Today, I have the privilege of interviewing one of my favorite financial writers in the world, and we talk about creating a financial plan that aligns with your values.
Carl’s common sense advice coupled with kick-ass sketches make complex financial concepts easy to understand, and have been instrumental in shaping my own approach towards money.
The interview is rather lengthy, so we’re going to jump right in. Here goes:
Carl, your new book The One-Page Financial Plan just came out, how does it complement The Behavior Gap?
That’s a really good question. The Behavior Gap was really focused on investment behavior, while the goal of my new book is to give people the tools they can use to focus on their whole financial plan.
If you don’t mind backtracking a little, what led you to originally write The Behavior Gap? Did you anticipate that it would become such a powerful tool for people wanting to improve their finances and investing performance?
I was watching myself, and others – my friends, family, clients – make the same money mistakes over and over again. The underlying issue seemed to be how emotion and behavior play just as big a role as spreadsheets and calculators.
I deeply care about these issues, so my hope was that The Behavior Gap would have a big impact on the world, or at least a small impact on a few people! I’ve been flattered by the reception of both books, and feel grateful I’m able to make people’s lives better.
Was there an instigating event that led to writing The One-Page Financial Plan?
I noticed that me and my wife – who has a degree in finance – would get into these conversations around money where she’d say, “Hey, I feel like we’ve had this conversation before”, and I realized we’d spent the mental energy making a decision once, so why were we spending it again?
So we pulled out a piece of card stock and a sharpie, and wrote down what we decided.
A couple months later a similar money conversation came up, and she said, “Whoa, I know we’ve talked about this before. Pull out that piece of paper!”
It’s surprising how quickly we forget what we decided was important to us, but how easy it is to remind ourselves with a simple piece of paper. That’s where the idea for the book came from.
Most people don’t define their values first (“I want to spend time with my kids”, “I want to travel while I’m young”) and then link them to financial goals. Why is this?
It’s hard work, especially emotionally, and we don’t have the tools, which is one of the reasons why I wrote the book. There isn’t much out there that teaches us how to have conversations about money, how to work through financial conflicts when they come up, and how to align what’s important to us with how we’re actually using our time and money.
How do you think the younger generations can become better with defining their values, and then aligning them with their money?
We can model good behavior at home, and teach our kids how to work through the trade-offs. For example, instead of saying, “We can’t afford that”, which sends a message about insecurity and scarcity, we can say, “Hey, remember we sat down as a family and chose to spend our money in a different way.” We struggle with this in our own home, but we’re trying to do a better job.
In the book you implemented a 72-hour cooling-off period to control impulse buying from Amazon, what other tactics do you use to support the alignment of your financial goals with your values? Anything quirky?
Anything you can do on a regular basis to remind yourself of what is important to you will help you avoid bad behavior.
For example, I signed up to get a text message every time I use my credit card, and commit to reading those text messages before I delete them. It’s amazing – if I swipe my card at lunch, by the time I reach for my wallet to put my card back in I already have the text. I’m not necessarily spending less or more, but I’m more aware of how I’m spending money which makes me stop and think about my behavior.
On the quirky side, a spending cleanse is pretty fun – three days without spending a dollar. You need to do some preparation beforehand with groceries, and to figure out how to get to work because you have to walk or bike, but when you finish you’ll be much more aware of every dollar leaving your wallet.
What tools or resources do you recommend as part of implementing a framework to track spending and financial goals?
It’s important that you don’t get hung up on these things, just take action. You Need a Budget is an amazing budgeting program, but whatever works for you is what I recommend. You can even use 3×5 index cards and a pen.
At what point can someone who has a financial plan and framework in place call themselves successful?
Man, I guess when they die? Financial planning is a life-long process of aligning your money and actions with what you said was important to you, your values.
When you start, these things might not be aligned at all, but by committing to the process they’ll slowly start to overlap. There’s no definitive event for success, it’s ensuring continuous alignment.
What led you to get involved with wealth management firm the BAM ALLIANCE?
Real financial advisors have figured out that putting the client’s interests ahead of their own is the best business strategy on earth. Sure, maybe they sacrifice a small profit in the short-run, but they develop a really successful business in the long-run.
I wanted to find a great group of independent financial advisors I’d be comfortable sending my best friends or my mother to, and the BAM ALLIANCE fit that.
What do you think will be the future of financial planning?
It will increasingly be focused on the human element of helping people align their money with their values. Today, everything that’s not uniquely human is getting commoditized, a perfect example is building a portfolio with Betterment.
I’m excited about this shift because it frees up the real financial advisors to focus on the relationship, and to make sure that that portfolio is the right one for the client given their goals and values. And then most importantly, behaving over the next 25 to 30 years.