The 3 'P's' of money: personal, pleasure, purpose

By George W. Karpus
BridgeTower Media Newswires

Addressing the lack of financial literacy in America is becoming popular topic in the financial services industry. Many households, business owners, real estate owners, and investors found themselves caught in an environment, that I would like to think, no one on Earth ever anticipated.

When COVID-19 became prevalent, many people were trying to defer mortgage payments, defer rent, manage credit card debt, their car payment, insurances, understanding the loans the government was offering, access their retirement accounts to withdraw funds to pay bills ...

Where do you start? What is the most important to tackle first? What are the long-term effects of my short-term decisions? These are all great questions, but let’s take a bunch of steps back before we even get there.

Let’s address understanding the dollar — nothing more than the one-dollar bill. Everything mentioned previously is still very important but its meaningless when we don’t understand the little green things we throw all over the place to buy everything we want and need. So, how can we bring a fundamental concept to be applied to our everyday money?

I will break it down using the three ‘P’s’ of money: Personal, Pleasure and Purpose. Now each one of these categories will have a different breadth of explanation, but creating a strong fundamental foundation of thought around the concept of the dollar can actually help guide people’s day-to-day decisions with it.

Personal: The personal use of money. Well that doesn’t make much sense does it? Everything you use money for technically is, personal. Think about it this way, though. The necessities. It’s everything you spend money on that you need, personally. Think of this category as money that you are going to spend regardless. Groceries, utilities, car, insurances, home repairs, etc. Almost everything you spend in the personal category is unavoidable. You will need to spend it in order to feed, provide, take care of and stay connected throughout life. Now some of the personal expenditures take us to our next category, pleasure.

Pleasure: This category is for money that is spent for pure enjoyment and luxury. It doesn’t have to be anything magnificent either. Think of this category for things that provide personal enjoyment or happiness. Your hobbies, travel, “treat yourself” moments, expensive nights out, buying something a little bit above the pure necessity. In today’s day and age, we all need a cell phone. What are the two most popular phones? The iPhone and the Galaxy. These are phones that can cost $750 and up! Are these necessary, or is there some form of luxury behind it?

Purpose: Ah, my favorite category. What does it mean to purposefully use money? Well, the reason why this category is so important is because this is where the financial management and understanding comes in. If you look into the statistics about average household debt across this country, it’s quite eye opening. Debt can be a powerful tool, but it can always be the cause of financial destruction, personally and in business. When you are using a credit card you should be using that money for purpose. What does that even mean, you ask? A lot of credit cards offer points, bonuses, or rewards programs, so smart credit management will allow you to take advantage of this. If you get 2% back on groceries, why would you be using your debit card when you can get 2% by pointing it on your credit card and paying it off immediately. The problem arises when you take the pleasure category and force it to fight with the purpose category. If you buy anything on credit, you are most likely paying or on your way [to] interest unless it’s paid off. You should only be buying things on credit for three reasons: 1) using it as a tool to be paid off immediately 2) in absolute emergencies or 3) to save cash that you can do something better with.

Each one of these areas can be expanded on further but this should be our starting line. Understanding how you spend and treat money on the most basic level can have a significant impact on your financial future because it just may be the difference we need to get us on the right track for a more stable financial future.
Roy V. Pfleger II is president of RVP II, providing strategic planning and financial consulting for real estate investors and small business owners.