‘The Four Purposes for Money’
By Bruce McDonald
Understanding the ‘Four Purposes for Money’
We are all involved in dealing with money, almost on a daily basis. In fact there are few topics that can be discussed which affect every single person more than money -so the matter of handling it successfully is of vital importance. This booklet is written as a challenge to all of us as to what we are doing with the financial resources that come into our possession and pass through our hands.
Money is an interesting thing. Its influence can be subtle or consuming – it has been described as a wonderful servant but a terrible master. I contend that money doesn’t know where it should go and so we must learn to tell it where we want it to go. While it seems that so many spend the greater part of their life serving money, life is best lived when money is serving us.
In the following pages there is the opportunity for us all to give some focus to how to use the resources that come to us better, better than many others do and in ways which help us not only to meet our financial responsibilities, but also to achieve our life goals whatever they may be. Together we will look at an ideal of how our money is to be directed and managed. We will look at things that can empower our future; this booklet is intended to get you excited about your money management. I want for everyone who reads to the last page to be determined that things are ‘going to be different from now on’ and to have a plan as to what that difference is going to look like.
Very likely some will conclude their reading asking the question, “Why didn’t someone tell me these things years ago?” While that is a great question, likely no-one did and so reality dictates that we must begin with where we are. We need to start right now to set goals and make plans to do ‘the money thing’ better than we have ever done before.
The Four Purposes for Money:
The key to a successful financial future lies in understanding that there are ‘four purposes for money’. Not lots, just four and understanding these and applying the resources that come to us appropriately to these four purposes determines a successful journey with money. Remember that money doesn’t know where it should go and so it must be told where it is to go. Every dollar needs to be given a name, every dollar needs to be given an assignment. Knowing this puts us ahead of the greater number of human beings. It is the first key to a better future.
The first purpose for money is that it is made TO SPEND:
This is the easiest purpose for money to identify and to apply. Everyone is good at this purpose for money. Buddhists are, Muslims are, Christians and Atheists are. Very early on I observed that my children were good at spending. They didn’t need to take a course at school to be; it didn’t take me the same effort that it took me to teach them to be thankful or polite or hard working, for them to be good spenders. They just seemed to get the idea of spending so easily…amazing. Reality is that they are not alone. Human beings love to spend and all over the planet they have become very good at it. So much so that not only what is earned is spent but so much more also. People spend all that they earn and their appetite is still not satisfied – so they also spend what they can borrow from someone else. The result, so statisticians tell us, is that total world debt now tops 190 Trillion Dollars. A scary reality!
It is also why statistics tell us that the average New Zealand family, my country of origin, spends 113% of their income each year. That means that they are using credit to support their lifestyle. This is a good reason to decide not to be ‘average’ don’t you think? Any dead fish can float with the current but it takes a real live fish to swim upstream and that is our challenge. We need to decide that we will not spend beyond the ‘means’ that are available to us through what we gain from our effort and skills – our work.
Somebody described using credit as, ‘spending money you do not have, for something you do not need and for which you have no idea how you are going to pay back’. It is spending tomorrow’s money today. The use of a budget to determine this is not going to happen in ‘our world’ is a great first step and a powerful part of determining that ‘better future’.
The second purpose for Money is TO GIVE:
I love to talk about this purpose for money. In light of what we have discussed in the first purpose this seems an altogether unnatural purpose for money. Surely our hard-earned money is for us, for those we love and are dependent on us and for the goals that we have set in life. So to introduce giving as a part of what we do with money seems at best counterproductive and at worst simply a waste of resources. Yet, if you listen to or read about the lives of many great people, the mission statement of many successful companies and the daily experience of countless numbers of individuals, a pattern begins to emerge. Success and happiness and fulfilment seem almost inseparably linked to a lifestyle and commitment to giving. Giving that is regular and planned and at times sacrificial.
Giving requires maturity and the exercise of the power of choice. It comes from an awareness that life is rich when it is lived for others. I simply love to give, always wishing that I had more to give and I celebrate the difference that my giving has made for others.
The Bible says it best I think:
‘Give and it shall be given to you, good measure, shaken together and running over will be put into your lap. For with the same measure you use, it will be measured to you’ (Luke 6: 38).
To spend money puts us in the ‘everybody’ category. But with a decision to exercise the second purpose for money, to give, we become a part of a somewhat smaller company – still fairly significant for sure but not universal and that is the challenge. To be a giver requires the making of a decision today and in all of the tomorrows that we will have. It may seem to reduce our money bank account but with confidence I can tell you we will discover that it adds to our emotional/wellbeing ‘bank’ account. It will make us a better person and this world a better place. We have discussed it second but many would say without a moment’s hesitation that it is first in importance. And we do well to make it first in our priorities – an unchanging purpose for money.
The third purpose for money is TO SAVE:
As with each of the purposes that we are discussing, the purpose of number three (to save) is to empower us. Saving puts us in charge of our resources and is a determiner of our future. Let’s establish a definition for saving:
‘Saving is the retaining of money for items that we will need in the future, but will likely have a diminishing value’.
