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Carl Richards: How to create a one-page financial plan

You may know certified financial planner Carl Richards simply as the “napkin guy,” thanks to the popular New York Times column that features his no-nonsense financial tips illustrated on cocktail napkins. 

Richards, who lives in Park City, Utah and is also the director of investor education at the BAM Alliance, has a distinctive modus operandi: radically simplifying the laborious financial questions that often stump the average person. His latest effort to demystify the mysteries of personal finance is new book, released March 31, called the “The One-Page Financial Plan: A Simple Way To Be Smart About Your Money.”

For a book about a one-page plan, it’s pretty hefty, clocking in at 208 pages. After reading it, what becomes immediately clear is that putting together a basic financial plan is not the hard part. Richards dedicates most of the book to coaching readers on how, once the ink on our new plan has dried, we can stop ourselves from screwing it up.

We recently spoke with Richards to discuss his book. Here are some highlights from our chat:


Source: Carl Richards

What goes into a one-page financial plan?

The point of a one-page financial plan is to act as a constant reminder of your personal values and financial goals, Richards says. It’s the type of document that we should refer to every time we’re about to make a major financial decision, whether it’s buying a house or taking a new job.

At the top of your plan, answer this question: “Why is money really important to me (or us)?”

Next, list three specific things you need to do to reach that goal. For example, Richards and his wife’s answer to the money question was “Time with family doing things we love.” To get there, they added three specific goals: saving up for a house, funding their kids’ education savings account each year, and fully funding all of their retirement accounts each year.

“Think about your one-page plan as a snapshot, not an instruction book,” he says. “[It’s] about getting really clear about what you want so that you won’t be so swayed by your neighbor's new car or ads for that fancy new smartphone...those ‘American dream’ promises that might have nothing to do with what’s most important to you.”

Go on a spending cleanse to recalibrate your finances

No, this isn’t Richards’ take on the juicing trend. He suggests everyone should carve out a few days every few months to leave their wallets at home and not spend a dime.

'What’s cool about this is this awareness of how you’re spending money tends to increase and it just acts as a way to recalibrate,” he says. “If you’ve ever fasted or been through a juice cleanse, the first time you eat afterwards, the experience is different. Your awareness is heightened and that's all we’re trying to accomplish with this spending cleanse.”

Use the ‘72-hour test’ to curb impulse spending

Richards found himself wasting tons of cash on mindless Amazon.com purchases. So he imposed a new rule  — put items in the online shopping cart and let them sit for at least a few days to see if you still want them.

“I think you’ll be surprised,” he says. “The things you end up will be things you actually needed or wanted and the things you forget about were the things you never needed in the first place.”

The two questions every investor should ask their financial planner

 It’s easy to spot a financial planner who doesn’t have your best interests at heart, Richard says. “If you’re getting someone who’s immediately trying to sell you a product, you’re probably in the wrong spot.”

The reality of financial services today is that many financial planners make commissions from products they sell customers, which could sway their advice. To get an idea of whether you’re dealing with someone who will base his or her choices on your needs, Richards recommends asking them two simple questions: 1) How much am I paying you for this advice? and 2) How are you being compensated for the advice you give me?

Have a personal finance question for us? E-mail us at yfmoneymailbag@yahoo.com or Tweet us @YahooFinance.

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