The Three P’s of Money – Let’s Get Personal

The Three P’s of Money: Personal, Pleasure, and Purpose. This is our foundation and first step in financial literacy school. Why are we in financial literacy school? Well, when you peel back the financial onion of our country it is quite eye opening (or watering?). The real median household income for 2018 in our country was only $61,937[1]. That’s household income; so, it includes married couples and partnerships living under the same roof as well. The average personal debt for an American in 2018 was $38,000 and two out of ten people would spend 50%-100% of their income towards debt repayment[2].

From what I’ve noticed over my career, and just through my life, is no one is ever really taught how to treat a dollar. It is something that I was always intrigued by because it was something that my father always used to say, “There’s two things that make money. People & money. If you understand both then you’ll start to learn how the world works.” Definitely still learning how the world works but by creating a rather simpler understanding of “the dollar” and different categorical meanings that can be applied to the concept of it, allows us to begin addressing how we use that dollar to our advantage. The three categories on their own do a good job of creating 3 buckets: Personal, Pleasure & Purpose. Someone may easily associate how they spend their money but let’s break down that thought track further and get personal.

The personal use of money. Kind of rhetorical in a sense. Everything we use our money for is for personal use. Well, let’s get rid of that notion and now give it a new meaning. Think of this use of money as the money you absolutely must spend to provide for your PERSONAL needs. This is where we begin to separate the three categories and lay the first stepping stone to help create a budget that addresses your absolute needs, the money you’re spending ‘just ‘cuz’, and the money you use to invest in your future and goals. Your personal use of money should be applied to a limited amount of expenses. What you will learn is that the “Pleasure” category of the dollar winds up spilling into both the personal and purpose side and our goal is to control that.

The personal use of money: your home whether it’s a mortgage payment or rent, your car payment or transportation budget, cell phone bill, utilities, cable & internet, groceries, insurances, gas, etc. I am sure I am missing a few but what do these all have in common? Most of these are absolutely unavoidable in the way we live life in today’s world. Now that we have identified a good chunk of the expenses that fall into the personal category let’s now change our track to talk about how identifying these expenses can help us understand living within our means. There is a lot of cultural pressure on us to buy expensive, nice, things: iPhones, “nicer” cars, big houses, faster internet, expensive dinners, the list goes on and on. Some of these items are in a mixed bag, the Personal and Pleasure category but what we should focus on is the absolute money that we need to spend.

The new iPhone 11 Pro Max costs $1,249.99. That’s just over 20% of your annual maximum Roth IRA contribution. By paying $349 and then about $31 a month for 2 years you can own this shiny new puppy[3]. Now is this the best use of money for someone that has credit card debt, has student loans, wants to buy a home and start a family in the future, worried about savings for today or even retirement. Maybe it is if they can afford it but you PERSONALLY don’t need this device. There are much less expensive cell phones that are available that will carry the same apps, functions, and features but everyone has one because of FOMO (fear of missing out).

This is one great example of how identifying how much you would need to spend to cover your personal needs vs mixing in the Pleasure category because it has things that you want. The good old need vs want argument. Now the last thing I want to do is to paint the picture that you shouldn’t enjoy your money. We all work hard for everything we earn and the life-style we create so we all deserve to treat ourselves and buy luxuries. The goal here is to create a new mentality for someone to conquer planning that just seems impossible by showing different areas you may be able to spend less and pay yourself more!

This article was published in Long Island Business News! Click here to check it out!