It may be a car, white-ware, computers and phones, holidays, Christmas….the things that an individual or a household, a business or a church, a club or an organisation, a city council or a government will need in the future. The list is almost endless and the wise entity will prepare for the inevitable reality that there are things that will be needed in the days ahead. Saving is wise future planning.
Not to save has a simple consequence. The moment will arrive when we want or need something. If saving has not been done, there will only be one of three possible results. We will need to do without, we will need to wait while resources are accumulated so the acquisition can be made OR we will need to borrow. Our generation hasn’t been at all keen on the first two alternatives and so the third has become the norm. People have become so accustomed to borrowing that it is seen as normal, necessary, even a wise direction to take. But, this has not always been so. Indeed it is not the way that many of the most successful among us choose to live. As a result some have built wealth and advantage and ease from others who choose not to or don’t believe that they can save.
Growing up I knew saving as Grandma’s ‘rainy day’ fund. My Grandma knew that in life things go wrong and that it was necessary to have a ‘rainy day’ fund prepared for when that happened. Grandma was smart. Grandma had been through tough times; she had been around for a while and so she knew that things would break down, that the Washing Machine wouldn’t last forever and that family life was made better by that great family holiday. Grandma made it a policy to save something from everything that was earned.
Years ago I was teaching these concepts to a class of adult students and I used the metaphor that saving money for the future was like a farmer keeping part of his harvest for ‘seed’ to be sown for the next year’s harvest. As I spoke Getachew – a quiet student from Ethiopia, suddenly became quite demonstrative and asked if he could speak. To this day I am glad that I said yes as he immediately began to tell us about his Dad and what he had observed and learned as he grew up. Each year when his Dad, who was a farmer, would collect in the harvest, he would follow the same routine. Before anything else he would take a portion of the harvest and set it aside and all the family knew that that would be taken to church and given away. He was a giver.
Then he would immediately set aside a second portion of the harvest. This he instructed his family was the seed to be sown for the next year’s harvest. But here the story became really interesting as the class was asked where his Dad would keep that seed. Well none of us guessed correctly and so Getachew proceeded to explain to us how in their home his Mum cooked over an open fire. Each year his Dad would take the seed that had been saved and would place it in the crawl space in the roof above the fire. As the daily cooking took place the seed, covered with soot from the fire, was ruined as a source of food but remained perfectly suitable as seed to be planted for a future harvest. Getachew’s father was wise. He knew that in his nation famines arise and food can be scarce. He had experienced seasons where there was shortage and as a father the temptation to take ‘seed’ and use it for food would be strong. So he found a way to protect the seed. This was to ensure that it was retained and that he would not need to borrow money to purchase seed for the next seasons planting. Only then would they use the rest of the harvest for food.
I cannot think of a better story to help us to understand the importance of saving and what most of us will need to do to save successfully. Firstly the story teaches that if we don’t save ‘seed’ we will need to borrow for future needs. Saving is a protection against borrowing. Stop and consider that for a moment concerning your personal situation. Have you become accustomed to borrowing because you don’t have a habit of saving? If so, then this is a great time to say “ENOUGH” and begin to save. Secondly and equally powerful, this story tells us that to save, we will need to make the money hard to access, inaccessible when a moment of pressure arises or we are tempted to spend what should be saved.
Occasionally I talk with people who can save by simply using a spreadsheet budget and can keep their ‘savings’ in their working bank account. I meet others for whom simply having a second bank account is adequate to save successfully. For me success has come in this area only since I understood myself sufficiently well to know that when pressure came I would compromise and use savings for the wrong things. For me having a bank account in another bank has been necessary to keep me focused and faithful to the third purpose for money. This has ensured that I have savings ready for when something is needed to be purchased or replaced.
The ‘rainy day fund’ is a simple acknowledgement that unexpected things will happen, ‘rainy days’ come and wisdom says to get ready for them. As a part of this it is a really great idea to have an emergency fund of at least $1000 that is there just for those unexpected happenings. It is even better to have at least three months income set aside for unknowns. It is best if a plan is in place that has money put aside for holidays and all of the good things we are planning in our future.
The third purpose for money is powerful. Saving puts us in charge and ensures that we are telling our money where to go, not wondering where it went. I hope and pray that as you are reading this you are getting excited about doing this and about what it will mean for your future.
The fourth purpose for money is TO INVEST:
Here is a definition for Invested funds:
‘Investing is learning to use money in a way that produces increase for our future and for future generations’.
This is not Grandma’s ‘rainy day fund’ (that is saving) but her ‘nest egg’! This money is placed strategically so that you are not working for it but it is working for you! This money is generational. It is not intended that it will be spent but that it will be retained so as to give freedom to you and to the generations after you.
Remember that in our definition of saving we described it as money set aside for things that would be needed but would have diminishing value. This is not so with money that is to be invested. This money is to bring increase. Albert Einstein, one of the great minds of more recent times once said, “The most powerful discovery I have ever made is compound interest”. Wow – that is an amazing statement from such a man. Invested funds earn, they increase and over time they can earn a lot.
