Achieving a Stress-Free Financial Life – Help is on the Way

Jul 09, 2017 News

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Dr. Terence Smith, Deputy Governor, Bank of Guyana

 

A few words of advice on ending financial stress

Ladies, gentlemen, and youths of all ages, please listen, “People are unable to live their full

potential because of a lack of financial knowledge.  Therefore, financial literacy is the most important set of life skills that you will need to survive and be successful in the modern world.”

Financial success does not have to be complicated.  Benjamin Franklin (1706-1790), one of the founding fathers of the United States who drafted the Declaration of Independence and the Constitution of the United States said that, “He that waits upon fortune, is never sure of a dinner.”  So, why dream and wait for fortune to come to you.

The key to financial freedom is control – and the key to control is planning; therefore, following a financial plan that you are comfortable with will bring you financial freedom.  My advice is that you be proactive and develop a financial plan for yourself.

Who was Benjamin Franklin?

Benjamin Franklin, born in 1706 in Boston, Massachusetts was a successful businessman, public servant, statesman, patriot, inventor and thinker; his accomplishments are legendary.  According to the literature, he owned 18 paper mills and was the first postmaster and father of the modern weather bureau.

To him we owe the invention of the Franklin stove, bifocals, electric explosives, public libraries and many more inventions.  His face is on the front of the US$100 bill, the highest denomination of American currency printed.

Our interest in Benjamin Franklin is his advice concerning managing money and on wealth building.  In fact, “The Way to Wealth” written in 1757 is a summary of Ben Franklin’s advice on wealth building.  His advice is just as relevant today as it was 270 years ago when first written.

Steps you can take to improve your financial outlook

As part of your financial plan, you must include Ben Franklin’s Principles of Wise Investing.  The following are six crucial principles upon which you can base decisions about investments and money management.  Ignoring these principles has brought financial ruin to thousands of people – rich and poor alike.

According to Lynn Robbins, writing on Ben Franklin, stated that these principles do not deal with economic cycles or specific investments; rather, they contain basic advice to follow in any economic climate.

• You are your own best investment: Everything Ben Franklin did in those early years was an investment in himself.  In fact, he said, “I resolve to apply myself industriously to whatever business I take in hand, and not divert my mind from my business by any foolish project of growing suddenly rich; for industry and patience are the surest means of plenty.”  He recognized that his future lay in himself.

You must invest in yourself by reading books and articles, especially, matters related to financial literacy that inspire you and by working with teachers and colleagues who expand your world.

Whether we invest in formal education or in personal improvement of our talents and interests, an investment in ourselves is the first and most important investment we can make and it promises the greatest potential payback.

Another maxim from Ben Franklin makes the point, “If a man empties his purse into his head, no one can take it away from him.  An investment in   knowledge always pays the best interest.”

• There is no such thing as a free lunch: When you are looking to get something for nothing, you will probably end up getting nothing and paying quite a lot.  Every con man plays off one simple lie: you can get something for nothing.

Recently, United States federal prosecutors arrested a California man they accuse of duping investors out of $20 million in a real estate Ponzi scheme.  The 36-year old promised investors he would use their money to buy and manage several rental apartments, and in some cases, the buildings did not exist.

Authorities say he used money from new investors to pay past investors their so-called profits.  The accused was charged with mail fraud, wire fraud and money laundering; the charges make him eligible to spend 20 years in prison.

Generally, another warning sign of a con man is that there are no documents available when trying to make a deal.  An honest man has nothing to hide and complies with all regulations.    

• A part of all you earn is yours to keep: Saving is the most important financial move you can make.  Your ability to save now can make or break you in retirement; it open opportunities or close doors.  When we do not take care to keep some part or our earnings for ourselves, we deny ourselves future financial security, stability, and choices.

Impress yourself with the idea that, “A part of all I earn is mine to keep.”  Say it in the morning when you first rise and say it to yourself all day long.  Then take whatever portion seems wise.  Let it be not less than one-tenth and save that.  Arrange your other expenses to do this if necessary.

Soon you will realize what a rich feeling it is to own an asset which you alone have claim.  As it grows, it will stimulate you.

• Do not trust the knowledge of jewels to a brickmaker: Investing with friends is perhaps the highest risk of all.  Because we trust their honesty so much, we may be blind to the fact that they might be incompetent.  In fact, when you invest in hot tips over the back fence (neighbours), you may get burned.

In the book, “The Richest Man in Babylon,” the story is that back in ancient Babylon there lived a young man named Arkad who saved a tenth of all he earned for one year.  Then he invested it with a brickmaker about to buy some rare gems.  They were going to sell the jewels for a high profit and split the dividends.

As it turned out the brickmaker bought worthless coloured stones that looked to him like jewels, and Arkad lost his savings.

• Most investments are in people, not in things: When examining a potential investment, set your emotions aside and look at the people behind it, for that is where your investment is going.  Most often, it is these people, rather than the investment itself, that determine the potential for profit.

Con men are quick to spot new targets so, with pension savers now enjoying their new freedom to access and invest their retirement cash, frauds are on the rise.  One fraud that comes to mind is the scam that involves salespersons promoting investments in “rare earth” metals used in the manufacture of computers and mobile phones.

The investments are unregulated and it is hard to know whether the commodity being sold exists.

• Use the power of compound interest and get out of debt: There are two ways to increase your net worth: by increasing assets or decreasing debts.  With assets, there is always risk; real estate, stock options and precious metals fluctuate in value relatively unpredictably.  Before you think to increase your assets, decrease your debts.

Reducing your debt, however, increases your net worth at a guaranteed rate.  If you currently pay 20 percent for interest charges on a credit card, paying it off equals a 20 percent return on your money.

The power of compound interest is said to be the eighth wonder of the world.  If you want to get the most return on money you save or invest, you want compound interest.  The power of compound interest is the reason that financial planning and retirement experts recommend starting a retirement plan early.

Conclusion

Try to end your financial stress now although modern principles have complicated the process of accumulating wealth.  Specifically, twenty-first century income taxes, inflation and some debt have made it a little difficult for young people to work with the wisdom of Ben Franklin.

Though more than two centuries old, his priceless insights into personal finance have remained constant through time and shifting economies.

Next week we will discuss credit reporting as it relates to financial literacy.  Thanks for all your comments and support.  As usual, please send your comments or questions to deputygovernor@bankofguyana.org.gy

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