Money: One of the Three Most Precious Resources
- Elmen Lamprecht
- 16 hours ago
- 8 min read
"Money is a terrible master but an excellent servant," P.T. Barnum once said, capturing a profound truth about the dual nature of money. Similarly,
Mark Twain, known for his humor and incisive social commentary, quipped, "The lack of money is the root of all evil." While meant humorously, Twain's observation underscores a simple truth: without money, our freedom to pursue our desires and goals is severely limited. Regardless of one's economic philosophy, the reality is that we live in a capitalist system where the growth of capital and the exchange of money are fundamental to the way our daily lives function.
Understanding the Role of Money
Before delving deeper into managing your money, it's crucial to emphasize that being wealthy is not a prerequisite for living the Resolute Life. The Daily Life of Resolute Beings, the series of books on which this blog is based, teaches us that success, as conventionally defined by monetary wealth, is not the best indicator of a meaningful existence. People leading a Resolute Life can be either poor or rich since success is measured by much more than just material possessions. It is also measured by finding your meaning in life and by the deep connections you make with others.
However, irrespective of one's views on success, managing financial resources effectively remains essential. The better we manage money, the more options we have to express our Personal Intent (our destiny). Be Resourceful (the 2nd Principle of a Resolute Life) is about maximizing what you have, understanding that money is a tool that can be used effectively or not.
As Ayn Rand aptly put it, "Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver."
Maximizing Your Financial Resources
It is easy to believe that financial independence is based on luck. This belief allows us to attribute our financial situation to external forces, absolving ourselves of responsibility. Although it is true that some people are fortunate to be born with more favourable financial opportunities than others, sustainable financial success is not about luck but following the laws and principles of money. Many people born in poverty have become billionaires by learning and applying these principles, while some born into wealth have squandered their fortunes due to neglecting these same principles.
Everyone, regardless of their background, has the opportunity to maximize their financial resources. Making money is not a matter of genetics but of discipline. People find making money difficult because it is not easy sticking to the laws and principles of generating wealth in a society that promotes consumerism. We all want the bling and we want it now. Yet, only those who are willing to apply the laws and principles of money, will be rewarded with growing financial freedom in the long-term.
The Three Laws of Money Management
George S. Clason's book, "The Richest Man in Babylon," offers timeless wisdom through its simple yet profound fables around the generation of wealth. The three laws presented in this book provide an excellent foundation for Resolute money management.
The First Law: Keep 10% of Your Money for Yourself
At first glance, it may seem that all the money you earn is yours to keep. However, in reality, a significant portion of your income goes to others—bills, rent, groceries, transport, taxes, and more. The first law suggests that you should learn to keep 10% of your income for yourself and live on the remaining 90%. Essentially, this law is about developing the habit of saving.
Saving is often more of a psychological challenge than a practical one. In a consumer-driven society, the temptation to spend is ever-present. We are conditioned to want more and to want it immediately, which often relegates our long-term financial goals to a lower priority.
Charles Dickens encapsulated this dilemma perfectly: "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
To adhere to the first law, your finances should dictate your lifestyle, not the other way around. The practical application involves creating a budget and having the discipline to stick to it. People with real wealth say 'no' more than they say 'yes.' Saving money not just about buying the same things for less money, it is sometimes refusing to buy something at all.
It's about making fundamental lifestyle changes. If your current spending patterns leave no room for savings, it's time to re-evaluate and adjust. There are many budgeting tools on the internet that you can use. Make some time to read through a couple of articles regarding budgeting and tips on saving. The following three easy steps is a great way to start:
Step 1: Analyze Your Current Spending Patterns: Review your bank statements for the past six months to identify spending trends. Your spending should align with your personal goals and dreams. Often, we spend more on fleeting pleasures than on investments that will take us closer to our destiny. Seeing this discrepancy can be a sobering experience.
Step 2: Prioritize and Alter Your Expenses: If your expenses do not support your dreams, re-prioritize them. Start by reducing large expenses, such as downgrading to a smaller car or home. It might sound drastic, but downgrading to a smaller car or a smaller home might the painful to your ego at first, but over time it will help you generate enough wealth to buy an even bigger house/car than the first. Next, tackle recurring monthly expenses—phone, internet, insurance, groceries. Finally, scrutinize discretionary spending. Eliminate non-essential purchases that do not add value or align with your personal goals. Be ruthless with your budget; cut out anything that is not essential.
Step 3: Use Standard Payments: Automate as many payments as possible through debit orders, starting with your 10% savings. By paying yourself first (saving 10%) and automating other essential payments, you ensure that your bills are covered and that you have a clear picture of what discretionary funds are available after all payment have been made.
There are two important notes I would like to make before me move to the other laws.
