Yes, it's a game. Handling money that is. Most people are career losers at this game. I used to be one of them. But there are few frequent winners of the money game, and they have given us a pattern to follow, making it possible for us to copy their winning record. The winners do some simple things over and over for the long term.
Favoring the Main Streeter's approach over the economic professor's lecture, let's take a look at the four simple parts of the money game in answer to the question, "What are we to do with money, and how are we to do it, if we want to start winning the money game?"
1.
Spend it. This is the use of money most people have mastered. In fact, the typical person does such a good job at spending money we usually have very little left. Worse, we may spend all of ours, and then borrow other people's money to spend as well. Not a brilliant thought.
What we need to keep in mind is that whenever we spend money on something, we should enjoy that thing. Enjoy the clothes, the food, the television set, the car, the airplane, sports and entertainment. Whatever your money buys, enjoy it today, enjoy it now. By enjoying it, I mean, get the most out of it. If you can't enjoy the thing you paid for, or when you stop enjoying it, then it's time to return it, sell it, or get rid of it. Why keep it when you're not enjoying it?
However, know when to say "enough of stuff", or you may contract the disease of materialism, which leads to what Dave Ramsey calls "stuffitis", addiction to stuff. It takes self-control to avoid stuffitis, impulse buying, emotional shopping, and other signs of spending dysfunction. Avoid hoarding at all costs; it can cramp your spirit.
Spent money nurtures or feeds you physically and materially. Make it your goal to keep your spending at or below 70% of your income.
2.
Save it . The money you save becomes your emergency fund (EF). It is your rainy day fund, your cushion against those times when adversity suddenly strikes, adversity that requires money. The greatest benefit of having a savings account is that it prevents you from going into debt in times of emergency. Instead of keeping an American Express, Discovery, Master Card, or Visa credit card around to save you in times of emergency, it is better to self-insure against the unexpected by saving up and dipping into those savings when life calls.
It is wise to keep at least $1,000 in savings while you are paying off your debts. That's your initial EF. Put this amount into a money market account at a reputable brokerage firm, if you can still find one! The money market account should offer you check-writing privileges without penalty.
Once you have paid off all consumer debts, except your mortgage or home loan, increase your EF to an amount equaled to 6 months of expenses. That way, if you lose income for whatever reason, you will have a nice pile of cash to live on until your income returns to normal, or until you cut back your lifestyle to match your new financial normal.
Try to save 10% of your income. This is easier to do once you are debt-free. Saved money comforts you. That is, your savings account gives you a sense of security. If you are a married man, this security thing means a lot to your wife. If you don't believe me, ask her about what it means to her to have much money saved up.
3.
Invest it. When you invest, the money you've worked for returns the favor, because invested money works for you.
In these days of Wall Street cheats and crooks Bernard Madoff & company -- we all have to be extra careful about where to invest as far as the stock market goes. Hopefully, there is still reason to trust the free market world of investment.
Besides stocks, bonds, and mutual funds, you can invest your money in other places like real estate or even in a small business of your own, if you have entrepreneurial instincts or business IQ. Explore other forms of investment, and never invest in anything you don't understand, can't explain to someone else, or that is too good to be true.
Aim to invest a minimum of 10% of your income. Once you've maxed out your savings (EF), you can start building wealth by investing close to 20% of your income; that's the 10% you used to save plus the 10% you should be investing.
Remember, invested money goes to work for you, and if you do a good job at investing, your later years on this earth can be a little easier on the financial side, provided you are in good health, but that's a separate article.
4.
Give it away. Here is where money can bring you a great measure of emotional and spiritual satisfaction, pure joy. The money you give is what can satisfy your soul and give meaning to your life. To give to a cause you believe in, or to someone who really needs the help, that's the greatest use of money, that's what it's all about.
In fact, I'll go so far as to say, the reason we should want to live debt-free, save and invest is to get us in the position to give like our hearts really want to. Often in life, we come across needs and causes that deeply touch our hearts. It is wonderful for our hands to respond to what our hearts feel. The financially fulfilled life is one who has not only the heart but also the hand to give.
For starters, your goal should be to give at least 10% of your income to the causes and needs you believe in.
There you have it, the four simple parts of the money game:
- Spending, 70% max. Enjoy whatever you pay for.
- Saving, 10% minimum. Prepare for emergency.
- Investing, 10% minimum. Plant your financial seed and get ready for the harvest.
- Giving, 10% minimum. Experience the fulfillment, the satisfaction, the joy of giving money away. When the financial dust clears, giving is where the action lies.
When you've mastered the discipline to use money in those four ways most of the time, you've joined the ranks of the elite winners of the money game. May financial success be yours, as you practice the skill of spending, saving, investing, and giving like crazy!
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