Author Carl Richards simplifies financial plans


Q&A with author Carl Richards
Author Carl Richards simplifies financial plans

What would you think if you went to the doctor, and without checking your symptoms or asking you any questions, the doctor wrote you a prescription?

Certified financial planner and author Carl Richards thinks that makes as much sense as the way a lot of financial advice is delivered. The experts try to cure your financial ills without ever making a diagnosis.

The other problem is financial advice is that it's too complex. An adviser creates a detailed plan, which you may put away and never look at again. The way Richards sees it, the traditional financial services industry often uses complexity as a selling tool. It's as if they dig a hole, throw the client in and say, "I'm the only one with a rope."

In his second book, "The One-Page Financial Plan: A Simple Way to Be Smart About Your Money," Richards strip the coats of complexity off financial planning. His tool of choice: a Sharpie pen. It's hard to get bogged down in details when you're writing with a Sharpie, his go-to tool for illustrating complicated financial concepts. Richards wields that tool in his weekly Sketch Guy column for The New York Times, and incorporated his pen-on-cocktail-napkin drawings into his first book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money." The Park City, Utah, resident is also a columnist for the Morningstar Advisor, a publication for investment advisers. talked with Richards to find out how his one-page plan works, and why.

Carl Richards, author of 'The One-Page Financial Plan'

Carl Richards, author and certified financial planner, urges people to gain such clarity on their financial goals that they can be condensed onto a single page. His book, "The One-Page Financial Plan," was released March 31, 2015.

Q: What do you think is missing with a lot of financial advice out there?

A: It's not advice. It's selling stuff. The financial advice on TV is a circus. We need to understand the difference between something meant to entertain and something useful.

Writing prescriptions without ever having a chance to diagnose doesn't work very well. Giving advice to a wide audience doesn't give you a chance to diagnose.

Q: What's the first question you ask, and why are people so surprised by it?

A: I ask, "Why is money so important to you?" The question is purposely designed to give people the opportunity to explore. It's designed to start a conversation about our underlying set of values, about why we're doing things. People are not used to talking about money in a way that relates to values and emotions.

Q: Have you had any interesting or unexpected responses?

A: Almost every response is interesting. It's not just one question that you ask. I keep pushing until I get to the heart of the matter. I ask, "Is that the most important thing about money to you?" The answer may be serving in my community or spending time with my children or taking care of my parents. It's been interesting to watch the people answer the question and they're surprised at their own answers.

Q: How specific does the answer to the big question need to be?

A: Richards: The actual financial goal, the numbers, can be blurry. Values are a broader statement of purpose. I've heard people say things like, "I really don't want to worry like I watched my parents do."

That's a pretty specific value. We ask again, "Is there anything more important?" and they say, "No that's the most important thing."

Q: How does your "Sharpie on a napkin" approach help change the way people think about money?

A: I've been surprised by the response to the idea of writing with a Sharpie pen on a small napkin. It's an indication that people just want this to be simpler. This way, they say they get it. This is visual, and it's simple and approachable in an area that's normally complex.

For most of us, we're going to have limited resources and unlimited desires. That's going to require us to make some trade-offs. We're going to have to say no to some things, learn to 'lean in' to that. The more we accept that, the more content we can be.

Q: You don't tell clients they can have it all. You expect everyone to deal with some disappointment in their lives. Why can't we have it all?

A: I think disappointment is the difference between our expectations and reality. If instead of being continually focused on our expectation and instead focus on reality, that doesn't mean we have to give up on our dreams or not have high expectations. It just means we don't have to be attached to some outcome that may be out of our control.

For most of us, we're going to have limited resources and unlimited desires. That's going to require us to make some trade-offs. We're going to have to say no to some things, learn to "lean in" to that. The more we accept that, the more content we can be.

Q: Can you give us an example of letting go of outcome-based goals and living the lives we want right now?

A: It's a continual trade-off, saving for something we may need in the future, and spending on something now.  

Life isn't just about retirement. It's an outdated paradigm -- the idea that you work until you're 55 and died at 68. Now we want to retire at 60 and live to be 95. That's insane.

I see people now who are saying they may never retire. Instead, they want freedom to do work that's more important to them. Maybe one is an emergency room doctor, and at age 50 he may go back to a medical school and teach. Maybe another client runs a landscaping company and it's stressful, but at age 52 he wants to open his own nursery and help people pick out plants. You can think that way -- that you're going to actually work and be productive. I know a lot of very unhappy and demotivated retired people who have nothing to do.

Q: What's the difference between working toward goals and worrying about things we can't control?

A: It's hard. If we can learn to recognize the difference, of things that just aren't in our control. What is within my control is what I do every day. It helps to break things down into smaller steps.

For example, I'd like freedom to travel. My one page plan would probably say I want to travel more. What can I do today to move in that direction? Now I could say what could I do today, can I save $200? No, how about $100? Oh, I can save $50. So I set up an automatic savings plan for $50, instead of just saying I really want to travel more or worrying about it.

Q: How can paying off your credit card debt be the best investment you'll ever make?

A spending cleanse heightens awareness. It's like if you've ever been on a juice cleanse, the first bite of real food is super intense. It's healthy to recalibrate your spending by taking a complete break.

A: Say you have a $5,000 credit card balance and your interest rate is 14 percent. You also have $5,000 in your bank account earning exactly zero or .2 percent interest. Which would you pick, paying 14 percent interest or earning .2 percent? If you have consumer debt, the best thing you can do financially is to pay that down. You're effectively earning the interest rate you would be paying.

Q: You're not afraid to use the "budget" word. In fact, you say everyone should track all their spending, at least temporarily. Do people ask you how much they should spend on each category, and what do you tell them?

A: We all want somebody from the outside to give us guidance or permission. It really comes down to you and a personal decision. Rules of thumb if anything are just a good starting point. It comes down to how your spending lines up with what you said was important.

Q: What's a "spending cleanse"?

A: It's a period of time, from a couple of days to a couple of weeks, during which you spend no unnecessary money. Some of my friends do it a couple of weeks a year.

You really push on the idea of what is unnecessary. You get very creative. You go to the grocery store on Monday and get everything, and then you spend a week without spending any money. No eating out at work, no entertainment.

A spending cleanse heightens awareness. It's like if you've ever been on a juice cleanse, the first bite of real food is super intense. It's healthy to recalibrate your spending by taking a complete break.

Q: You spend relatively little time talking about specific investments. Why is that?

A: Investments -- they're so far down on the list. Buy an index fund. People have been really interested in the concept of personal values instead of focusing on individual investments.

Q: Any final advice?

A: Don't give up. That's the one piece for people to remember. We need to have conversations about money. If we want a different result, we have to do something different. At first, trying some of the things in the book will be very awkward. Remember that it's a process. It will come.

See related: How to save $1,000 a month, Eldar Shafir: Money worries lead to poor financial decisions

Published: August 27, 2015

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Updated: 10-26-2016

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