Do you know the three elements of money? Let’s do a quick review. In the beginning, any money you have has three purposes:
1. To spend to meet your needs wants and desires
2. To save.
3. To give away.
Remember that money is a tool and like any tool you need to take care of it.
Spending
One way to take care of your money is to plan how to spend it starting with the basics. One of those basics is a grocery list. It’s the wise household that keeps a running track of what absolutely needs to buy at the grocery store.
Now, take one step back and plan the basics to your menus—weekly or monthly. That way you won’t buy anything you absolutely don’t need. Before heading to the grocery story, check your pantry and refrigerator and find out what you are low on—is it time to replace? From that will come your grocery list.
A word of caution—if you are a Costco, Sams or one of the other “warehouse things of all items” shoppers, make sure you can separate and freeze items for future use. Suggestion: if you have a separate freezer, do yourself a favor and create a list of what is in it. Too often, it is easy to forget and you end up buying more when it’s not necessary.
To meet your wants and desires, you will have to have a plan that may cover several months, even years.
Shelter is another of your basics. What does it cost to put a roof over your head? You need to think utilities and insurance. If you live in an area that has weather effects—like snow and ice, you need at least one shovel and an ice scraper for your car. And think of clothing. If you are in a sunshine state that does deal with sleet, snow, or heavy rain, winter clothing isn’t important—or a heavy coat. Otherwise, they would be on your must-have list.
Clothing is another one of the basics. Depending on what part of the country you live in and the kind of weather it has will depend on what kind of clothing you will need. And how you get that clothing will depend on several things. I know one woman who makes all of her clothes. Once upon a time I made a lot of my own clothes. I even had my own tailoring dummy.
What you will need to spend on shelter depends on a lot of things including transportation, the cost of housing near where you work, and time. When I lived in New York City, I chose to live on Manhattan Island because the company I worked for offices were there. Otherwise, I would’ve had to commute an hour or more on local transportation, combining buses and subways. Accomplishing that may take planning ahead and saving for a particular want. Plus, it would take more of my time.
Savings
It is easy when you set up a savings account. If you work for a company that has a direct deposit of your salary check, you may also take a portion of your salary and put it in to a savings account. You can easily set up an automatically transfer with your financial institution to a savings portal that may pay more in interest than the bank you are with. With any bank or credit union, you can have a separate savings account and move moneys to it via online or have it set up automatically for it to an internal transfer.
How much money should you have in a savings account? Your goal is to have at least six months of living expenses—housing, utilities, food, car, what else? According to a recent survey by Forbes, less that one out of four Americans have $1,000 in savings. Ouch.
If you have a car, you need insurance and I would have an AAA membership.
Giving Money Away
Giving your money away is the third way to use it. Each of us must make our own decision on which not–for–profits to support. If you decide to support a particular charity or not-for-profit be sure that you first get their financial statements. Any legitimate charity will be happy to send you their financial statements. If they refuse to send them to you tell him goodbye and no thanks. My philosophy is that I don’t give at the door or over the phone.
If you are giving money to friends and relatives, if there are any taxes owed, you … the giver … are liable for them. Money gifts are not taxable to the receiver of them. But, if the gift exceeds $19,000 the giver files a gift tax return for each recipient and pays the taxes owed.
Money serves three purposes: to spend, to save, and to give away. The money smart person keeps a list of what they need … then what they want.
Patricia Lane Williams, CPA has worked with thousands of men and women sounding the warnings. She is the author of the Amazon bestseller, Money: Get It. Save It. Grow It … Before Debt Steals It.
Her website is www.PatWilliamsAuthor.com.