How Money Works (2)

This is the third in my series of How Money Works. You can read the last issue here. The last post we talked about attitude, the Poverty Mentality, and the resulting issues from those attitudes in relationships.

In this post, we will talk more about how one thinks about money and how to use it.

Friends of mine published Three Cups, a children’s book that talks about the three things you can do with money. The story is cute and the illustrations are great but the message is invaluable. The three actions one can do with their money are give, save and spend.  If you think about money and how you use it through the lens of those three actions, you will no-doubt, change your perspective on money.

Give

Charity is as important as Capitalism. I might dare say, there is no point to Capitalism if there is no Charity. Ancient Middle Eastern texts talk frequently about money and charity. In fact, Randy Alcorn, author of The Treasure Principle says the following:

Throughout the entire Bible there are roughly 2,350 verses concerning money. This is roughly twice as many as faith and prayer combined. 15% of everything Jesus said related to money and possessions. He spoke about money and possessions more than heaven and hell combined. The only subject Jesus spoke of more often is the Kingdom of God. Why? Because the Scriptures make clear there is a fundamental connection between a person’s spiritual life and his attitudes and actions concerning money and possessions. Often we divorce the two….

Eugene Grimm in his book Generous People also comments on texts regarding money:

Money was just as important in Jesus’ day. If we were to strike the comments of Jesus about money, we would reduce his teachings by more than one-third. Sixteen of Jesus’ approximately 38 parables dealt with money. One of every seven verses in the first three Gospels in some way deals with money. In fact, Jesus spoke about money more than about any other single subject, except the kingdom of God itself. Perhaps this was because Jesus understood how money itself can become a god.

Whether or not you subscribe to Biblical teachings or truths, a 2000 year old document that refers to money principles should hold its weight in wisdom simply due to its timelessness and should be taken into consideration. Your attitude in giving will effect both your savings and your spending and is probably more important than the act itself.  Giving to charities and those in need cultivate caring relationships, build communities and provide for needs much more efficiently than most businesses and governments can.

Save

When I was a child and heard the axiom “Save your money for a rainy day”, I received this to mean, “go to the mall, since you can’t be outside.” Needless to say, as an adult, I realize the true meaning which is to save your money to cover cash flow deficiencies.  Working with businesses, many come to me wanting to sell their business and are sorely disappointed when they have a valuation done and find out that is it worthless. The key word here is retained earnings,  if you spend everything your business makes, there is not much value left. Saving can include investing; investing in capital improvements (buildings, fixtures, equipment, processes efficiencies) or investing in a traditional sense (real estate,  equity markets, etc.).

Everyone knows that the Canadian Dollar, tourism and taxes will fluctuate. Saving for those “rainy” days will allow you to weather the storm until the sun comes back out– And it always does. Building equity in your business though retained earnings (investing back into your business) will pay off when it comes time to retire and do something different.

Note the graph on the right, provided by Investopedia’s Top 10 Countries that Save. The US did not make the list.

Spend

Most of us have no trouble with spending. Spending is good for the economy, in fact spending makes the economy. It is important to keep cash flowing by purchasing goods and services that you need. It is important to engage in commerce for the community; It keeps people employed and focused on serving others with their skills, abilities and talents. As spending relates to Attitude,  questioning what and why you spend your money on, will reveal your attitude.

For example, if you find yourself purchasing items that feed your ego and give you a false sense of identity, this will affect your relationships and therefore affect your savings and giving. “Keep up with the Jones” leads to unhealthy spending habits and eventually unhealthy relationships. Don’t get me wrong, I like nice things as much as the next guy and I have purchased items with more regard to what others would think about me than the practicality of the item itself. It is also fair to say, you get what you pay for, and nice things are, more times than not, higher quality and longer lasting. Taking personal inventory of the motivating factors will help you spend wisely.

The philosophy of the book Three Cups is to keep all three, Giving, Saving and Spending all balanced. When one of the three are out of balance, you are not maximizing the power and community importance of how money works.  It would be an interesting experiment, to try and divide up your income by 33.3% and allocate it into Giving, Saving and Spending as we go into the new year. More than likely you’ll be looking for more ways to Give and Save. As you put together your personal budget for 2016, I challenge you to think about Giving, Saving and Spending with a different perspective.