Look a bit around the ‘net and you’ll find references to it everywhere – I’m not sure if it was Nathan Dungan who came up with it first, or Dave Ramsey, or ThreeJars.com, or Elmo from Sesame Street. It doesn’t really matter, though, because the concept is easy enough for a young child to understand, and powerful enough that adults should take heed:
Every time you earn money,
- take a portion of it and Share it with others (charitable giving)
- take another portion and Save it for later (college fund, retirement fund)
- whatever is left you can Spend on things you want or need
The key here is not just that there are three categories, but the order of the three categories. If you don’t have the discipline to segregate your giving and saving BEFORE starting to spend, you’ll quickly find that your spending habit will expand to accommodate all of the money you make. By deciding ahead of time what you feel comfortable giving and saving – and making that money unavailable for spending – you’re guaranteeing that you will be able to stick to your budget.
It’s fundamentally about being in control of your money, instead of your money being in control of you.
If you currently give your kids an allowance, or if you’re thinking of giving them an allowance, plan on explaining Share Save Spend to your kids, and helping them to establish the discipline of Sharing and Saving from the first part of their income, as small as it is. A good rule of thumb is to take 10% for each – this leaves a full 80% for living expenses. For very young children, a jar or piggy bank works well – for a $5.00 allowance, this is 50 cents in the Sharing jar, and 50 cents in the Saving jar, with $4.00 left over for Spending.
This may not seem like a big deal, but think about how this will set up your child for the future. If it is a habit — an automatic act — that 10% of each paycheck goes into savings, your child will be able easily to accumulate wealth. Consider this example: Assuming that income merely keeps up with inflation, and invested savings can earn 8% return over the long term, a person who saves 10% of their income from age 18 to 29 and then stops saving will have the same retirement fund at age 62 as someone who saves 10% each year from age 30 to age 62.
If you’re in that second camp, and have started saving later in life, don’t despair; teach your children to save first, and you may be able to look forward to them supporting you in your old age.