Financial Advice That Lasts

Good advice withstands the test of time.  It will hold true now and in 200 years.  This also applies to advice on money and finance.  Markets change, recessions come and go, and so do companies.  Needless to say, it takes mad skills to offer financial advice so insightful that it will always be true. One of the earliest authors of some great financial advice was Benjamin Franklin.

Ben Franklin is one of the most revered persons in American History.  Among other things, he was one of the Founding Fathers of America, an inventor, newspaper editor, and governor of Pennsylvania.  The dude invented bifocals and the lightning rod for crying out loud.

Ben was also an astute business man; a true example of someone who went from rags to riches.  He was essentially a runaway with no money when he arrived in Philadelphia at the age of 17 in 1722.  There, he started a publishing business in 1727.  The rest, as they say, is history.

solid financial advice

You know you’ve got the money-thing down when your face is on the c-note.

So how does someone like Ben go from rags to riches?  Fortunately, he frequently wrote on the topics of finance so we’re able to get a glimpse into his strategy.  If you peruse some of the issues of Poor Richard’s Almanac or his other writings, you’ll find that Ben espoused the same financial values of people today like Warren Buffet and Jack Bogle (founder of Vanguard).  What’s amazing to me is how Ben’s insight has held true for so long.  Three-hundred years later it still makes sense.  It was truly solid financial advice.

Let’s start with one of my personal favorites:

Money can beget Money

Remember that Money is of a prolific generating Nature. Money can beget Money, and its Offspring can beget more, and so on. Five Shillings turn’d, is Six: Turn’d again, ’tis Seven and Three Pence; and so on ’til it becomes an Hundred Pound. The more there is of it, the more it produces every Turning, so that the Profits rise quicker and quicker. He that kills a breeding Sow, destroys all her Offspring to the thousandth Generation. He that murders a Crown, destroys all it might have produc’d, even Scores of Pounds.

And so the story goes with compounding interest and exponential growth.  The five shillings turn’d six, turn’d again seven, is exactly what the magic of compounding interest does for us.  To put it in perspective, if you invest $200/month for 30 years, you’ll end up with $200,000 (assuming a 6% annualized return).  The bigger the balance of your retirement account, the more money it makes you every year.  That $200k makes you $12,000 the 31st year.  Then it makes you $12,720 the next year.  The 33rd year, it makes you $13,483!  All while you sit on your butt and enjoy an Arnold Palmer.

The principal of your investment accounts is quite literally the breeding sow; the appreciating assets and dividends, her offspring.  Taking out a 401k loan is murdering the crown, destroying all it might have produced.  As soon as you touch the principal, you are hurting your own profits.  I’m not saying “you should never touch your principal”.  It’s just important to recognize that it can have negative effect on your financial growth.

Leave your damn sow alone. She needs to grow your dividends!

Leave your dang sow alone. She needs to grow your dividends!

The Way to Wealth

In short, the Way to Wealth, if you desire it, is as plain as the Way to Market. It depends chiefly on two Words, Industry and Frugality; i.e. Waste neither Time nor Money, but make the best Use of both. He that gets all he can honestly, and saves all he gets (necessary Expences excepted) will certainly become Rich; If that Being who governs the World, to whom all should look for a Blessing on their honest Endeavours, doth not in his wise Providence otherwise determine.

Industry and Frugality.  Even without things like index funds, automated contributions, and employer matches, Ben recognized that the best way to make money was to have money.  This is a pillar of capitalism–the system favors those with money.  You have got to accumulate money in order to get rich.  This is tough at the beginning, but when you make sacrifices earlier and live a frugal lifestyle, you reap the rewards later.  In a twisted sort of dichotomy, if you live like you’re poor now, you’ll live like a king later.


How to implement Ben’s advice into your life

Frugal is easy enough to figure out: “Save all you get except necessary expenses.” But how the heck do you become industrious?  No, it doesn’t mean you need to go out and create the next Apple (though that would help!).  An industrious person is diligent, methodical, and meticulous.  The Average Joe can be industrious by being diligent with their investments.  Investing every pay period.  Buying even when there is panic in the air.  Constantly evaluating their investment fees to ensure the highest possible returns.  Check out my article on how to Dominate Savings with Automation to make being industrious a piece of cake.

Action items

Ben’s advice above can be summarized in three points:

  1. Practice a frugal lifestyle
  2. Be industrious
    • Automate your investment contributions so that you can be diligent without the mental strain.
    • Use a program like Personal Capital to visualize your spending and investments.  This will help you track your spending and investments.
  3. Grow your sow
    • Let the magic of compounding interest work in your favor.  The number one mistake people make is waiting.  Time is both your best friend and your worst enemy.  Starting early will put you ahead of the curve, but starting late means you lose big.  You can open a TD Ameritrade account with $0 and Create Your Own ETF Portfolio.

 

If you’re curious about reading more from Ben, you can check out this essay: Benjamin Franklin, “Advice to a Young Tradesman, Written by an Old One”.

 

 

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