Review: The 1-2-3 Money Plan

Every other week, The Simple Dollar reviews a personal finance book.

123Greg Karp is the author of the “Spending Smart” column which appears in a number of newspapers nationwide – it’s typically a pretty good read, though Greg didn’t fall on my radar screen until I read his first book, Living Rich by Spending Smart.

Almost a year ago, I wrote a sparklingly positive review of Living Rich by Spending Smart. Given the quality, as soon as I heard that Greg had written a second book, I was quite eager to give it a read.

The 1-2-3 Money Plan, per its subtitle, claims to discuss the three most important steps to saving and spending smart. The book clearly focuses on the applicable, with several interesting suggestions and conclusions. Let’s dig in and take a look.

1 – Spending Smart Redux
One big theme that you notice right off is that this book is heavily invested in the idea of the “rule of three” – that a three-step plan makes the plan easy to follow and that knocking a complex idea down to three discrete points makes it easier to understand (hence the title, I suppose). Three-step plans pop up all over the place in this book.

This opening chapter of The 1-2-3 Money Plan really has one key idea: the best way to get a leash on your money is to get your spending in check. My favorite piece of advice was how to spend your discretionary income: focus entirely on things you deeply care about, experiences, and things that appreciate in value.

2 – First Things First
What comes first in getting your financial state in order? Karp offers five distinct areas: taking stock of your current financial state, basic estate planning, preventing identity theft, getting with a good bank (and automating your finances), and paying your bills (again, some automatically).

Sure, these steps seem simple, but they really are the basis for getting your financial house in order. I actually believe getting a good grip on your money is a powerful first step, because it then becomes much easier to see the impact of your individual decisions on your pocketbook.

3 – Get FIT (Food, Insurance, Telecommunications)
Karp identifies three big areas where almost everyone can cut some spending: food, insurance, and telecommunications.

With food, Karp piles on the recommendations: make a price list, match coupons to flyers, make meals in advance, build a meal plan, use a grocery list, and go shopping less often (once a week at most).

On insurance, avoid extended warranties, refinance your life insurance (meaning shop around now for a better policy, then ditch your old one), and raise your deductibles, particularly on your house and automobile insurance.

For telecommunications, cancel your landline service (good advice if you’re not in a highly rural area with occasionally dodgy coverage), downgrade your wireless plan to one that matches your needs (or perhaps even ditch it and get a pay-as-you-go phone), and actually evaluate how much you really use your television and internet service (and potentially downgrade those as well).

4 – How to Buy Stuff
The basic procedure Karp advocates is pretty straightforward: don’t make a major purchase without first reading plenty of reviews, asking for recommendations, and doing both online and offline price comparisons. This should be mantra for anyone making any sort of major purchase.

One interesting part of this chapter was Karp’s advice on allowances: give your kids an allowance, but don’t tie it directly to chores. When my son turns 4, we’re going to start an allowance for him, and this is the way we’re leaning – using non-monetary methods to encourage him to do basic chores.

5 – Green Means Green
Most of the techniques a person uses to reduce their environmental footprint also reduces their spending footprint. Use rechargeable batteries. Replace your five most used light bulbs with CFLs. Drive sensibly (don’t speed and don’t punch the accelerator). Avoid bottled water.

One point where I disagree with Karp – he suggests always avoiding big-ticket energy efficiency upgrades because the break-even date may be a decade or more into the future. What he’s not considering is that such fixes often greatly increase the resale value of your home. For instance, if I replaced our roof tiles with solar tiles, it might be very expensive, but the energy bill would immediately go down plus the value of our home would go up (since the next tenants would have lower energy bills). That makes the break-even point quite a bit earlier.

6 – Credit When Credit’s Due
Karp offers great advice on the basics of credit here. First, check your credit report (and don’t use and make sure there are no errors on it – that’s the most important thing, if you haven’t done it.

How do you start digging out of debt, though? First of all, stop using credit. Then develop a debt repayment plan and stick to it. If you’re having trouble, it’s vital to remember that cutting your spending is a key counterpart to a debt repayment plan.

My favorite point from the chapter was the discussion of how to use a credit card effectively: maximize your rewards program, stop carrying a balance (paying it off in full every month), and use your leverage – don’t be afraid to call them and threaten to switch credit cards if they raise your rates or anything you don’t like.

7 – How to Save Money
The biggest key is to automate. You should start by automatically transferring money to separate savings accounts – one for your car and one for an emergency fund. From there, grow to funding a Roth IRA using automatic funding. If you have kids, fund a 529 college savings plan automatically, too. If you have to think about it, you’re opening yourself up to forgetting about it or talking yourself out of it – so don’t give yourself that chance.

The most interesting idea I found here was the idea of a savings account for seasonal expenses. For example, in Iowa, one’s energy bill is often much higher in the winter, plus there’s the cost of snow tires, etc. If you put some money automatically into a seasonal account, particularly in the spring, summer, and fall, you’ll have that extra money in the winter. This works well for any seasonal expense.

Is The 1-2-3 Money Plan Worth Reading?
Most of the advice in The 1-2-3 Money Plan is advice you’ve possibly heard elsewhere. Karp covers most of the truly familiar areas of personal finance writing with this one.

So what makes it stand out? At the start of this review, I mentioned the reason – Karp sticks strongly by the “rule of three.” In other words, almost every point in this book is followed by three very direct and blunt action tips, which make it easy for the reader to actually take direct action on that idea.

So, The 1-2-3 Money Plan is a great book if you have a hard time transforming specific personal finance ideas into direct action. Karp hits a home run in that department. However, if you’ve already got your money in order, this book might not have too much to offer you.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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