Browsing through an old issue of The Sabbath Recorder (A Seventh Day Baptist Weekly, published by The American Sabbath Tract Society, Plainfield, N.J., vol. 76, No. 10.), I found some financial advice from Charles Grant Miller in the form of a story. This was reprinted in the March 9, 1914 edition.
The Saving Habit
They tell a story down in Washington about the late Senator Hoar’s improvidence. A rich friend was riding to the Capitol with him on a street-car, and Mr. Hoar was expressing wonder at the ease with which some men acquire wealth.
“I have had a good income all my life,” he explained, “but never have been able to get ahead. I would like to know how money is accumulated.”
At that instant the conductor came along and Mr. Hoar handed him a nickel while the rich friend turned over a ticket.
“There is one way in which you might acquire money.” said the friend. “You could save twenty per cent by buying six tickets for a quarter, and that is a pretty good investment. The habit of saving money grows upon one, and that is a better investment still.”
This is a good deal more than a jest.
The oversight of small investments lying close at hand leads to half the world’s financial miseries.
Of course, none could get rich by investing in street-car tickets. Nor can one get rich merely through small savings in a bank. But it is generally found that the investment in street-car tickets and the savings in the bank go together, and with them go a lot of other frugal habits.
There is no more flexible law of nature than that one frugal habit begets another, and that frugal habits beget riches.
We hear of great fortunes made in a moment. But that is not the common way.
Ordinarily a great fortune is built up like a stone wall — a stone at a time.
The young man who declines to lay the first stone, because it comes so far short of a wall, will never make progress in financial masonry.
It is a sure thing that the young man who considers it not worth while to save small amounts will never have large ones to save. He is first cousin to him who declines to go to work until he can start in at a big salary.
The first savings of Mr. Rockefeller, Jay Gould and the first Vanderbilt all look pitiably small, even to the average laborer of today. But they were seed from which sprang not only increased profits but increased enthusiasm in business-building.
Small savings and investments if constantly added to and the income compounded, grow marvelously in time.
And the saving of money is a habit that grows more marvelously even than compound interest.
— Charles Grant Miller, in Watchman-Examiner.
There’s a lot of good food for thought in that story. Let’s look at it point by point.
Income Alone Isn’t Enough
“I have had a good income all my life,” he explained, “but never have been able to get ahead….”
As long as spending is equal to income, there will never be wealth. This is only common sense. Or, rather, I should say, it should be common sense. But actually, it’s amazing how uncommon this bit of wisdom is.
Imagine a water tank with water flowing into it thru a pipe at the top. Imagine another pipe of the same size at the bottom of the tank. In such an arrangement, the tank will never be filled. Water flows out as quickly as it flows in. Now imagine the pipe at the bottom has a valve that can be used to reduce the amount of water going out of the tank. If the valve is set to allow only 90% of the water to exit the tank, then the tank will fill with water. Bank accounts work the same way.
If people spend 100% of all they earn each year, year after year, what will they ever accumulate? The answer, of course, is … nothing; those people will have nothing. (And if spending is greater than income, that’s real misery.)
Don’t allow yourself to become one of the people who work hard their entire life and end up with nothing.
The most certain way to accumulate wealth is to live below your means, which is to say living on less than your income, regularly saving some percentage of your income, and investing those saving so they grow. The Richest Man in Babylon recommends that you save at least 10% of your income.
Don’t Pass Up Good Deals
“You could save twenty per cent by buying six tickets for a quarter, and that is a pretty good investment….”
Whenever the savings you get from buying something* are greater than what you could otherwise earn if you had invested the same amount of money, then you should buy it.
In the example in the story, tickets cost 5¢ for 1 ticket, or 25¢ for 6 tickets. If purchased one at a time, 6 tickets would cost 30¢, which is 20% more than 25¢. There’s no investment that is abssolutely certain to yield a 20% return; that was true in 1914 and it’s true today, and even moreso in the short time and with the small amount of money it takes to buy and use 6 train tickets (considering a commuter might use 2 tickets each day).
