Financial Planning for Dummies

I’m a financial planner.  I help people figure out what it’s going to take for them to retire the way they want or send their kids to Harvard.  Then I execute the plan—managing their investments and figuring out the best place to put new savings.  But I recognize that not everybody wants to pay for this kind of help.  Some people are do-it-yourselfers and some people just don’t have enough assets yet.  But do-it-yourself is not ignore-it-yourself.  You still need a plan! This applies to people of all ages—starting young makes achieving your long-term goals much easier.

This article is not going to tell you how to create a full financial plan for yourself.  It would take too long, and a lot of other people have done it extremely well already.  But I will give you a few tips that will get you pointed in the right direction and alert you to some major pitfalls to avoid.

Tip 1: Educate yourself, but from the right materials

There is a lot that’s been written about how to manage your finances.  Most of it is complete and utter crap.  CNBC and Money magazine need eyeballs to get advertisers, so a lot of financial pornography gets written and peddled there.  Or some author comes up with a catchy strategy which doesn’t really make sense but sounds good, so it gets published as a book and sells a bunch of copies to people who deserve better advice.  In the end, changing your financial habits is just like changing your eating habits.  You can try the latest fad diet, or you can do what you know deep down really works—eating right and exercising.

So what’s eating right and exercising in the world of your finances?  It means:

  • Living well below your means so you can save a big chunk of each paycheck
  • Investing your savings in a mixture of diversified, low-cost stock and bond mutual funds so you can achieve the returns you need without taking on too much risk.

OK so that’s not everything.  But that’s most of it.  There’s nothing sexy about it.  All it takes is self-discipline.  Just like eating right and exercising.

So where can you learn a little bit more about these concepts and how you can implement them?  The best resource available is a group of people called the Bogleheads.  They are named after John Bogle, the founder of the Vanguard group and creator of the first index mutual fund.  Bogleheads are a broad group of people who believe in the principles I laid out above.  They can help you in a couple of different ways:

If you get your advice from the Bogleheads web site and from Boglehead approved books, you will learn the right way to build and execute a financial plan.  If you get your advice from other materials, chances are you will be steered in the wrong direction.

Tip 2: Watch out for financial professionals

It pains me to say it, but most people in the world of personal financial planning and investment management do more harm than good to their clients.  Many of these folks are really salespeople who don’t know much about financial planning and are just trying to earn commissions.  This is the primary reason I got into the industry myself and started my own firm—I wanted to be able to provide honest financial advice for a fair price, even if that meant making less money than the typical business model.

So how are you, a layperson, to know the good financial professionals from the bad?  Here are a couple of things to watch out for:

  • Invest money in life insurance.  At some point in your life, you will almost certainly be approached by a financial planner/insurance agent, who might even be a family member or friend.  They will put this great pitch in front of you about why whole life insurance or some other form of permanent life insurance (universal life, variable universal life, etc.) is a great way to invest your money for the future.  They’ll probably allude to some sweet tax benefits and show this awesome-looking analysis for how rich you’ll be in 25 years.  Don’t do it!  These policies are meant to be sold, not bought.  They’re so unprofitable for the investor, and so profitable for the insurance company offering them, that insurance agents are paid fat commission checks to sell these policies.  That’s why they push them so hard.  You can read more about why whole life insurance is such a bad investment here.  But not all life insurance plans are bad for investing, they do offer lots of people many benefits. If you do want to get yourself a plan then consider getting a life insurance quote to learn about how it can help you in the future.
  • If you hire a financial planner/investment advisor, make sure he/she is fee only.  Broadly speaking, there are 3 types of models financial planners use to make money.
    • Commissioned financial planners appear to be working for free, but really they are getting commissions when you trade.  The commissions can come from the broker by way of getting a portion of the fees associated with each trade.  But even more pernicious are the commissions that come from mutual fund companies whenever a financial planner gets a client to buy one of their mutual funds with high front-end/back-end loads and/or outrageous expense ratios.  This is a huge conflict of interest—the financial planner is recommending extremely dubious investments to the client in order to get paid.  “Free” advice will end up costing you a lot of money.
    • Fee based financial planners will charge you to manage your money (often a percentage of assets under management) and take commissions for recommending dubious investments to you.  You might be thinking that it sure takes a lot of chutzpah to have this kind of model for making money, and you’d be right.
    • Fee only financial planners only make money from transparent fees they charge you.  There are no commissions, which eliminates the worst conflicts of interest.  They typically make money either by charging their clients a percentage of assets under management, a flat fee, or an hourly fee.  These are the only kinds of financial planners I would ever consider.  If you hire a financial planner who charges a percentage of assets under management, make sure the percentage is reasonable for the services performed.  1% or higher is common, and I believe that is too expensive for basic financial planning/investment management services.

Before you hire a financial planner, ask him how he makes money.  More to the point, ask him if he receives any commissions when his clients buy certain products.  You want to hear the words fee only.  If you don’t, specifically ask whether the financial planner is fee only.  Once you’re able to ascertain that a financial planner is fee only, have him explain his compensation model thoroughly so you can understand it and decide if it’s worthwhile.  If you really want to be a bad-ass, ask to see a copy of his form ADV Part 2A.  All registered investment advisors are required to give this to their clients.  Reading this is a good way to understand what the financial planner is offering and what they charge.  In particular, you should read the sections entitled Fees and Compensation, Performance Based Fees and Side-by-Side Compensation and Client Referrals and Other Compensation.  These are mandatory sections of the form that will tell you how the financial planner is compensated, and you can look them up in the Table of Contents.

Tip 3: Learn how to use spreadsheets

When I got my MBA, I distinctly remember the first group project I was a part of where we were asked to use Microsoft Excel to solve a problem.  I had never used a spreadsheet before and was so embarrassed!  Since then, I’ve become proficient and use it all the time, and not just to be a good financial planner.  One of my favorite things to say is “There are few problems in life that Excel can’t help you solve.”  Spreadsheets allow you to store and manipulate data easily.  As you become proficient with them, you’ll find more and more uses for how they can help you.  I use spreadsheets for things like:

  • Deciding which medical plan to sign up for
  • Determining whether it’s better to buy or rent housing
  • Creating itineraries
  • Keeping track of tax-deductible expenses
  • Figuring out who owes who money after a group trip
  • Splitting up the costs on my cell phone family plan among the different family members on it

Critically, using spreadsheets will help you do your own financial planning.  Spreadsheets will help you:

  • Build a budget
  • Calculate your asset allocation and help you rebalance when it differs from your desired asset allocation
  • Build a year by year saving and investing plan and track your progress against it

If you have Microsoft Office, Excel is a fantastic spreadsheet.  If you don’t, Google Sheets is a free alternative.  Their functionality is basically the same.  There are lots of YouTube videos on learning to use Excel, or you can buy a book, take a short, free class at a local library, or a longer, paid class from a company.


Taking control of your own financial destiny in one of the most important things you can do.  Too many people in this country end up mired in debt and spend their golden years subsisting on a meager Social Security check and the kindness of relatives.  By following the tips in this post, you can put yourself on the track toward financial independence.  Trust me—your future self will thank you for the work you put in today.

By Brian Wolf

Brian Wolf is a financial planner who helps people figure out how to afford a comfortable retirement, pay for their kids' college education, or buy their dream home. More information can be found on his website He was also one of the first investors in Protein Bar, a Chicago restaurant favorite.

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