in the future.

Since this isn’t part of most financial plans, it makes sense to use this extra cash to save for one or more of these expenses.

Build Your Emergency Fund

I have written plenty of times about the importance of an emergency fund. For most people, and emergency fund is a must! If you are out of debt, stash away at least 9 months worth of living expenses in a high-yield savings account (My suggestion is that you open a new Checking or Savings account with Capital One 360 [Full Disclosure: this link contains my referral code]), and don’t touch it unless you have a true emergency.

The purpose behind this account is to prevent the need to using credit cards or taking out other loans when an unexpected, but necessary, expense comes up.

Why You Need Life Insurance Before Investing

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When people begin to invest money, they’re usually hungry for early results. They may approach investing with the conviction of a recent convert, saving and investing as much money as they can, even to the point of neglecting other needs, such as putting life insurance before investing. This is understandable, and quite natural, particularly if you are either young or relatively new to investing.

In spite of your enthusiasm, it is important to make sure that you have a few basics covered before you begin investing. One of those basics is life insurance.

You’re Not Ready To Invest Unless You’ve Covered The Contingencies

Investment advisers and financial planners commonly recommend that before you begin investing you should have a well-stocked emergency fund. That can include anywhere from 3 to 6 months of living expenses. The purpose of the fund is to make sure that you are protected from any income disruptions or large expenses that might force you to tap your investment portfolio ahead of schedule.

The fund enables you to carry on with the business of life, while keeping your investment portfolio protected from early withdrawals.

In essence, what an emergency fund does is cover a contingency – a temporary loss of income, or the unexpected arrival of a big expense or two. A life insurance policy functions similarly as a contingency plan. It creates a basic survival plan for your family or any other dependents that you have in the event of your death. This is a fundamental need, which means you should have adequate life insurance before investing.

Life Insurance Before Investing

Future Wealth Won’t Take Care Of Your Family If You Die Before You Get Rich

There is sometimes a thought that you don’t need life insurance, since your investment portfolio will eventually grow to the point where you will be effectively self-insured. This notion is especially popular among the young, since the prospect of their own death seems so remote.

The problem with this thinking is that it may be many years before you reach the point of being anything close to being self-insured through your investment portfolio. Let’s say that right now you have $10,000 to invest, but you fully expect it to grow to over $100,000 within the next 10 years. Maybe at that point you will be something close to self-insured, but what happens if something happens to you between now and then? What happens if you die when you only have $20,000 in investments?

Future wealth will not protect your family if something were to happen to you today. That’s the whole purpose of life insurance – as a contingency to take care of your family’s financial needs before you have the money that a large portfolio will provide.

The Cost-Benefit Of Life Insurance Is Much Higher Than An Equivalent Investment

One of the biggest advantages of life insurance is that you can quite literally buy six figures in coverage for just a few hundred dollars per year. This is especially true if you are in your 20s or early 30s. You may be able to buy $250,000 in life insurance for just a few hundred dollars per year.

If you are just starting out as an investor, it will take you many years – even decades – to accumulate that much money.

There may sometimes be the thought to keep your expenses as low as possible in order to maximize the amount of money that you have available to invest. If a large life insurance policy is only going to cost you $500 or $1,000 per year, it won’t be taking much away from your investment efforts.

And the benefit that you will have as a result of paying the relatively small premium will be enormous for your family.

Life Insurance Before Investing – Just In Case Your Investment Plans Don’t Quite Turn Out

It’s natural to be optimistic when it comes to investing. In fact, optimism is virtually essential to a new investor. But it is a sad fact that investment plans don’t always turn out the way we want them to, despite our best efforts.

Stock markets crash, individual investments blowup, and sometimes we need to tap investment portfolios early for unexpected reasons. The point is, investing is never a guarantee.

And just in case it doesn’t turn out as well as you hope, your life insurance policy can back you up with a plan to cover your family in the event of your death.

Life Insurance Should Be Seen As A Form Of Investment Diversification

You’re probably well acquainted with the idea of investment diversification. But not all diversification efforts are neatly contained within an individual portfolio. Some of the best forms of diversification you can have will be outside your portfolio. This can include an emergency fund, fixed income investments (like bank assets), and real estate.

But insurance can also be a form of diversification. As discussed above, it is a fail-safe against your death, at least until the time arrives that you have enough money saved and invested that you no longer need to maintain the policy.

If you can think of life insurance as a financial instrument that complements your investment portfolio, having it will seem more logical. And not having it can seem like an exercise in being penny wise, and pound foolish.

If you are an investor, especially a new one, do you have a credible life insurance policy – just in case? If not, then you need to make sure you pick up some life insurance before investing another cent!

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Steps To Build A Brighter Financial Future

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[The following post about the importance of saving for retirement today is brought to you by Genworth.]

Keeping your personal finances in order can be a difficult task. Do not feel like you need to give your hard earned money to any financial professional. This article offers simple solutions that will help you make sure your bank accounts and credit score stay in good financial standing.

To improve your personal finance habits, maintain a target amount that you put each week or month towards your goal. Be sure that your target amount is a quantity you can afford to save on a regular basis. Disciplined saving is what will allow you to save the money for your dream vacation or retirement.

If you have managed your finances well enough to own a home and have a retirement account, don’t jeopardize those by borrowing against them later. If you borrow against your home and can’t repay it, you could lose your home; the same is true for your retirement fund. Borrow against them only in dire situations.

It is never too late to start catching up on your savings and retirement. Everyone is always zoned in on spending everything they make if not more than they make. Get serious, get angry, get real! Start saving money and investing and planning today for what you want for tomorrow.

Fund your retirement account heavily. Make sure that you are at least put in as much as your company will match. More than that is even better. Planning for retirement now will keep you from worrying about it later. You will have a nice nest egg and be able to live comfortably when you reach retirement age.

An IRA is a great way to supplement your employment or other retirement plans. IRA’s are generally not as limited as far as types of investments as 401k plans are. If you have the money available, start an IRA as a supplemental vehicle for retirement on the side. It will greatly benefit your future.

Start saving for retirement. This can seem like a far way off, but every penny you put away for your retirement now is another penny you won’t have to earn when you’re older, less interested in working and less able to work. Start saving now so you can relax later.

Just because the economy is down, do not stop investing money in your 401(K) or other retirement accounts. While it may be a little tempting to stop investing at that time, you have to keep in mind that sometimes, more money is made at the bottom of the market than at the top.

No personal financial plan is complete without a long term goal for future financial security. Developing a program to contribute to a retirement savings plan will provide you with peace of mind and the confidence that you will be able to enjoy life after your retirement. Set a goal and stay with it.

There is no need to be worried about the state of your personal finances. This article offers many easy fixes for any of your money problems so you can take care of things without needing the help of a professional. Once you get your financial records on track, it will be effortless to keep up.