There are many financial self-help books which claim to hold the secrets to unimaginable wealth and financial success. They promise that you, no matter who you are, you are just 5 steps away from being the world’s next billionaire.
Well dare I say that not everyone is destined to be a billionaire. However, there is a common theme that runs through these books – this theme I call ‘The Golden Rule.’
Not to be confused with the Golden Rule of the Bible – ‘Do unto others as you would have others do unto you’, this Golden Rule guarantees financial success for all who do obey.
Mums and Dads, businesses small and large, clubs, co-ops and even governments should all strive to learn the Golden Rule.
The ultra-rich of the world already know the Golden Rule.
And now you do too.
The Golden Rule is –
‘Spend less than you earn!’
Or to be demonstrated mathematically –
This is it!
About all it takes to be wealthy… and perhaps even happy.
‘Spend less than you earn’ or ‘earn more than you spend.’ Whichever way you prefer to say it, success is most definitely guaranteed.
For a household, the rule should mean running a budget with a savings plan… and sticking to it.
For a business it means running a profit.
For a government it means running a budget surplus.
Adherence to the Golden Rule is wonderful – your wealth will grow and from this new wealth, more wealth will grow.
The Golden Rule declined
Failing to adhere to the Golden Rule is fraught with danger.
Spending more than you earn depletes your savings, may force the sale of your assets and may force you into debt. For a time this may be manageable. Understand however, spending more than you earn now, means you are taking an advance on your future earnings.
In the case of an individual, this advance required you to forgo the use of your future earnings in exchange for a perceived benefit now.
In the case of a business, you will forego future profits to bring forward a benefit.
In the case of a government – they are taking an advance on the future taxes which will be paid by you, by your children and maybe even your grandchildren.
When it comes to government spending, there is an economic theory which suggests that the more a government spends, the more prosperous that nation will be. The premise being that by spending more than it earns (deficit spending), the country will foster economic growth. This theory is known as Keynesian Economics.
Back in my university days I questioned the validity of this theory, much to the distress of the faculty and staff. To this day I have seen no practical evidence to support this Keynesian Economic theory. There has certainly been no shortage of national borrowing in the past 20 years and over this period there has been little in the way of real GDP growth. So I stand by what I said back in the late 90’s – ‘a country can never borrow its way into prosperity.’
A Golden Choice
Stick to the Golden Rule – it will not let you down. Strive to increase your wages, salary or business income and be constantly questioning your purchases.
Avoid credit cards and other personal debt. Living within your means now, should improve lifestyle over time.
Don’t be mistaken though, the Golden Rule in no way implies that all debt is bad. Some debt can actually be good. To understand which debt is good however, you must understand Intrinsic Value, our next foundation principle.
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