The Behavior Gap Financial Plan

“The One Page Financial Plan isn’t about getting things “right.” It’s realizing that you will always get things a little wrong.” – Carl Richards

Carl Richards is one of my favorite finance writers. His message is always clear and easy to understand. He doesn’t try to confuse people or use scare tactics. The drawings he puts together often explain financial topics better than most 1,000-word blog posts. He’s one of the few sane voices in the financial media who tries to help people avoid mistakes from unnecessary complexity.

I first came across Richards when I read a guest post he wrote for Ramit Sethi at I Will Teach You to be Rich. I continued to read his stuff at Behavior Gap and eventually the New York Times. But I have a confession to make — I didn’t get it at first. I remember reading a few of his posts and thinking to myself, “Sure, Carl’s message makes sense for amateur investors and people who don’t have their personal finances in order, but I’m a professional investor. His material and napkin sketches on the emotions that drive money decisions are far too simplistic to apply to me.”

It took me a while, but eventually I came around. The more I read the more I came to see the beauty in simplicity and importance of understanding the behavioral aspects of the decision-making process. I just had to be exposed to the more complex approaches to finance and see what they were really all about before I was able to appreciate the less is more philosophy. I constantly found myself thinking, “Why didn’t I think of that?” after reading his work.

Carl’s first book, Behavior Gapis one of may favorite finance books so I was excited to get my hands on an early copy of his latest book, The One Page Financial PlanThere’s something for everyone in it. The book covers the entire financial ecosystem — spending, budgeting, debt, saving, investing, insurance and the many other aspects of financial planning — all within the context of understanding how your emotions impact financial decisions. Plus, his signature sketches are used to provide context throughout.

Instead of offering cookie-cutter solutions, he prods with questions to offer the correct perspective. It’s filled with examples from financial advisor clients and friends he’s worked with over the years. I found each of these stories useful because they illustrate how different everyone’s circumstances are, but how similar the process can be to figure out what works for your own situation.

Some finance books set out to make you feel bad about yourself for making poor decisions. Here’s what Richards has to say about this:

Irrational decisions and bad calls about money aren’t “failures”; they’re just what happens when emotional creatures have to make decisions about the future with limited information.

One of the reasons so many people run into trouble is because they feel the need to achieve a perfect plan instead of utilizing a good one. Richards provides a nice perspective on this idea:

All that matters is that it reminds you of your goals and values and why you’ve chosen the plan you have.

There are much sexier topics in the world of finance than creating a comprehensive financial plan, but few are more important. Any legitimate financial plan should address the many ways in which money decisions affect your life. This book does a great job describing what they are.

Be sure to check out Carl’s book which comes out this Tuesday:
The One Page Financial Plan

Further Reading:
Lessons From The Behavior Gap



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Discussions found on the web
  1. Robb Engen commented on Mar 29

    I enjoyed the book as well – especially his brutally honest confessions about getting caught up in the dot-com and real estate bubbles. Financial advisors and experts are human, too, and succumb to emotions just like the rest of us. It was refreshing to read that, and I think that helps reinforce why the softer side of money (emotions and behaviour) is so important.

    • Ben commented on Mar 29

      Good point on the honesty part. I think one of the reasons so many people have a hard time when things turn south is that far too many people inthis industry try to portrait themselves as being infallible. Most of the best financial professionals are the ones willing to learn from their own mistakes and the mistakes of others.

  2. Roadmap2Retire commented on Mar 29

    I just finished reading the Behavior Gap last week. Really enjoyed it..should be posting my review in the next couple of days.

    Thanks for sharing

    • Ben commented on Mar 29

      Great book. If you liked that one you’ll definately like the new one. I think it really expands on many of the ideas really well.

  3. Larry smith commented on Mar 30

    Great article. Every investor should read this.