Carl Richards is a certified financial planner, and director of investor education for the BAM alliance, which is a community of over 130 independent wealth management firms throughout the nation. He has been featured on Forbes.com, Oprah.com, Marketplace Money, and served at keynote speaker at many financial planning conferences around the world.
Carl is still like most of us, he has made plenty mistakes with his money, and from those mistakes comes experience. He learned the value of creating not just any plan, but the right plan and making sure you stick to it.
From Richards LinkedIn profile “Driven by a relentless curiosity about investor behavior, I started a research project over 15 years ago, which has grown into the Behavior Gap™. My goal for the Behavior Gap™ is to gain a greater understanding of the factors that contribute to a successful lifetime investment program, and then help as many people as possible apply those factors in their lives. My position as director of investor education of BAM Advisor Services helps further my aim of helping as many people as possible.”
Richards just came out with a new book called “The One-Page Financial Plan”, it proves to be quite helpful indeed.
Let’s take a look at some of the simplest tips he talks about from his book.
1. Ask yourself “why is money important?”
He goes on to talk about what people wanted out of their money, mentioning a ER doctor that money would give her more time to raise a family, so it is always important to create a big picture and focus on a main goal perhaps. “It’s easier to say no to things when you have a much bigger yes,” Richards says. This family is great example, they narrowed down their major goals to, fully funding their retirement accounts, fund kids education accounts every year, and save for a house, that is their one page financial plan.
2. Guess where you want to go
If you try to figure out where you would like to go in life, you can then ask for directions. The key word in the header was “guess” because you cannot fully know where you will be in a 20 or 30 year time lapse. Make a projection, and do not worry about getting it right you can course-correct and make optimizations later.
3. Know your starting point
Figure out how much your net worth it, how much you have in assets and your liabilities. This step can be very humbling, and even downright painful to understand your entire net worth may be short of what you always imagined it was. “It’s just facts, but you’ve got to realize, every single line on that balance sheet tells a story,” he says. This will help you look back at your past mistakes, learn, and make sure you do not make the same ones. Ignorance can be the death of your wallet.
4. Save as much as you reasonably can
“If you do this early work, where you’ve gotten clear with your values, and you have some awareness, then savings is a natural outgrowth of that,” says Richards. He talks about sharing advice when it comes to shopping, and putting items in a cart, and giving it the 72 hour test. Checking back 72 hours and seeing if you still indeed want those items, that will help with those of us with spending problems.
5. Buy insurance-today
People make huge mistakes with life insurance, they put it way off when thinking about buying it. This happens for many reasons, they think their health is good, or it is too late and they let fear take over into purchasing it. “[Life insurance] is about replacing economic loss, not emotional loss,” says Richards, “so if you view it in that cold hard light, you just have to calculate what that loss will be and find the cheapest insurance to do that job.”
6. Pay off debt
“We’re notoriously bad at calculating the cost associated with borrowing,” says Richards. He has a friend who, in college, needed a tent to go camping, so he bought one on his credit card. He guessed that, 10 years later, the interest had ballooned so much that it was equivalent to a down payment on a house. “It was the most expensive tent in history,” says Richards. So long term making sure thing do not get out of control by paying down debt might be the best investment you can make.
7. Hire a solid financial advisor
“You don’t hire a financial adviser because you’re not smart enough to do this yourself,” says Richards. “You hire one because they’re not you.” Having different perspectives can be so valuable, and help you think of new reasons why or why not to invest that you maybe never would have before. You do not want to hire somebody who is a yes man, or always trying to sell you something, but simply challenging your decisions will make a huge impact.
This is by far the hardest tip, because we can all be good and wise for a short period of time, but by making it a lifestyle and a consistent pattern is when things will truly take off and make the large difference. “The portfolio you build matters a lot less than sticking with it,” Richards says. Let your plan blossom, and give it time. “Would you ever plant a tree and then go in every month and dig it up to see how the roots are doing?” he writes. “Investing is one of those cool, rare things where we actually get rewarded for being lazy.”