How to create a one page financial plan

Long time readers of this blog know that I am an advocate for the ongoing financial planning process. I believe that the role of financial planner is more than creating a product for you – it includes understanding what is important to you, keeping you accountable, and helping you adjust as things change around and within.

But what if you are on your own to work out what to do with your finances without professional help? What can you do to make sure your financial life is organized with a purpose? How can you create a financial plan to help keep you on track to meet your goals? As globetrotters, our constant transitions already add a fair amount of complexity in our lives. How can we account for our ever-changing circumstances and still keep it simple?

I first heard about the idea of the “one page financial plan” from Carl Richards, a New York Times columnist and financial planner who wrote a book with the same title. It immediately resonated with me. It’s about going back to the root of what is important to you and how to make sure it is reflected in your finances. When all is said and done, the essential things should be simple and able to fit on the back of a napkin.

Taking this concept one step forward, I designed my own one page financial plan and adapted it for our globetrotting life style. Drawing some of the main principles from Carl’s book and my own comprehensive financial planning process, I summarized and incorporated all the major steps you need to go through to put your financial plan in writing, and the best of all – they all fit on one US letter size page! The finished product is an overview of your financial life and efforts, no matter where you are and what life stage you are in.

You can put the one page on the fridge door or your bedroom mirror. It serves as a visual reminder of why you live the way you do (your goals), and what you are (and are not) doing to reach your goals. It is also a document that requires you to update it over time as your life evolves. But whatever circumstances you are in, you will have a simple document to guide your efforts.

Before I go into detail on each section of the plan and how to create your own plan, I’d like to mention what this one page financial plan does not do. It doesn’t tell you what you are doing is right or enough to meet your goals. This is where all the expertise and knowledge of a financial planner comes in. My job as a planner is to make sure what you plan to do can indeed accomplish your goals. You can definitely do your own research and analysis (hurray Internet!); otherwise, you may want to consult a professional to make sure your plan makes sense.

Here’s how to create a one page financial plan using my template. (Instruction to receive the link to download the template and an example is at the end of this article.)

Mission Statement

Your mission is an overarching statement that dictates what you wish to accomplish in this life. Companies are created with a purpose to serve a particular need, and that purpose is usually clearly stated in the mission statement. For people, it is usually about the one thing that is most important to you. It can be family, doing good for the world, or adventure. Only you know what it is.

And this is where you will encounter the first obstacle – what if my spouse and I have different ideas? That is a great question. I would encourage you to not even attempt to start a financial plan until you have a good understanding of each other’s mission in life and can agree on one that you can both live for. We all have our differences and it’s not practical to expect that your spouse has the exact same outlook on life as you. However, in order to plan as a unit, you need to at least agree on one essential thing you can both stand behind and organize your financial lives around it.

This is exactly the reason why your financial plan starts with your aspirations for life rather than numbers. Financial planning really is about life planning. If you and your spouse cannot agree on how to live your life together, get that sorted out first before you talk about money. We all have different views and emotions associated with our finances. If you have at least one common mission that is developed before money is put in the picture, it helps you to refocus every time money becomes the point of contention in your relationship.

Just remember it’s normal that this step takes a while and you may need a third party to help you arrive at the common vision.

Your Goals

Once you develop a theme for your life, it’s time to come up with a set of goals that allows you to live your life to the mission. I recommend that you start with three: one in the next 1-5 years, the other 5-10 years, and another beyond 10 years. This helps you cover the short, mid, and long-term planning.

I encourage you to be very specific about the goals. Even if you are not sure how things are going to play out, or even what type of life you want to live in the long-term, try to imagine a scenario that you’d like to have, and describe it in as much detail as you can. If your goal is vague, it is likely you cannot develop a strategy to tackle it, and therefore will never meet that goal. The more concrete your goal is, the more likely you can do something to get closer to it.

For example, instead of saying, “We want to travel a lot”, pinpoint “We want to be able to travel to a new country once a year with a budget of $5,000.” Make yourself put down “when, where, how much” before worrying whether you can actually do it. (That comes later.) Allow yourself to dream. You may realize the lifestyle you are currently living isn’t what either of you is hoping for, so your first goal should be shifting to an existence that satisfies both of you.

Of course, you and your spouse may not fully agree in the beginning. This is yet another step that takes a lot of discussion and listening. There will likely be certain things that one spouse wants but not the other. If this is the first time you are doing the planning, start with common goals that are important to both of you. As time goes on and you cover the common goals, you can expand to other goals that may only benefit one party. But since you are in a committed relationship, I hope that whatever makes your other half happy would make your relationship stronger and make you happy, too!

