Benjamin Franklin is quoted saying that “You should beware of small expenses because a small leak will sink a great ship”. This reality never downs on most of us but it has profound implications when it comes to your personal finances.
Take for instance the heated ongoing debate about the housing levy targeting employee payslips in the country. While the ruling class arguments sound completely oblivious to the economic realities of the working class, many of us are now able to see what those few hundred mean to our monthly income.
Yet, each day and month –many of us spent equally small amounts here and there without counting the long-term impact it has on our financial welfare. Take for instance if you were to lose 200 shillings every month. In a year this will have translated into 2,400. In 10 years this would be 24,000.
Now, let’s assume you were to invest this amount at an interest rate of 12% compounded every month. The 200 compounded monthly over a 10-year period equals 660. This is a return of 230% or your total amount will have compounded into 330% of the principal amount. 2,400 compounded over a 10-year period at the same rate will be 7,454 in 10 years.
Now imagine every 200 lost each month was compounded in a similar manner over a working life of 30 years.
Here are five important reasons why you should worry about your small losses daily, weekly or monthly:
- The power of money and wealth lies not in the face values, but in the compounded value – that is why even a single dollar or shilling will turn into a million over a long time;
- Ignoring the small spending robs you of the discipline of setting good habits – savings and investing are purely out of habit. Unless you cultivate this habit, every day you sink further away from your purpose or goals;
- Time passes whether you do it or not – I have explained this fact in previous writings. Each day that passes, is a day lost and a gain missed forever. The older you grow, the stiffer your climb becomes;
- Avoiding these small mindless expenses is a form of earning – we call it reverse incomes and if invested, they have the same compounding power as direct savings; and
- Money loves a faithful and careful owner – show me any well-monied person who spends carelessly. It is because they are careful with their money, that money seems to easily follow them wherever they go.
#As a concluding thought, you cannot be careless with money and expect money to be careful with you. That’s not how things work in the kingdom of money & wealth!