270 Year-Old Financial Advice

In my first post, I quoted a few lines from Benjamin Franklin’s Advice to a Young Tradesman (1748) about valuing your time as you would value money.

The clarity of that quote led me to read the entire passage (it’s only a couple pages long), and it was definitely time well spent.

In the remainder of the paper, our Founding Father covers the subject of credit and debt in ways which are still relevant today.

He reminds the reader that “Credit is Money” in the sense that lending your money to others (or investing, in a modern sense) generates interest on the amount lent, which “amounts to a considerable Sum where a Man has good and large Credit, and makes good Use of it.”

This is a great reminder of the fundamental concept of putting your money to work, letting it generate even more money for you. This is a fundamental idea in accumulating wealth.

Ben goes even further into the concept by explaining the awesome power of compound interest:

“Remember that Money is of a prolific generating Nature. Money can beget Money, and its Offspring can beget more, and so on… The more there is of it, the more it produces every Turning, so that the Profits rise quicker and quicker.”

I love the term “Money is of a prolific generating Nature.” By now many of us have come to understand the power of compound interest, which greatly multiplies our investments over long time periods.

The lesson here is to put your money to work as soon as possible, and don’t touch it as it generates more and more all by itself!

Franklin also touches on a frugality hack which is still trumpeted by personal finance experts to this day:

“Remember that Six Pounds a Year is but a Groat a Day. For this little Sum (which may be daily wasted either in Time or Expence unperceiv’d) a Man of Credit may on his own Security have the constant Possession and Use of an Hundred Pounds. So much in Stock briskly turn’d by an industrious Man, produces great Advantage.”

Watch your daily spending! In modern terms, a few dollars spent on insignificant things every day can amount to thousands of dollars over the course of a year.

This amount, if instead put to work through investments or lending, could generate even more in the long term.

A daily $3 breakfast burrito costs you over $1,000 per year. That’s almost 20% of your annual Roth IRA investment right there.

The key phrase in that quote is “Expence unperceiv’d.”

If you have ever started tracking all your spending, you probably had a similar shocking realization I did to learn exactly how much you spent on frivolous things. The takeaway for me is to make sure none of your expenses are “unperceiv’d”!

Ben dives deeper into the concept of paying your creditors on time, and working hard to pay off debts when you owe someone money. He then drops familiar personal finance wisdom about keeping an emergency fund:

“Beware of thinking all your own that you possess, and of living accordingly… To prevent this, keep an exact Account for some Time of both your Expences and your Incomes… you will discover how wonderfully small trifling Expences mount up to large Sums, and will discern what might have been, and may for the future be saved, without occasioning any great Inconvenience.”

The man nicknamed “The First American” wraps things up with a final, powerful thought on building 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”

This quote should be forever branded on the minds of those seeking financial independence. I’m thinking the part I put in bold would make for a great tattoo… or at least a good refrigerator reminder!

Industry earns you the money, frugality allows you to put it to good use.

Get all you can honestly get, and spend only what is necessary to spend, and you’ll be rich in no time.

This piece is a great example of how the core principles of personal finance haven’t changed in hundreds of years. It has honestly become a sort of money manifesto for me, because it sheds light on all the high level actions necessary to build wealth.

It’s a refreshing reminder that the answers are usually simple, and carrying them out consistently is the real challenge.

What do you think?