Let me (Jim Rohn) recommend a book for you to read: The Richest Man in Babylon, by George Clason. Perhaps you’ve already read it. Read it again. It’s just a small book–you can read it in one evening. I call it the appetizer for the full discourse on the subject of financial independence. The major theme of this book is that what you do with what you have is more important than what you have. What you do with what you get is more important than what you get.
What we do with what we have says so much about us. It reveals our philosophy of life, our attitude, what we know and what we think, and the make-up of our character. It is a reflection of our thoughts and our value systems.
It also reveals our abilities to weigh and perceive. The outer is always a reflection of the inner. Remember, everything is symptomatic of something. It is a wise policy to pay attention to symptoms, for they can be the early signs of a poor choice of philosophy or a signal that something important is being misread, misunderstood, miscalculated.
Let me give you some of the details of a good financial plan as suggested by Clason’s book. First, you need to learn to live on seventy percent of your net income–net meaning the money you have left over after paying your taxes. The reason it’s seventy percent is because you’re going to be doing some very special things with the remaining thirty percent. So let’s talk about how you allocate that thirty percent.
I remember one day saying to Mr. Shoaff, “If I had more money, I would have a better plan.” He said to me, “Mr. Rohn, I would suggest that if you had a better plan, you would have more money.” It’s not the amount that counts, it’s the plan. It’s not what you allocate, it’s how you allocate.
Here’s the first part of the allocation process. Of the thirty percent you’re not spending, ten percent should go to charity. You should give part of what you have to help those who cannot help themselves. I think ten percent is a good figure, but of course you can pick your own percentage. It’s your life and your plan.
Giving your money to a church or an institution is a good idea, because, more often than not, they can find the people who are in need. But whether you administer the distribution yourself or leave that up to an institution, ten percent should be given to charity.
And by the way, the best time to teach this allocation process to your kids is when they earn their first dollar. Take your children on a visual tour. Take them to a place where some very unfortunate people live. Kids have big hearts. If they see the problem, they won’t have any trouble giving a dime out of every dollar. The time to start this is when the amounts are small. It’s pretty easy to give a dime out of a dollar. It’s a little more difficult to give away a hundred thousand dollars out of a million. You may say, “Oh, if I had a million dollars, I’d give away a hundred thousand.” I’m not so sure. That’s a lot of money. Best to start early, so you will learn the habit before the big money comes your way.
Here’s what to do with the next ten percent: set it aside to manage as risk or venture capital. Do some buying and selling yourself. Buy something, fix it, and sell it. Engage in commerce, even if it’s only a part-time venture. Your home is a major capital project.
We should all engage in capitalism in this country. In the United States, we believe capital belongs in the hands of the people. Communism teaches that capital belongs in the hands of the state. That is a great difference in ideology. Communism seems to be based on the idea that humans are too stupid to know what to do with capital, so it should all be given to the state to manage.
In our country, we believe the knowledge of what to do with capital resides in the populace. The people have the genius to come up with ideas for goods and services for the marketplace. This philosophy has built a dynamic enterprise known as capitalism and has created an abundance of opportunities.
The third ten cents from every dollar should go into a savings account. I prefer to call it an investment account because–and kids will love this–institutions pay you for the use of your money. You can get back the money you loaned plus a profit from what you are paid for the use of your money.
If kids start this program beginning with whatever they earn from employment or enterprise, by the time they are forty they will be wealthy enough to be able to do what they want to do with the rest of their lives instead of what they have to do.
A ten-year-old takes a dollar and searches around the community. He finds a broken, abandoned wagon and pays a dollar for it. He brings it home, cleans it up, sands off the rust, paints it until it’s shiny and new, straightens out the wheels, and sells the like-new wagon for eleven dollars. Does a ten-year-old deserve a ten-dollar profit? Of course! Society now has a mended wagon. That’s what it’s all about. Find something and leave it better than you found it. Create a value. Build an equity. That’s how we should live in this most dynamic society called America.
And everyone can contribute, everyone can bring some value to the marketplace. We can all be students of capital, profit, equity, and value. We can all engage in free enterprise. We can all adopt behavior that brings wealth of lifestyle and treasure. Along with our children, we can build the most powerful and attractive society ever. We have the knowledge, the tools, the schools, the market, the resources, the will. Let each of use begin. The riches are there for the taking.
* Source: Leading an Inspired Life by Jim Rohn