I recently heard that there are only three things you can do with your money. You can spend it, you can save it, and you can give it away. I believe that the way we balance these three can influence our happiness and level of financial peace. We should consider having a plan for each of these areas of our financial lives. The question I am asking is, "How much of my money should I allocate to each domain?"
Spend
Of course, we know that we can spend money and for most of us this is not a problem. The difficulty more time than not is that we overspend and have nothing left at the end of the month. So spending on things we need and on stuff we want is a big part of our lives and what we are spending our money on shows what is important to us. By planning our spending ahead of time, we can be surer that our spending matches our goals and our values. Deciding ahead of time is often called a budget but is more correctly termed a spending plan. Do you want to get the most out of how you handle your money? Make a plan for your spending and then follow it, but with the flexibility that allows you to make changes when needed. If you want to have impulse purchases, then add impulse purchases to your plan. Just be sure that you are not spending money that you don't have.
Save
I think that everyone knows that saving money for their future is vital. From the 2018 Retirement Confidence Survey (RCS) by the Employee Benefit Research Institute:
64% of workers reported that they or their spouse had saved any money for retirement. Among savers, 45 percent reported that the total value of their savings (excluding a primary home and defined benefit pension) was less than $25,000, including 26 percent with less than $1,000 in savings. Only 21 percent had saved $250,000 or more.
These statistics indicate that a lot of people are going to be reliant on the government for their retirement. The government never meant for social security to be the only source of money for your retirement. According to information on the website https://www.ssa.gov/planners/retire/r&m6.html:
If you have average earnings, your Social Security retirement benefits will replace only about 40 percent (of your preretirement income). The percentage is lower for people in the upper-income brackets and higher for people with low incomes. You'll need to supplement your benefits with a pension, savings, or investments.
Retirement, of course, is not the only reason that you should squirrel away some money for the future. An emergency fund of 3 to 6 months of living expenses is also a relevant goal. Also, by saving for vacations, car purchases, home improvements, and car repairs, you can avoid paying with credit, which often leads to overspending. These types of savings are called a sinking fund. A sinking fund is an account set up to save money for expenses that naturally occur but don't occur often. But without them, even expected events feel like an emergency.
Give
When we give away a portion of our wealth, it makes us feel good. Giving is the best way to keep the right perspective with money. I believe that generous people are less greedy, more content with what they have, and happier. Why? Because giving adds meaning to money. Giving is the third thing that I have listed that we can do with our money, but it probably should be our first.
There has been much research performed and books written on the benefits of giving. The simple and to the point result of this research is being generous makes us feel good, and conversely, being selfish is bad for you. From the book, The Paradox of Generosity by Christian Smith and Hilary Davidson, giving activates the same part of the brain as winning the lottery or getting a raise.
On the other hand, a lack of giving is bad for you. It causes higher levels of the stress hormone cortisol, which has been linked to headaches, strokes, and depression.
So does that mean we should send a check to our favorite charity so we can get a dose of these health benefits? It doesn't work that way any more than eating one healthy meal would improve your health. Instead, you need to change the way you think about giving and make it a consistent part of your overall plan for your money. In other words, you need to make generosity a part of you.
Conclusion
Save, Spend, Give. So which is most important. The only logical conclusion is they are all required for a balanced life. We need to save for the future because it is uncertain. We need to spend for today because we need to live. Finally, we need to give for our own well-being, and also the benefit of others. A balanced plan for our finances includes all three.
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