Updated on 10.10.17

Review: The 1-2-3 Money Plan

Trent Hamm

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 freecreditreport.com) 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.

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  1. Mike says:

    Is it possible for you share the reasoning behind not tying children’s allowances to chores?

  2. We always tied our kids’ allowances to a chore…but we also had chores that they did just to contribute to the family, as everyone in the family does. We found this to be a good balance.

    Thank you again for all your great ideas and insight each day!

  3. logical1 says:

    For number 5…. A “green” or expensive upgrade does not always mean a higher sales price for your home. There are very few home improvements, or upgrades that will increase the value of your home equal to, or even withing 90% of, the cost of the investment.

    Such an improvement may help you sell your home faster, but not always for more money. You have to consider market conditions and competition. If you put a $15,000 improvement on your home and put it up for sale the same time your neighbor has his house up for sale and you price your home even $10,000 higher, if everything else is equal… your neighbor will be moving first.

  4. kristine says:

    Re: the break-even date of green initiatives. Increased resale value is only real if you plan to sell, or borrow against your house. If you plan to stay put, then resale value does not matter.

    Also- Right now, I would not encourage anyone to set up automatic payments. In the last week alone, I have heard 5 nightmares from friends whose checks have bounced, and automatic payments bounced, due to bank mergers and takeovers. The account number changes, and you have to painstakingly let every Tom Dick and Harry know about it. Even then, a lot of mistakes are made. Then you waste hours on the phone trying to get reimbursed for bounce fees, and explaining to vendors, and crossing your fingers it does not effect your credit. I’m waiting till the banking industry’s musical chair game settles down.

  5. dream says:

    Kristine makes a valid point about automatic payments. That is also good advice for people like me whose income fluctuates wildly from week to week.
    A good website for getting a REAL free credit report is http://www.creditkarma.com . I also find it handy for calculating possible scenarios (Via tools on their site) for loan repayment schedules for the home I hope to buy this year. Using CreditKarma I check my credit score monthly, since I’ve been doing some crazy things with my money & credit. My credit score actually dropped 12 points one month!!

  6. Anna says:

    Re: getting credit card companies to lower their rates by threatening to move your credit account elsewhere, or actually doing it. This advice has been around for a long time, and under the old conditions it usually worked.

    My question: Now the credit card companies are all raising their rates so they can make their bucks before the new regulations become effective. Is the traditional advice still valid? Does anyone have hard information about this new situation?

  7. AB says:

    We have a large family, and we do not give allowances. Our children have chores that they are required to do just because they are part of our family. If they want privileges, they have to show responsibility, so if their chores are not done, they do not get their privileges. But we also have extra various jobs around the house occasionally that we are willing to pay to have done. This is how they make some extra money. In my opinion, giving allowances does not prepare children for responsibility in life. Whey they grow up, no one is going to show up at the end of every week and hand them some money when they haven’t done anything to earn it.

  8. Leann says:

    As a manager in a 9-1-1 PSAP (Public Safety Answering Point), I have experienced first hand the devastating consequences of people cancelling their land-line phone service. When you call 9-1-1 from a landline, the operator has an ALI (Automatic Location Indicator) that pinpoints your address, and depending on the technology of the center, shows it on a map. Either way, from a landline, if you call 9-1-1 and can’t speak, or say your 4 year old or your babysitter calls and doesn’t know the address, or any other myriad of circumstances where you or someone calling in your behalf, can’t tell the operator where you are, THEY WILL ALREADY KNOW.

    If you call from a cell phone, all of that is NOT automatic. Depending on the cell provider, the location of towers, the technology in your phone, and then technology of the 9-1-1 call center, they may have the following locations for you:
    1)NO IDEA
    2)some idea based on the cell tower your call’s signal bounced off of, but no idea of how far from the tower or from what direction
    3)some idea of the tower, distance and/or direction from the tower
    4)some idea of the actual location of the caller, based on either GPS or triangulation.

    Of course, #4 is the best, but even in the best, it’s usually not within feet but rather hundreds of yards. All of these possibilities are dependent upon your state and local government’s rules for 9-1-1 wireless, the technology of your phone, your wireless company, the infrastructure of the towers, how far away you are, the weather, etc.

    Bottom line, if you want emergency services to know where you are if whomever is calling can’t tell the operator, you NEED a landline phone!! I have taken calls that sound like someone fighting for their life, and I couldn’t locate them to send help.

    DOn’t even get me started on Voice Over IP phones (Vonage, etc)…. they have their own unique challenges.

    Pay the 15 bucks a month knowing that help can find you when you need it.

  9. Sharon says:

    I would think long and hard before changing life insurance policies. Not all policies are automatically renewable, and if you become uninsurable after switching you will be out of luck when it expires.

    Also, if you have a non-term policy you will be starting over, and will lose the equity you build up in it (Not quite the right way to put it, but close.) These are fixed premiums, and if you get it in your early 20s you will probably come out ahead over your life.

  10. I agree with you disagreeing with Karp about avoiding big-ticket energy efficiency upgrades. When it comes to the environment it is not always about just saving money. Making those changes will benefit in the long run. Plus these upgrades are going to be more affordable in the near future.

  11. Joan says:

    You mentioned the savings in giving up the telephone landline and changing the 5 most used light bulbs with CFLs. As a health and disability researcher, I say those are short-term savings versus long-term health affects. If you give up your landline and don’t change your telephone talking habits and continue long conversations on a cell phone, there are a wide variety of health affects for which there is an extensive body of science despite what that industry would have you believe. And the CFLs – check the EPA website about how to clean-up if you break one, and that site doesn’t even mention the electromagnetic fields you are exposed to if the lights are close to you for reading, etc.

    Short-term savings versus long term health affects. These are especially crucial for children who are developing and growing quickly as these can affect cell development, which if damaged from the exposure, will replicate as damaged cells.

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