Coming up with a financial plan can be a daunting task no matter what your age, but perhaps even more so when you're in your 20s and just getting started.
How do you plan for a retirement that's some 40 years away? What if you get married? Have a baby? Go to graduate school? Switch careers?
With so many unknowns, planning may seem like a pointless exercise, but Carl Richards, a financial planner who writes the "Sketch Guy" series for The New York Times, says it's more valuable than you might think. In his latest book, "The One-Page Financial Plan," (Penguin Group, $24.95), he argues that listing a few important goals on a sheet of paper can go a long way toward making smarter decisions about money _ even if those goals change a few (or more) times in the future.
Here, in an edited version of our conversation, he answers questions about how to apply this strategy when you're just starting out.
Q: How do you write a one-page financial plan when you're in your 20s?
A: Make some guesses about where you think you want to be five or 10 years from now. Just some guesses. Put them on your one-page plan. You don't have to carve it in granite with a chisel because we know it's going to be wrong at some point. So give yourself permission to let go of that false sense of precision. You're not committed to the plan. You're committed to the process of guessing. It's sort of like being a pilot. You have a flight plan, but the wind ends up being different than you thought. Just make a course correction. That's OK.
Q: How does the plan help you better reach financial goals?
A: My financial plan is up on the shelf in my office. Just this morning it came in handy because I was offered an opportunity to invest in a company that sounds exciting and fun. It's a startup and all cool. And then I thought, oh wait, that plan up there says we're saving up money for a down payment on a house. OK, let it go. I spent three minutes on the offer instead of three weeks researching it. It's along the lines of the old Stephen Covey quote: "It's easy to say no when there's a deeper yes." I like the idea of having some document there that's your much deeper yes.
Q: What goals should go on your plan?
A: I think the stuff that ends up on the one-page plan is the stuff you're working on right now. On mine, it says fully fund retirement accounts for me and my wife, save money each year for our kids' education, and save for a house. Now, if I were recently out of school and I had a little bit of debt, I'd probably have something like pay down my debt, start saving for a trip that my wife and I want to go on, and save for a down payment. I think the goals that drive actions every day or month are what end up on that plan.
Q: What is the value of writing a plan if your goals are bound to change?
A: I think it's incredibly valuable just because of the increased awareness you'll have when you make decisions. At least you're noticing what you're doing. Most of us are walking through our financial lives with our eyes closed.