The One-Page Financial Plan

1. Define Your "Why": Uncover the Real Reason Money Matters to You

"Why is money important to you?"

Identify core values. This simple yet profound question forms the foundation of your financial plan. It helps uncover your deepest motivations and priorities, which should guide all your financial decisions. Often, people discover that their true values differ from what they initially thought.

Dig deeper. Don't settle for surface-level answers like "freedom" or "security." Keep asking "why" until you reach specific, concrete reasons. For example, "freedom" might really mean "having the flexibility to start a family" or "the ability to change careers without financial stress."

Align decisions with values. Once you've identified your core values, use them as a filter for all financial choices. This alignment ensures that your money serves your life goals, rather than the other way around.

2. Embrace Uncertainty: Make Your Best Guesses and Adjust as Needed

"Relax."

Accept imperfection. Financial planning isn't about getting everything exactly right. It's about making educated guesses based on your current knowledge and circumstances, then adjusting as life unfolds.

Make reasonable estimates. When setting goals or projecting future needs:

• Use your best judgment based on current information
• Don't obsess over precision
• Be prepared to revise as your situation changes

Stay flexible. Life is unpredictable. Your financial plan should be adaptable enough to accommodate unexpected changes in your career, family situation, or broader economic conditions.

3. Face Your Financial Reality: Create a Personal Balance Sheet

"Nothing's going to change unless I figure out where I am today."

Confront the facts. Creating a personal balance sheet forces you to honestly assess your current financial situation. This process can be uncomfortable, especially if you've been avoiding financial realities, but it's essential for progress.

List assets and liabilities. On a simple sheet:

• Left side: List all assets (savings, investments, property)
• Right side: List all debts (credit cards, loans, mortgages)
• Calculate net worth by subtracting liabilities from assets

Use as a starting point. Your personal balance sheet provides a clear picture of where you stand financially. This baseline is crucial for setting realistic goals and measuring progress over time.

4. Budget for Awareness: Track Spending to Align with Values

"Budgeting equals awareness."

Shift perspective. Instead of viewing budgeting as restrictive, see it as a tool for awareness. It's about understanding where your money goes so you can align spending with your values and goals.

Track everything. For a set period (at least a month):

• Record every expense, no matter how small
• Use a method that works for you (app, spreadsheet, pen and paper)
• Look for patterns and surprises in your spending

Evaluate alignment. Once you have a clear picture of your spending:

• Compare it to your stated values and goals
• Identify areas where spending doesn't match priorities
• Make adjustments to better reflect what's truly important to you

5. Save Reasonably: Find a Balance Between Present and Future

"I'm saving as much as I reasonably can."

Define "reasonable." There's no one-size-fits-all savings rate. What's reasonable depends on your income, expenses, goals, and values. The key is to save consistently without sacrificing your quality of life today.

Start now, regardless of amount. If you're behind on savings, don't let guilt paralyze you. Begin with whatever you can manage and increase gradually. The habit of saving is more important than the initial amount.

Automate the process. Set up automatic transfers to savings accounts to remove the temptation to spend. This "pay yourself first" approach ensures you're consistently working towards your goals.

6. Invest in Protection: Buy Just Enough Insurance

"Insurance is an expense, not an investment."

Assess true needs. The purpose of life insurance is to replace economic loss, not emotional loss. Determine if anyone depends on you financially and calculate the actual economic impact of your absence.

Choose term insurance. For most people, simple term life insurance is sufficient and most cost-effective. It provides coverage for a specific period without unnecessary bells and whistles.

Avoid over-insuring. Calculate your needs based on:

• Lost income to be replaced
• Debts to be paid off
• Future expenses (e.g., children's education)
• Existing assets and savings

7. Borrow Wisely: Understand Good Debt vs. Bad Debt

"Paying down debt is an investment with a guaranteed return."

Prioritize high-interest debt. Paying off credit card balances or other high-interest loans often provides a better return than many investments. Attack these debts aggressively.

Consider leverage carefully. Some debt, like mortgages or student loans, can be tools for building wealth or increasing earning potential. However, always assess the long-term impact and ensure it aligns with your goals.

Question "good debt" assumptions. Common wisdom about "good debt" (e.g., always take out a mortgage) doesn't apply universally. Evaluate each borrowing decision based on your unique situation and values.

8. Invest Like a Scientist: Diversify, Keep Costs Low, and Accept Risk

"Investing based on the weighty evidence of history seems the most prudent thing we can do."

Follow evidence-based principles:

1. Diversify broadly across asset classes and geographic regions
2. Keep investment costs low (e.g., use index funds)
3. Understand the relationship between risk and potential reward

Avoid speculation. Resist the temptation to pick individual stocks or time the market. These strategies rarely outperform a well-diversified, low-cost portfolio over the long term.

Tailor to your situation. While a 60/40 stock/bond split is a common starting point, adjust based on your:

• Time horizon
• Risk tolerance
• Specific goals

9. Create a One-Page Financial Plan: Simplify Your Strategy

"What if I had to put it all on one page? What's the stuff that really matters?"

Distill to essentials. Your one-page plan should include:

1. Your "why" (core values and motivations)
2. 3-4 most important financial goals
3. Key action steps to achieve those goals

Keep it visible. Place your one-page plan somewhere you'll see it regularly. This constant reminder helps you stay focused on what truly matters amidst day-to-day financial decisions.

Revise as needed. Your one-page plan isn't set in stone. Review and update it periodically as your life circumstances and priorities evolve.

10. Behave for the Long-Term: Stick to Your Plan Despite Market Fluctuations

"The time to prepare for a 'market crisis' is long before you find yourself in one."

Expect volatility. Market ups and downs are normal and inevitable. Prepare yourself emotionally for these fluctuations to avoid panic-driven decisions.

Create an Investment Policy Statement (IPS). Write down your:

• Investment strategy rationale
• Asset allocation targets
• Rules for rebalancing
  Refer to this document during market turmoil to remind yourself of your long-term plan.

Automate good behavior. Set up systems to:

• Regularly contribute to investments
• Rebalance your portfolio annually
• Avoid constantly checking your account balances
  These habits help you stay the course and benefit from long-term market growth.

Last updated: September 9, 2024