In their new book, The Missing Billionaires, Victor Haghani and James White make an interesting argument. Looking at the number of millionaires in the United States in 1900 and doing some math, they estimate that there should be many more billionaires today—thousands more, in fact—than there are. The question Haghani and White ask is: Where did they go? Or more specifically, where did their wealth go?

The authors consider possible explanations, including taxes—especially estate taxes—and the crash of 1929. But even after adjusting for those factors, they calculate that there should still be many more people today with a lot more wealth. In the end, they settle on two explanations for these “missing billionaires”: excessive spending and poor investment decisions.

To illustrate their point about spending, they point to the Vanderbilts. When he died in 1877, Cornelius “Commodore” Vanderbilt was by far the wealthiest American. But just 50 years after his death, the family’s wealth was essentially gone, due to spending that exceeded even their vast means. One of Cornelius’s grandsons built the 125,000-square-foot Breakers mansion in Newport. Another commissioned Biltmore in North Carolina, which is still the largest home in America. And they endowed Vanderbilt University.

The second factor Haghani and White point to is on the investment side. Many of these families failed to effectively diversify, owning too much of a single stock. In many cases, these were shares in family businesses, which they held on to for emotional reasons.

While the Vanderbilts are an extreme example, their experience illustrates the importance of planning, even for wealthy families. To get started making a financial plan, I recommend a three-part approach, including math, mindset and other circumstances.

Math. There’s no shortage of strategies for building a financial plan, from Monte Carlo analysis to the so-called 4% rule. But whichever approach you choose, there are five principles that, in my opinion, are universal:

• Don’t draw a straight line. If you have many years to retirement, consider multiple scenarios. In each scenario, turn the dials on different variables, from spending levels to market returns to inflation expectations. Try multiple stress tests.

• Keep investment fees low. Research firm Morningstar studies the investment industry and has concluded that, on average, “low-cost funds beat high-cost funds.” This is the case, they say, “in every single time period and data point tested.”
• Keep things simple. Last year, Wall Street introduced more than 500 new exchange-traded funds. But most of these fit in the “shiny object” category and really aren’t necessary. The problem with these strategies is that they tend to be costly and tax-inefficient.
• Keep an open mind. While simplicity is the approach I recommend, there are exceptions. Single premium immediate annuities, for example, carry complexity, but they do make sense for certain investors.
• Manage taxes. In addition to income taxes, keep an eye on potential future estate taxes.

Mindset. Back in 2004, the author Kurt Vonnegut was speaking to a group of college students and told this story about how he liked to spend his time: When he needed an envelope, he said, he liked to walk down to the stationery store and purchase a single envelope at a time. Seeing him do this, his wife suggested that he instead buy a box of 100 envelopes and keep them in his office. But Vonnegut objected. He enjoyed the walk and liked chatting with people along the way.

This helps illustrate an important truism about personal finance: The numbers are just part of the picture. Vonnegut would have saved both time and money by ordering a box of envelopes online, but for him, it wasn’t about the numbers. It was about what gave him enjoyment.

Mindset, in other words, is a valid component of any financial plan. And while there isn’t necessarily a formula you can apply, there are, I think, questions you can ask to help inform the structure of your plan. These are some examples:

• How would you rank order your financial goals? For example, would you prefer to have a vacation home where family could gather, or would you prefer to keep these dollars in the bank for added security?
• How do you view the tradeoff between time and money? Would it be more important, for example, to retire early or to continue working so your savings have more time to grow?
• If you have children, how important is it to leave them the largest possible inheritance? Or to what extent do you worry about the prospect of a large inheritance demotivating them?
• How important is charitable giving—during your lifetime and/or as part of your estate plan?
• How important is it to avoid market volatility? In other words, how much potential growth would you be willing to give up in exchange for limiting losses during market downturns?

There is, of course, no right or wrong answer to any of these questions.

Circumstances. My doctor and his twin brother are partners in their medical practice. But even when two people appear almost identical—with the same background, the same profession and the same income—there will be differences. Though these differences are often harder to quantify, they’re nonetheless an important component of any financial plan. These are some questions you might consider:

• If you’re in your working years, how would you characterize the stability of your income? If you’re a tenured professor or a partner in a business, that might allow you to take more risk than someone else who looks otherwise the same on paper.
• To what extent does your retirement plan include guaranteed sources of income, such as a pension?
• Do you have assets that might or might not have value—shares in a family business, for example?
• Is health a concern—either yours or if you’re married, your spouse’s?
• If you have children, what is their financial situation? Might they need help, or might they be able to help you, if need be?