Most of us know that we need to work for money and we accept that. What is not in such clear focus is that it is possible – and more powerful – to have money work for us. Setting aside a portion of what we earn, our increase and placing this strategically will be the game changer to successful money management and future freedom.
In New Zealand ‘Kiwi Saver’ is such an investment and a VERY good one. The rate of return is average to good and perhaps most significantly you are not able to access the funds (except for the purchase of a home) until you are 65. Let me encourage you to keep going if you have started, and start if you have not. If you do withdraw funds as a deposit for a home, immediately begin to build up the fund again. Of note is that if you only put about $1042 into the fund per annum the Government will add $512 to that. That is an amazing rate of return on any investment and it is in addition to the increase that is achieved by there being some very smart men and women investing your funds to bring increase for you.
The Bible tells us the following:
‘A good man leaves an inheritance to his children’s children’ (Proverbs 13: 22)
So many have lost any hope of being able to leave any inheritance for their children or for future generations. Many others are glad that they will have a home to leave, but little else. By making a decision to include the fourth purpose for money as a part of our financial planning we can add to this in a significant way.
As you have read through this booklet I wonder what your response has been. Hopefully it has included a sense of feeling empowered to do ‘the money thing’ differently in the future. Others may say with honesty that they are already doing some of the purposes but had never thought about the difference between saving and investing – a very important distinction. Still others might realise that for them the next step needs to be to ask for help from others both for advice and for accountability.
Many will know that for them this booklet has come at just the right time. That you are wanting change, are ready for change and now understand a little more of what that change must look like! Here is the challenge –
Maturity with money is the decision, plan and determination to do all four purposes with ALL of the money that you receive.
A list of possible decisions you could make is included below for your consideration. Whatever steps you need and decide to take, I challenge you to write them down immediately and to do at least some of them within a week. Begin as soon as you can. Now is the right time!
A Checklist of responses I can make:
- I am going to tell my money where it is to go. From today every dollar I earn is going to have a name, every dollar to be given an assignment….I am going to write a budget.
- This week I am opening a new bank account, to keep my savings and investment funds separate and hard to access.
- I am going to join ‘Kiwi Saver’ immediately.
- I know that I will need someone in my life to make me accountable. This week I will speak with them and ask them to come on this journey with me.
- Starting systematically from next pay day I am going to pay off all of my existing debts.
- Today I am emailing Bruce to get a ‘Budget Form’ and a ‘Debt Reduction Form’. (firstname.lastname@example.org).
- My giving is going to be regular and planned. I know that ‘givers are live’rs’.
Always remember – there are ‘four purposes for money’. Financial maturity is the determination and the decision to do all four…with all of the money we get!
God bless you as you begin to take steps toward a financially free future,
The Liberty Trust Story
In 1989 in Whakatane, New Zealand a group of 122 people made a decision to pursue a different model for raising the finance necessary to purchase their homes and churches. Together they committed to creating a pool of funds that would be used for the sole purpose of being able to loan finance ‘Interest Free’ to themselves and those who they were confident would join them. Beginning in July of that year they all committed to giving $20 per week, launching therefore with a fund of $2440.
That was not then and is not now sufficient to help anyone with a loan to purchase a home but wonderfully they and many others continued to contribute week by week to the growing pool of funds. Slowly at first, but in time much more quickly funds were built up from contributions to be available to refinance bank loans or to give new loans to families and churches (Interest Free) allowing them to save many thousands of Dollars and to pay off their homes years earlier.
As at the time of the writing of this booklet over $40,000,000 (NZ) has been loaned and a Trust fund of more than $13,000,000 established to continue the good work. This continues to increase month by month and year by year. It has become a phenomena and due to the exponential nature of how this simple model works in the years ahead a significant amount more will be loaned, an increasing number of families will be assisted and an enormous amount of bank interest that would otherwise have been needed to be paid will be avoided.
Those involved would say without question that ‘Liberty Trust’ is a great idea and a God idea.
This booklet has encouraged you to consider doing ‘the money thing’ differently to how you may likely have done it in the past. To commit to applying all of the money that comes into your hands to the ‘4 Purposes for Money’. As a part of this new way of doing things the writer, without question encourages you to join the Liberty Trust journey. It will help you or your children or your grandchildren in one of the most important acquisitions of your lives – the purchase and ownership of a family home.
To make a contact with ‘Liberty Trust’ and to begin simply go to their Website, take the time to read what it says and then get started. Make it an important part of your future:
About Bruce McDonald:
Bruce is one of the Founders of Liberty Trust and its current Patron. He along with his wife Maude, live in Auckland, New Zealand. As a part of his work and his passion Bruce speaks on money matters to Churches and other groups. He has developed and teaches a Course entitled, ‘The Liberty Biblical Finance Seminar’. This eight module Seminar (‘The 8 Pieces of the Financial Puzzle’) is taught free of charge in the hope that anybody who would like to or needs to attend may do so.
Should you be interested in hosting a seminar please feel free to email Bruce at email@example.com .