Firstly, the 10% savings do not include things like provident/pension/preservation funds or endowments/college funds for your kids. These are still seen as expenses and the 10% savings must be on top of this. In other words, money set aside for old age or your kids’ education do not qualify as investment savings.
Secondly, and most importantly, talking about savings on top monthly expenses, seems out of touch with the financial situation of most households. Families are desperately clasping to their current lifestyles, burdened with crushing stress about making ends meet on a month-to-month basis. When one do not have enough money to pay for necessities, thinking about savings is simply not a priority. In cases such as this, it is important to understand the spirit of the first law in relation to the 3 Principles. Any short-term decisions you make around monthly expenditure should never jeopardise your future or the future of others (e.g. your children). Therefore, the 1st law (keeping 10% for yourself) does not dictate that you must stop paying for basic necessities (e.g. food, school fees) to save money. In some cases, there will not be money left to save no matter how you look at your monthly income and expenses.
However, in most cases, families are simply accustomed to a certain lifestyle and due to pride or comfort, they are reluctant to give up on non-essential or luxury expenses. They have confused needs with wants. Herewith a few examples: Food is a need, take-out or ordering in is a want. Clothing is a need, branded clothing is a want. Rest and relaxation is a need, going to the movies is a want. Transport to work or school is a need, buying a new car every 3 years is a want. Communication (phone, internet) is a need, getting the latest Apple iPhone every year is a want.
The spirit of the 1st Law of Financial Management is about being ruthless around your monthly spending and reducing it to such an extent that you earn more than what you spend. In most cases, individuals and families can lower their lifestyle without jeopardising their future. Yes, it will sting your pride and your comfort levels for a while, but building generational wealth requires that you make sacrifices and say no to short-term luxuries in favour of long-term prosperity.
The Second Law: Invest That Extra 10%, Wisely
Once you have cultivated the discipline to save, the next step is to make your money work for you.
"Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can… have money to invest. You can’t win until you do this." (Dave Ramsey).
Investing your money allows it to grow, which is key to financial freedom and generational wealth.
If the 1st Law is all about discipline, then the 2nd law is all about intelligence. Investing wisely requires intelligence and knowledge. Never invest in things you do not understand. Lack of knowledge exposes you to unnecessary risks. Before investing, conduct thorough research, seek multiple opinions, and consult experts. Whether it’s property, stocks, or other investments, understand the risks and rewards.
If you have debts, prioritize paying them off before investing. The interest rates on debts are often higher than the returns on investments. Start with debts that have the highest interest rates, such as credit cards or personal loans. Once you are debt-free, begin investing wisely.
The Third Law: Do Not Spend the Gains from Your Investment Money
The 3rd Law of money emphasizes the power of compound interest.
Albert Einstein famously remarked, "Compound interest is the eighth wonder of the world. He who understands it earns it, and he who doesn’t pays it."
To illustrate, let’s compare three individuals: Dave, Rob, and Peter. Dave starts saving $100 per month at age 20 with a 5% annual growth rate. He stops saving at age 35 but leaves his investment to grow until retirement at 65. Rob starts saving the same amount at age 35 and continues until retirement at 65. Peter starts saving at 20 and continues until 65. At retirement, their investments are as follows:
· Rob: $83,572.64
· Dave: $119,915.15
· Peter: $203,488.10
Due to the power of compound interest, Dave’s investment is worth 43% more than Rob’s although he saved for only 15 years and Rob saved for double that (30 years). Peter, who saved for 45 years, ended with 143% more than Rob who saved for 30 years.
The key to compound interest is to let your money grow and resist the temptation to spend the gains. You literally make your money work for you. All you need to do is keep on saving and not touch your savings. However, the bigger your savings grow, the more tempted you are to spend it on ‘that something special’, that overseas holiday that is on your bucket list, that sports car that you have always dreamed of. You might even convince yourself that you deserve it, that you deserve to spoil yourself. And you will be correct – you do deserve it after working so hard and saving so diligently. But if you spend your investment savings, you are putting yourself back to square 1, erasing decades of diligent savings in one fell swoop.
Building generational wealth requires resisting the urge to spend investment gains on short-term pleasures. Instead, allow your money to grow and compound, providing a foundation for long-term prosperity and security. Those who save and invest without touching their principal or gains can retire with financial peace and leave a legacy for their children. And those individuals who teach their children to do the same (spend less, invest wisely and resist temptation) build true generational wealth by the 3rd generation. Welcome to the top 1%.
Last words
In conclusion, the three laws of money management—saving, investing wisely, and allowing your investments to grow—provide a solid framework for financial success. These principles require discipline, intelligence, and the ability to resist temptation. By adhering to these laws, you can achieve financial freedom, regardless of your starting point. Remember, money is a tool that can serve you well if managed properly. Embrace these principles and take control of your financial future, paving the way for lasting prosperity and security.
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