Apply this to your daily life. Suppose you eat a can of beans each week — so once a month you buy 4 or 5 cans. Now suppose the grocery store has canned beans on sale. Say it’s buy 5 and get 1 free (like the deal on tickets in the story). How many cans should you buy? Your usual number, maybe 5 cans for a month of bean eating and get 1 free? That’s okay, but not good enough. Why not buy enough for a whole year? Buy 50 and get 10 free! They won’t go bad in a year — but check the “best used by” dates. A penny saved is a penny earned. (Actually, considering income taxes, a penny saved is more than a penny earned.) Do you have any opportunity to earn a 20% return on the additional money that you’re spending on canned beans? No. The stock market won’t do that well, certainly not with 100% certainty, and neither will bonds nor savings accounts. So, what are you waiting for? Put those beans in the cart and get to the cash register! Or buy 154 rolls of toilet paper.
Some years ago, a large grocery store chain closed its store in my neighborhood. For a couple weeks everything in the store was marked down 30%. Then, in the final week, everything was 50% off. My wife and I went to the store twice that last week and spent about $400 each time. A total of $800 spent to get $1,600 worth of groceries. It was mostly bottled, canned, and boxed goods, of course. We were eating breakfast cereal, pasta, cooking oil, and canned beans from that haul for months thereafter. But we doubled our money with those 50%-off purchases.
Every time I see a good deal on basic foods or cleaning supplies, I make it a point to stock up if I think I could use them within the next year.
* that means something that you definitely need and will use and won’t spoil or expire before you use it.
Make Saving A Habit
“The habit of saving money grows upon one, and that is a better investment still.”
Like lots of other things you should do — like eating right, exercising, being polite to stupid people — making a habit of saving money takes practice. The more you do it, the easier it becomes. Efficient use of money should be your goal, it should be foremost in your mind each and every time you buy something. You can strengthen your money-saving habit by reading books and magazines, listening to radio programs and podcasts, and watching videos about personal finances.
Just as buying when you see bargains is a good financial investment, developing the savings habit is a good investment of your time and willpower.
… one frugal habit begets another, and that frugal habits beget riches.
The more you practice the efficient use of money — frugality — in one part of your personal financial affairs, the easier it will be to apply it to others.
Slow And Steady Is the Surest Way
We hear of great fortunes made in a moment. But that is not the common way.
It’s the unusual, the uncommon, that most often receives the most attention. (As the saying goes, “1,000 planes safely land today” isn’t likely to be a newspaper headline.) So, it’s the rare cases of people getting rich quickly that gets the most attention. A fortune made slowly, acquired through years of working, saving, and investing is the more common occurrence, but you are unlikely to read much about it unless you make an effort. Your best chance to acquire wealth, in fact, it’s almost a certainty, is the tried-and-true method of living below your means, spending less than your income, saving at least 10% of every dollar you earn, and investing the savings to earn long-term compound growth.
Accept the Fact That You (Probably) Have To Start Small
It is a sure thing that the young man who considers it not worth while to save small amounts will never have large ones to save.
Don’t wait until you have a large income to start saving. Start now. Right now. Chances are good that your income will grow as you advance in your career. But small amounts you save and invest now have the advantage of having more time to grow. To grow the kind of personal fortune you’ll need to be secure after you retire, you will need to invest…
| Small Amounts … | … For a Long Time |
| Middle-size Amounts … | … For a Mid-length Time |
| Large Amounts … | … For a Short Time |
Just remember, at least 10%. That percentage of a small earnings will be a small amount, and as your earnings grow, that same percentage will be a larger amount of larger earnings.
The Most Important Thing to Remember
Small savings and investments if constantly added to and the income compounded, grow marvelously in time.
It’s all right there in one sentence
- A small amount, just 10% of your earnings,
- consistently put aside and invested,
- subjected to the miracle of compounding.
That’s all you need to know; that’s all you need to do.