Income / Expenses

This is equivalent to what you’d traditionally think of as “budget”, but with a slight twist. One financial reality for globetrotters is that income and expenses fluctuate as we move from country to country. The same challenges apply when one of the spouses has income that goes up and down a lot, or when one spouse temporarily stays home to care for dependent. To account for these changes, I categorized income in two buckets – Fixed Income and Variable Income, and the same for expenses – Must Have and Good to Have.

The idea is that you must fit all your “Must Haves” in Fixed Income. If you are able to do so, even when your Variable Income dries up, you can at least make sure all the basic current and future needs are met. The beauty of this system is that you define what is fixed vs. variable, and what expense is a must or not. Only you know what income source you can truly count on wherever you go, and what needs you can’t go without.

I also encourage you to put basic saving for your goals in the Must Have category, unless you don’t mind not meeting your goals. If that’s the case, I’m not sure why you put them down as goals in the first place.

For some, you may have a relatively large Fixed Income that can cover all of your needs and wants. It’s also possible that most of your income fluctuates greatly so you need to assign Variable Income to meet your Must Haves. Whatever the case, this table allows you to have a clear picture of your surplus or deficit and the risk of depending on certain income sources.

Lastly, note that these numbers should all be post-tax numbers. If you are an employee of a US employer and have a well-estimated W-4 withholding, you should be able to simply aggregate the amount you actually receive from each paycheck, taking into account the other deductions. Otherwise, you should have a reasonable expectation of what your post tax income would be before you attempt the budget.

Saving for Goals

This section helps you tie back all of your assets, liabilities, savings and investments to your goals. For every account you own and investment you make, you need to be able to assign it to at least one goal. Even if you are just saving for the sake of it, that should be linked to the goal of your long-term financial independence or eventual retirement, whatever that may look like for you. Ideally, you are working towards the goals that you’ve identified in the previous section. Otherwise, there is a mismatch between what you want to achieve and what you are actually doing.

While you can definitely lump all of your savings for various goals within one account or even one investment, I personally prefer to separate them so I can make proper investment decisions and measure my progress. This is the essence of goal-based planning – every financial action has a purpose to help you live the life you want as identified previously.

In addition to simply listing the accounts, the table allows you to enter the latest balance and your savings / withdraw plan into each account. (Put negative numbers in Regular Contribution if you are already retired and drawing down assets.) You can also detail your asset allocation for each account. (You may need to have some basic understanding of investments to utilize this column.) Overall, the table helps you organize all of your financial accounts, both assets and liabilities, and gives you a snap shot of your financial situation versus your goals. If you add up the current balance of all the rows, it gives you your net worth.

Once again, while this section really helps you organize, it doesn’t tell you whether what you are saving or how you are investing will meet your goal in the end. You will need to do your own research and calculation, or work with a financial planner who can do all the analysis for you.

What if…?

Now we have a plan, everything is going to play out the way we want, right? Unfortunately, there are many things that are out of our control and prediction. Tomorrow we might get into a serious accident, find out we have an untreatable disease, or our spouse is not who we thought he/she is. All of these have serious repercussions on our finances and our plan going forward.

While we can’t prevent bad things from happening, we do have a degree of control by recognizing the possibility of these events and thinking about what we would do in these circumstances. This is not to make you fret, but to empower you to have proper coverage of these risks in advance.

The best example is that we don’t know when we may die, but we also know people die prematurely in this world every single day. If something happens to you or your spouse, is he/she able to survive and take care of your children? Do they have other family support? What might their short-term and long-term living situation look like without your income? What financial goals do you want them to be able to meet without your contribution? Thinking about this allows you to estimate what kind of life insurance coverage might be appropriate.

In addition to death, there are many other risks with financial implication that you may want to address, such as disability and divorce. Some other situations that globetrotters may face include evacuation, medical emergencies, and property loss during transportation. This section is open-ended and allows you to draw down any precaution or coverage that you have in place, and the things yet to be done. So, when the disaster does strike, you already have a plan in place that will prevent it from jeopardizing your financial well being in the long run.

With all this information, it is probable that your one page financial plan will spill into the second page. Don’t let it deter you. I’ve put together an example that fits in one page, if you don’t believe it can be done. But one page is not the point. The benefit of this plan lies in the fact it summarizes all of your financial actions in one place, so you can always refer back to it. If you ever decide to engage a financial planner, this document will enable him/her to understand your goals and current financial situation in one glance.

Sign up in the form below if you wish to get a copy of the worksheet in Word file and a filled in example of the plan. You will receive a link to download the files after you complete the subscription process. I hope this is of help to those of you who are DIYers. Let me know if you have any feedback.