A 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
We had the opportunity to interview Carl Richards on an episode of The Crossroads a few months ago and my beliefs around money have been evolving ever since.
His approach to money is different than most financial professionals and this is an example of his version of a one-page financial plan:
On the surface it may seem bare but at the core, our approach to money should be this simple.
I believe your values and financial goals should be listed out and easily referred back to, but because I wouldn't feel confident providing a client a financial plan with 5 bullet points and no action items, I built my own version of a one-page financial plan:
It focuses more on the specific actions that need to be taken to ensure financial well-being and of course, each task will vary depending on your situation, but you can grab a copy of the blank template here:
To create a full, accurate financial plan, you need to have a good understanding of money and how the different areas of your financial life play together.
For example, the kind of health insurance you have will determine your eligibility to open and fund a Health Savings Account (HSA), which can be used to reduce your taxable income.
Financial planning is much more than picking stocks and investing - it's an evolving process who's goal is to continuously align your money with your goals and values.
For example, you may have a current goal of traveling the country before you settle down with a family. But over time your goals will most likely transition into buying a home, saving for education, and prioritizing retirement savings.
Money management will change a lot during those periods and a financial plan keeps everything aligned and on track.
A lot of people don't like worrying about the math and the financial side of things. They'd rather focus on living their life and have peace of mind knowing that it's being done right, which is why they hire a financial planner to take care of these things.
But not everyone works with a financial planner so we're going to briefly walk through how to think about creating your own one-page financial plan:
If you want to do something long enough to see progress, you need to find a deeper meaning than surface-level goals. You need to determine why money is important to you and what your true values are.
This is listed as the first step, but it's probably the most challenging and it's always a work in progress.
As Nick Maguilli said in a recent podcast, "your financial life is a journey about finding yourself".
For example, you may value family and flexibility. Your financial actions should then map to creating flexibility (which could include investing in a taxable account more than a retirement account) and spending time with family (which could include saying no to a $40,000 promotion because it'd require 3 days of travel per week).
Spend some time on this step and frequently revisit it, your values will most likely change as you go through this exercise more and more.
Also read: Finding Your "Why" For Setting Financial Goals
After you've defined what's important to you, it's time to start setting tangible goals. In this phase, dream big. Don't place financial limits on your goals yet because from what I've seen firsthand, a lot of people underestimate what's possible financially.
Some goals may include starting a business, buying your parents a home, buying your own home, taking the family on a month-long vacation, or not looking at the price of food at the grocery store. Whatever your goals are, they're unique to you and only you can figure out what you want to accomplish in life.
In a few steps, we'll begin to prioritize those goals so that progress can be made.
If you don't know your net worth, I recommend calculating it manually by adding up your assets (bank accounts, investments, etc) and your liabilities (student loans, credit card debt, etc) and then subtracting liabilities from assets OR by using an app, such as Truebill or Personal Capital.
After you figure out your net worth, track it.
Write it down in a notebook or keep track of it within an app, but update it quarterly or annually so that you can see your progress over time.
Before taking any actionable steps, you need to have an understanding of where your money is going each month.
A few numbers to know:
My favorite tool to use is Truebill and I wrote a review of the app a few weeks ago, but the most important thing to focus on is spending less than you make. If you're spending more than you make, you can begin taking steps to reduce spending or increase your income.
By taking the time to go through your monthly income and spending, you can then determine if your spending is aligned with your previously defined goals and values.
✅ An action item in your plan may be as simple as "create a Truebill account and link bank accounts". Then the next step could be "review last 2 months of spending and choose one category to cut back $100"
Once you have an understanding of your cash flow, you can then set a savings rate, which is the percentage of your income that you're able to set aside each month.
Your savings should generally belong in three different areas:
A general recommendation is to aim for a 15-20% savings rate which means if you make $5,000 per month, you should aim to save about $1,000/month and allocate those dollars towards whichever of those three areas is a priority for you.
This is where you'll also begin to prioritize your savings goals. It would be difficult to save for several things at the same time and make good progress so to get the most mileage out of your money, define your most important goals, begin saving towards them, and adjust & reprioritize over time.
✅ An action item within your financial plan may be "set an automated $500 monthly transfer to high-yield savings account to begin building $10,000 cash reserve"
If you have any form of debt, you need to have a pay off plan.
I typically recommend paying down the highest interest rate debts first (7%+) as you'll save yourself the most amount of money, and then moving your focus to the lower interest rate debts after the others are paid off.
✅ An action item within your financial plan may be "pay off all credit card debt in 6 months with surplus from monthly cash flow"
A not-so-flashy, yet very important, part of financial planning is risk management. You want to have enough insurance that you're financially protected, but you don't want to have so much insurance that you're wasting money. Some of the most common types of insurance young professionals should have:
✅ An action item may be "get additional long term disability coverage to fill the gap from employer-provided disability insurance"
No matter your goals or values, some form of investing will need to take place. Investing allows your money to grow over time so that one day, you can use the income generated from your investments to fund your lifestyle rather than needing to earn income from a job.
The nice thing about long term investing is that once you get an account set up and build your portfolio, it's a fairly hands-off experience. You contribute money to the account, it gets invested, and you let the stock market do its thing over time.
Of course, there are more tactical strategies and things to be done when managing investments but at the core, long term investing should be a passive activity.
The goal of tax planning is to reduce the amount of taxes you pay over your lifetime. This is different than tax prep & filing, which is what happens each April. Tax planning takes into account your overall financial picture and there are many, many strategies that can be used to reduce your lifetime tax bill.
Whether it be funding certain investment accounts, using certain deductions, or selling off certain assets, tax planning is a highly personal, very detailed process that involves many moving parts. I recommend working with an advisor or CPA so that you have accurate and appropriate action items.
Estate planning isn't fun, but it's a necessity. It's believed that you need to be old or ultra-wealthy to have an estate plan, but this couldn't be farther from the truth. Some basic pieces of an estate plan include:
✅ An action item may be "create a living will within the next 6 months. Review beneficiaries on insurance policies, investment accounts, and estate documents annually"
We walked through a lot of information and unfortunately, we only scratched the surface. Financial planning takes into account every aspect of your life and everyone's situation is unique which is why having a custom financial plan is so important.
Whether you decide to create your own or work with a financial planner, you need to have one so that you can make the best financial decisions for yourself.
Your future self will thank you.