The one page financial plan

Book Review: “The One-Page Financial Plan” by Carl Richards

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Summary

“Why is money important to you?” If your answer is “freedom”, then you need to spend more time thinking about the meaning of money and freedom, according to author Carl Richards. He’s a financial advisor and he starts his consultation with new clients by asking them this very question. Like so many personal finance books out there, The One-Page Financial Plan spends significantly more time focusing on the “psychology of money”, rather than the “how-to” steps. While understanding your life values is important, the book spends too much time focusing on this topic. Anyone who has read more than a couple of books about money will likely find this section slow and of little practical use. Roughly the first half of the book deals with psychology (the why’s of money and setting up goals). The second half goes into more practical information, such as spending and saving money. It’s not until the last few chapters of the book that the topic of investing is finally addressed. This section should probably have made up the bulk of the book. Instead, the “psychology of money” was emphasized all throughout. At the end of the book, readers are encouraged to hire a “real” financial advisor to help them avoid making the “big mistake” (i.e. buying high or selling low). The author provides some good tips on what to look out for in a financial advisor (conflict of interest, fees, commissions, etc.).

Pros

The book helps readers determine their assets and liabilities (which most people fail to ever compile on paper, much less keep track of over time). It also provides good tips on budgeting, spending and paying off debt. The “72-hour test” (which consists of waiting 72 hours before making a purchase online) can be especially useful for individuals who struggle with impulse purchases. The paying off of debt is also heavily emphasized throughout the book.

When making a financial plan, some people become overwhelmed when trying to figure out exact numbers for their financial projections and needs. The author encourages readers to make “guesses” when initially putting their financial plan together. This can be a useful approach, especially for people who keep putting off creating a financial plan. Eventually, of course, we need to come up with more accurate numbers but this method can help people come up with a “quick and dirty” financial plan. The author’s point is that a “simple” one-page plan is better than no plan at all.

Cons

The section on how much to save tells readers to save what they “reasonably can”, rather than suggesting a specific percentage or amount. While it is certainly better to save something rather than nothing, aiming for a “reasonable” amount could lead some readers to not save enough. Many people have no idea how large of a nest egg they’ll need to retire, much less how much they need to save monthly or bi-weekly in order to reach that amount. While it’s true that some people simply don’t make enough to be able to save any significant amount of money, many people are capable of saving a larger percentage of their pay if and when they make it a priority. Unless you win the lottery, the number one factor that will determine how soon you will be financially independent is the percentage of your salary that you save.

Another negative is the fact that the book provides too many examples from the author’s client base -complete with dialog- which makes the book slow to read. Many of the examples of client interaction could have been omitted. The book also focuses too much on the “psychology of money”, rather than practical information. Finally, the last quarter of the book should have been expanded to make up most of the book.

How practical is the information in the book? 

Inveduco rating: B-

The section on investing provides a couple of sample portfolios which could be implemented by anyone. That is if the reader ever manages to get to the final section of the book. Unfortunately, the first half of the book is rather slow, repetitive, and provides little practical information. Readers who are familiar with basic budgeting could easily skip the first five chapters in the book and jump straight into the investing part.

How sound is the advice in the book? 

Inveduco rating: B+

We agree with most of the financial advice in the book. Readers should be aware that a lot of the advice is very conservative and aimed towards beginners. For example, the “default portfolio” suggested in chapter  8 consists in investing 60% of one’s portfolio in stocks and 40% in bonds might not be appropriate for younger investors, unless they are extremely risk-averse. Also, the section on saving however much you “reasonably can” is of questionable value for some readers, as noted above.

Does the book live up to its claims?

Inveduco rating: B-

By the end of the book, readers should have a one-page financial plan. However, the plan is partially made up of guesses which, as we noted above, can be useful but prudent investors will likely want to refine their numbers. Readers are still advised to hire a fee-only financial advisor who will likely want to create a financial plan for them. This suggestion makes us wonder why readers should come up with a financial plan if they are going to hire an advisor anyhow.

Overall Rating

Inveduco rating: B-

Readers who are new to investing will learn the basics of budgeting, saving, and investing. People with large amounts of debt (especially high-interest debt, such as credit cards) will benefit from the discussions on paying off debt. This book could also facilitate money-related discussions for couples who are not clear on each other’s financial goals. As for people familiar with the basics of investing, they can probably skip this book.

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