The One-Page Financial Plan.
Hey, it's Anthony.
Today let's talk about the one-page financial plan.
This is the foundational plan
that really everyone should have in place
before they get into anything else financial.
This is brought to us by Scott Adams,
the founder or the creator, of Dilbert.
One of the most successful syndicated comics of all time.
And let's get right into it.
Number one, make a will.
This is pretty basic.
Everyone knows you need to make a will.
We'll quickly go over the reasons why.
If you have young kids it's how
you go about naming guardians for them.
And if, most people know if you have
no plan then you're really leaving behind
a mess, a lot of stress,
and expenses for you loved ones.
Now, this step only applies
if you care what happens after you die.
If you have no real surviving relations,
or for whatever philosophical reasons
you don't particularly care
what happens after you pass,
go ahead and skip this step of making a will.
Two, pay off your credit cards.
Debt is not really, this shouldn't have
much of a place in your financial plan
particularly consumer debt.
So really you should just sort of
get allergic to debt, think about it that way,
it's something that you should have
a physical aversion to.
And this really helps you adopt
the philosophy of living within your means.
Which means live within your paycheck
or whatever financial means you have.
And this is just a great philosophy
from both from a financial
and a mental health perspective.
And lastly, just, if you want to think
about it this way when you use credit cards
you end up paying more for stuff
you probably don't need.
You end up paying more for junk, essentially,
because credit cards most folks
are not able to, most folks who get
in trouble with credit cards
are not paying off their balances each month.
So they're paying whatever their purchase price was
plus a ton of compounding interest
for the blender or whatever they paid for then.
Just really not a good, if you fancy yourself
a bargain shopper this is the exact opposite of that.
Three, term life insurance,
so if you have a family that you support
you really should have some sort of life insurance
in case anything, in case the worst should happen.
Here's the thing, all you need is term life insurance.
Whole life, variable, all these sort of
exotics and hybrids they are terrible investments.
We'll go into this in greater detail
in some subsequent video.
But all you need is term life insurance.
If you're wondering, oh well,
I'll have nothing left over at the end
with whole life, I'm paying every month,
but at the end I have this cash value.
Just without getting into details
buy the term life insurance
which is a fraction of the cost
of the whole or the other, and invest the difference,
you'll end up winning in the end.
Four, max out your IRAs and 401ks.
So this one is a no-brainer as well,
because 401ks and IRAs are one of the few
gimmes the IRS and the government give us.
So if you're not taking it you're losing out.
401ks if you're working at an employer
that matches your contribution that is free money.
Do not give, do not turn away from free money.
That's pretty obvious, I hope.
Two, you get a tax deduction now, alright?
With IRAs and with 401ks you either
get a tax deduction now
or it's pre-tax dollars
that is immediate savings right now.
Just take all of that (laughs).
And three, all of these are tax,
or both of these are compounding tax free growth.
That means a dollar you put in today
grows over the next 20 or 40 years
however long your retirement stretch is,
but all those years you're not
paying tax on any gains.
That is a huge, huge advantage
in terms of how to roll up your savings.
Don't give up on that.
Five, buy a house.
Now there are a couple of caveats on this one.
Only buy a house if you actually
want to own your property,
and you can actually afford it.
You gotta go in with the philosophy
and with the thinking that a house is an expense,
not an investment.
I know that that's sort of been pounded,
may have been pounded into your heads for a while,
but a house is not an investment,
it is an expense that you deal with
in one of two ways either by owning or by renting.
And most folks don't quite realize that it's
often more expensive to own than to rent.
Six, six months of expenses.
You should have a rainy day fund
that covers six months of your regular expenses.
And this should be held in a cash,
or cash equivalent account.
Back in the day they used to recommend
money markets but these days I think
online savings accounts gives you a better return,
and is actually more convenient,
and more easily understandable.
Seven, 70% stock index, 30% bonds.
So whatever you have left over
after you've taken care of everything else
we've already talked about here's what you do with it.
You put 70% in a low cost stock index fund
and the other 30% in a bond fund, again low cost.
And you never touch this again until retirement,
or only unless you need to rebalance it
to maintain your 70, 30 percentage balance.
Now, that's what Scott Adams recommends.
Warren Buffett actually recommends
something a little bit more aggressive,
90,10, 90% stock index funds
and 10% money market funds.
But anything within that range should be good for you.
Eight, only fee-based advice.
So what do we mean by that?
If you have anything special going on,
anything beyond the scope of what we've talked about,
that you need help with say retirement,
or college planning, or special tax issues,
only work with a financial planner
who works on a fixed-fee or a fee basis,
not a percentage basis.
Let me repeat that,
let me make sure that's clear
only work with a financial planner,
who earns a fee, or hourly, or a flat fee
for his advice not based on a percentage
of the assets under management.
That is an anchor on your investments
and it's one of the worst,
it's one of the major causes
for folks not getting to retirement
at the rate that they should.
That's it, that's the one-page financial plan.
You take care of all these and you'll have
a sound, financial foundation
for you and your loved ones
before you do anything else, take care.
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