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Financial Management Advice for All Age Groups

ROANOKE, Va. — During 2013, I had more time than normal to read. I endeavored to try and broaden my base of knowledge by reading various management books. I also took time to explore the self-help aisle. As we start a new year, I would like to recommend a small but powerful book to the loyal readers of my monthly column. The book is titled The Richest Man in Babylon by George S. Clason. This simple, 144-page book reportedly contains the money management secrets of the ancients. I originally found this book as a newlywed back in 1970, and while its ideas were interesting, the formula for financial success laid out in the book seemed too simple to be believable. Now, 43 years later, I have become a true believer of the simple financial rules emphasized in the book.

For those of you close to retirement, or those who have many years to go, the financial principles presented in the tome will help you improve your future or secure for you a comfortable retirement. For those of you who are not ready to invest $7 for the book, I will try to highlight some of the principles in this column.

The first rule to financial freedom is to pay 10% of your income to yourself first. I have always taken pride in paying all my bills on time. But there have been times when paying all my bills took all the money I earned. I learned the sad fact that wants, needs and desires expand as quickly as my pay. When I decided to pay myself first, and learn to live on the rest, I began to really enjoy life. I decided to take advantage of my company’s 401(k) program. They were willing to match 50 cents on the dollar up to 5% of my salary. By putting 7.5% of my pre-tax paycheck into the program, I was able to save a total of 10% of my income. This is a great long-term saving program, but we all need to have access to extra cash every once in a while. Therefore, I started regularly putting an additional 10% of my paycheck directly into my credit union account. It was amazing how fast the money added up, and how great I felt as the money grew.

My wife and I learned to live on the other 80%. We tried to watch our expenses, and made sure that we stayed within our spending limits. At first it was difficult, but after a little practice it began to come naturally. We put no restrictions on where or how we spent this 80%. We were free to spend any extra cash we had, after paying our regular monthly expenses, on trips, clothes, movies or other luxuries we desired. The idea is not to forgo the fun things in life, but to pay for them out of your 80%.

The second rule is to profitably invest your savings. The concept is to put your savings to work so that it can increase without risking the principal. As the years pass, it multiplies in surprising fashion.

The third rule is that money clings to the protection of the cautious owner who invests it under the advice of men wise in its handling. You have worked hard for your money, and you want to protect it. You also need for it to go to work for you so that it can earn a respectable rate of return. It is therefore necessary for us to seek the advice of professionals in how to invest our money in profitable ventures that will ensure the safety of our savings and its return.

The fourth rule is that money slides away from the man who invests it in businesses or purposes with which he is not familiar, or which are not recommended by those skilled in investing.

The final rule is that money runs away from the man who forces it to impossible earnings or who listens to the alluring advice of con artists, or who trusts it to his own inexperience and romantic desires for investment. During the Clean Shows in Las Vegas and New Orleans, I watched many people try their hand at the various gaming tables. I know for a fact that the odds always favor the house. These odds guarantee the house that it will receive a predictable portion of all the money bet in its gambling establishments. Those sites are unwise locations to takes one’s money and try to make it grow. Similarly, the lottery, with its tempting commercials and large payoffs, is not a sound place to invest one’s money. If the deal being offered to you by a friend seems too good to be true, then it probably is.

There are no shortcuts to the accumulation of wealth. The most valuable commodity we have in accumulating wealth is time, which is given to all of us freely and equally. People who are disciplined enough to pay themselves first (at least 10%) on a regular basis will learn the value of time, and with that the time value of money.

The important thing to remember is that it is never too late or too early to start.

Have a question or comment? E-mail our editor Matt Poe at [email protected].