The Past, Present, Future Rule

The following is an excerpt from the financial section of my upcoming release “Blueprint to Beast”. I opted to release this in article form because for many, this season represents tax time, which means that people will be coming into a sum of money in the form of a tax refund. The below rule represents a beneficial strategy for managing “found money”.

The Past, Present, Future rule is a strategy that is easily appied anytime there is a sum of money, expected or unexepected, suddenly in your income column. Common examples include tax refunds (for those who receive them), inheritance checks, capital gains, or the sale of a vehicle or home.

The rule is simple; the money is divided into thrids, with one third being applied to the past (debt), one third being applied to the present (recreational spending or purchases such as home rennovations or a new vehicle), and one third going to the future (investing).

The benefits of using this method are many, but the primary reason for my endorsement is the global effect that this technique has on your personal econonmy which you should be constantly monitoring and improving.

I’ll use a story to illustrate the rule in action.

A few years back I was speaking with a good friend who was about to come into just shy of five thousand dollars in the form of a tax return. She was about forty-eight hundred dollars in debt, and expressed her excitement about using the money to pay off the three credit crads that she was carrying balances on.

My objection to her idea came from the information that she had less than one hundred dollars in her checking account, and nothing at all in savings or investments. I explained the Past, Present, Future rule to her and she altered her strategy.

Five thousand divided by three comes out to about $1,667.

In this example she applied that amount to her credit card debt which knocked out one of the cards entirely, and paid a small sum on one of the remaining ones.

She then deposited $1,667 in her checking account, taking $300 out of that figure for some recreational spending. The deposit relieved much of her stress surrounding the on-time payment of her bills by providing a cushion in her account.

She then deposited $1,667 into a savings account (see Blueprint to Beast for more information on better examples of liquid investments that could have been used here instead of a savings account).

By splitting the chunk of money into three parts she was in a better situation all around. Her debt was reduced by approximately one third, she now had money in her checking account to relieve much of the monthly bill pay stress that she had been having, and to top it off she had a sum of money in savings which represented a start towards her goal of moving out of her parents house and into a place of her own.

Her overall sense of personal wealth was substantially higher than it would have been if she had simply eliminated her credit card debt, leaving her still broke in the moment, and with nothing set aside for her future. Being that she is an employee who is taxed before ever receiving her pay, she counts on a tax refund check each year now, and applies this principle each time. With each application, she is able to experience a boost in her personal economy, and her overall happiness.

I encourage you to apply this rule the next time you find yourself with a lump sum of money in your hands. See if you are not happier than you would be if you were to dump it all into one of the three categories.

 

For more information on the Blueprint to Beast principles, or to schedule Coaching or Consultation sessions with JP, click here. Use the coupon code NEWCLIENT if you are signing up for the first time to save 15% off of your purchase. 

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6 Responses

  1. Jeremy

    Great stuff, JP.

    March 11, 2013 at 8:57 am

  2. Chris

    Great system! Money management is an area I need to work on big time

    March 26, 2013 at 2:35 am

    • Finance represents one of the five major B2B headings. Many consultation clients focus on finance in their sessions. If you really want to get serious about increasing your financial literacy a single session consultation would be a great and valuable investment.

      March 26, 2013 at 2:51 am

  3. SomeCowBoyGuy

    Sorry Johnny P but this is horrible financial advice. If you’re friend has credit card debt at 18% interest, she is paying 900$ a year in interest on a loan of $5000. Her absolute number one priority should be paying off her debt. Obviously she needs to make sure she has money for future bills, but until her debt is paid off she should not be focusing on saving (no legal investments pay 18% or more annually over an extended amount of time) and she sure as hell shouldn’t be devoting money to entertainment. If she wants to have a shot at living a financially secure life, she’s got to pay off the debt first. Her experience of a boost in her personal economy is a mirage at best, and a detriment to long term financial access. If she stopped paying out $900 in interest every year she would not have to rely on her tax return to make it ends meet.

    March 5, 2014 at 4:37 pm

    • There’s definite logic to what you are saying. I’ll write a response in article form revisiting this person’s situation, and elaborating on the logic that I applied and the result.

      March 5, 2014 at 4:51 pm

  4. SomeCowBoyGuy

    Pretty cool Johnny. I was expecting you to disregard my comment. I am impressed. Looking forward to reading that article.

    March 5, 2014 at 7:07 pm

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