Most of us just know Benjamin Franklin either as the face on the US $100 bill or as the guy who had trouble coming back home after flying his kite (you remember this story, right?). Maybe some of us are aware that he was some sort of post-renaissance renaissance man, being an author, scientist, inventor, diplomat, politician, and statesman at different points of his life. But what many of us don't know is that Benjamin Franklin was also an astute financial adviser, espousing simple and effective money management ideas that have withstood the test of time. In this post, we'll take a look at some of his sound financial advice that, although published some 260 years ago, couldn't be more applicable today.
1. "Remember that time is money. He that can earn ten shillings a day by his labour and goes abroad or sits idle one-half of that day, though he spends but sixpence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides."
Interpretation: If you don't work, you don't earn. Being lazy is the same as throwing away money.
2. "Remember that credit is money. If a man lets his money lie in my hands after it is due, he gives me the interest, or so much as I can make of it during that time. This amounts to a considerable sum where a man has good and large credit and makes good use of it."
"Remember this saying, 'The good paymaster is lord of another man's purse.' He that is known to pay punctually and exactly to the time he promises may at any time and on any occasion raise all the money his friends can spare."
Interpretation: It is important to pay your debt (and collect what you're owed) when it is due. Delayed payments result in significant opportunity costs to lenders, and heavy penalties to delinquent borrowers. Apart from this direct economic benefit, paying on time will also nurture your relationships with creditors and build good will, resulting in an improved credit standing, higher debt capacity, and more favorable rates in future borrowings.
3. "Remember that money is of the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is six; turned again it is seven and threepence, and so on till it becomes a hundred pounds. The more there is of it the more it produces every turning, so that the profits rise quicker and quicker."
Interpretation: Money or capital may be used as a resource (referred to in economics as a "factor of production") in undertaking pursuits that create benefits -- like the development and production/rendering of a new good or service that meets a current need, for example. So, over time, money should grow as it is put to such a use and generates more value -- the essence of the concept of time value of money.
4. "He that kills a breeding sow destroys all her offspring to the thousandth generation. He that murders a crown destroys all that might have produced even scores of pounds."
Interpretation: If capital is a resource that produces benefits for the owner, then it wouldn't hurt to have more of it, and the most effective way to accumulate capital is by saving and controlling spending; "murdering a crown," or spending too much and depleting your savings, will diminish your ability to earn from investments.
5. "Beware of thinking all your own that you possess and of living accordingly. It is a mistake that many people who have credit fall into. To prevent this, keep an exact account for some time, both of your expenses and your income. If you take the pains at first to mention particulars, it will have this good effect: you will discover how wonderfully small, trifling expenses mount up to large sums, and will discern what might have been and may for the future be saved without occasioning any great inconvenience."
Interpretation: Live within your means, and the most effective way of doing this would be to track your income and expenses. Even the smallest saved amounts matter.
6. "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; that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do, and with them everything. He that gets all he can honestly and saves all he gets (necessary expenses excepted), will certainly become rich."
Interpretation: This last point needs no interpretation. Saying anything more will just diminish its truth and simple eloquence.