Today I start by talking about how we think about money. Wealth can be described as having more money than you need. A long time ago, a famous person named Benjamin Franklin wrote an article called the way to wealth. As with many things that Mr. Franklin talked about, wealth was one of his favorites. I think he first published this in his famous book called Poor Richard's Almanac.
Believe it or not he was the first to coin the phrase quote there are no gains, without pains". That saying has been shortened to " no pain, no gain". While that's often used to describe exercise, saving money is often as painful as going to the gym. It doesn't have to be that way.
One good way to tackle the problem of saving money, is with automatic withdrawals to a savings account that you don't have easy access to. That set it and forget it way of saving can be relatively painless. Do you really think it would affect how you go about your daily life if you were to save 10% of your paycheck every month? After a few months, I'm sure you wouldn't really notice.
Another phrase that ol’ Ben Franklin said was "get what you can, and what you get hold". By this I think he meant, earn what you can and then try to hold onto as much of it as you can. The idea being you won't have to spend everything you earn if you think about holding some of it. It's another way to think about saving for your future.
Naturally Mr. Franklin had some words of wisdom about taxes. After all the Boston tea party was all about excessive taxes. Here's a quote that I particularly enjoy:
Friends," said he, "the taxes are indeed very heavy, and, if those laid on by the government were the only ones we had to pay, we might more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly; and from these taxes the commissioners cannot ease or deliver us, by allowing an abatement. However, let us hearken to good advice, and something may be done for us; God helps them that help themselves, as Poor Richard says.
See what he said about our idleness? When we waste too much time watching television or playing games, that can cost us twice as much as our taxes. And don't forget about "folly"-that will cost us four times as much.
So hopefully as you follow along with our training, you will be able to avoid folly as well as idleness. I am here to encourage you to make the changes you need to build your wealth.
Another historical note from the way to wealth was given with regard to Spain and their downfall. While Spain was bringing home riches from the New World, they were spending much more than they were taking in. Here is how wise old Ben put it:
“If you would be wealthy, think of saving as well as of getting. The Indies have not made Spain rich, because her outgoes are greater than her incomes.”
You really should try to think of your own personal finances before you end up like Spain did in the 1800s. Try to keep your outgoes less then your incomes. In other words, don't spend what you don't have. This is very simple advice. Stay out of debt, save a fixed amount every month, and find good places to invest your savings.
Mr. Franklin had some harsh words to say about debt:
But what madness must it be to run in debt for these superfluities? We are offered by the terms of this sale, six months' credit; and that, perhaps, has induced some of us to attend it, because we cannot spare the ready money, and hope now to be fine without it. But, ah! think what you do when, I you run I in debt you give to another power over your liberty. If you cannot pay at the time, you will be ashamed to see your creditor; you will be in fear when you speak to him; you will make poor, pitiful, sneaking excuses, and, by degrees, come to lose your veracity, and sink into base, downright lying; for The second vice is lying, the first is running in debt, as Poor Richard says
He thought that going in debt was worse than lying. Being in debt leads to making excuses, avoiding the people you owe money to and worst of all – losing your liberty. Not having control over our finances is a very helpless feeling.
We worry, lose sleep, even break up with our loved ones over debt. Naturally the best thing to do is to avoid debt. However, there are some forms of “good debt”. One example would be your mortgage. Hopefully, your home appreciates in value. Therefore, you have taken on good debt to purchase a house.
A strong example of "bad debt" would be a new car loan. You lost money as soon as you drove it off the lot. So if you financed your car and paid zero down – you are already in the hole. Quite simply, you owe more money than the car is now worth. If you were to sell the car immediately, you would still owe money. How is that a good deal?
So listen to Ben Franklin when he tells you to avoid debt. The power of compound interest is working against you when you owe money. When you save or invest money, the beauty of compound interest is working for you.
And what are we to make of the following quote:
And further, What maintains one vice would bring up two children. You may think, perhaps, that a little tea, or a little punch now and then, -diet a little more costly, clothes a little finer, and a little' entertainment now and then, can be no great matter; but remember, Many a little makes a mickle. Beware of little expenses; A small leak will sink a great ship, as Poor Richard says and again, . . . .”
While the language may be old-fashioned, we can figure out that Ben was talking about watching your pennies. It sounds like Ben was a very frugal person, but we know better. However, the advice is still good.
A small leak will drain our savings just like a small leak in a bucket will drain out all the water. This would argue for finding a good piece of software to manage your checkbook. Tracking where your money is going is always a great idea.
If you don't have any software to track your expenses, you might want to try out www.mint.com. They have a free option that you can check out to see how things go. It's very user-friendly and has lots of options.
I highly recommend tracking your expenses because if you don't know where your money is going then how will you be able to save any?
Another great passage in The Way to Wealth is:
These are not the necessaries of life; they can scarcely be called the conveniences; and yet, only because they look pretty, how many want to have them! By these, and other extravagances, the genteel are reduced to poverty, and forced to borrow of those whom they formerly despised, but who, through industry and frugality, have maintained their standing; in which case it appears plainly, that A ploughman on his legs is higher than a gentleman on his knees, as Poor Richard says….”
This brings up the notion of chasing after more shiny things. Spending money on things we don't really need but catch our eye as we passed by in the mall. Try to avoid these at all cost. Or they'll end up costing you way too much.
Don't end up on your knees because you had to have the latest and greatest. Keep your wallet in your pocket. As an exercise, go over last month's purchases and see which ones you could have done without. I think you'll be surprised.
All citations are from – Benjamin Franklin, The Way to Wealth (1758).