Review of The 1-2-3 Money Plan

By Eric Hammer

The 1-2-3 Money Plan: The Three Most Important Steps to Saving and Spending Smart, by Gregory Karp - FT Press 2009

"A Great Book for Those Who Just Want to Know What to Do About Money"

Love him or hate him, most New Yorkers feel a great deal of respect for former mayor Rudolph W. Giuliani. That’s because he was the sort of person who would lead and offer clear opinions about what he believed in; and even if you didn’t necessarily agree with him, you had to respect him for doing that. I was reminded of this fact when I began reading The 1-2-3 Money Plan by Gregory Karp. Mr. Karp doesn’t purport to offer you all the possible options when making a choice about financial decisions. He also doesn’t mince words and says openly that some people may disagree with his opinions and recommendations, but I did find much to respect and like in what he wrote given that he tries to take the mystery out of financial planning and just give you his best advice, as well as he know how to do so.

Mr. Karp takes a rather interesting approach to financial planning, one which seems at first to be unorthodox, but which actually works quite well. Rather than suggesting that one create a saving plan, he suggests that one create a spending plan. Yes, that’s right – a financial wizard is actually telling you that you need to plan how to spend all of the money you earn. He even goes on to say that money is good for just one thing – spending it.

However, before you walk away scratching your head in wonder, consider this: Mr. Karp defines spending in three ways. He defines it as spending in the past, spending in the present and spending in the future. Spending in the past means paying off debts, since it is money you have already spent; spending in the present means exactly what it sounds like – paying your current bills.

The most innovative concept however is his concept of spending in the future. After all, he argues, you are ultimately saving money up with the intention of it eventually being spent, either in retirement or by your heirs, but eventually, that money will be spent, though hopefully not before it has worked a bit and earned you more money that can be spent still further in the future.

With that kind of concept in mind, Mr. Karp goes on to suggest that we examine our spending and figure out what we really get the most benefit from when we pay for something. He suggests for example that rather than spend money on things, you spend money on experiences because memories last for a lifetime while things eventually wear out. I found much to admire in this concept and I enjoyed reading the book tremendously.

The book is full of practical tips, all organized in groups of three (because it is a number that for some reason seems to resonate with the human consciousness – Winston Churchill’s famous statement for example, "I have nothing to offer you but blood sweat and tears" is remembered that way because it’s a group of three, though the actual term, which is much more forgettable is "I have nothing to offer you but blood, toil tears and sweat.") to make them easier to remember.

Probably my favorite comment in the book comes very early on, when Mr. Karp points out something that I often mention in my own writing on financial blogs – you have to treat "future spending" (aka saving) like paying a monthly bill and ideally like a payroll deduction. The less you have to think about it and the more automatic it becomes for you, the more likely you are to actually do it.

Over-all, the book is not a perfect guide; it doesn’t tell you everything you could possibly want to know or cover every possible situation you may face. However, as Mr. Karp says, it is "good enough" and that’s a heck of a lot better than most financial books can claim these days.

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