When it comes to wealth building, there is still a lot we can learn from old school
financial principles, even those that have been around for hundreds of years. These kind
of rules are often seen as outdated in todayís digital era but going back to basics can help
you to get a better handle on your finances and get you on the right path to start
building more wealth. Here are 3 rules that have been around for a long time but still
have a place in our contemporary world.
Use a Cash Only System
With no credit and debit cards or online banking, our ancestors had no choice but to use a far less complicated system for managing their finances and itís one that can still lend itself to modern day budgeting too.
Youíre probably already familiar with the "envelope system", which is a popular way of
managing the cash only approach. We often think of it as a modern budgeting plan but itís actually been around for much longer than you might think.
It works like this: you split your spending into key areas (essentials outgoings, food, gas and non essentials such as entertainment, for example) and set aside an envelope for each one. Your weekly or monthly budget is withdrawn in cash and allocated into each envelope. You can spend each mini budget however you want but once the envelopes are
all empty, you donít take out any more cash until your budget resets. If youíre running low in certain categories, you can either hold off on the purchase or borrow from another category but taking out any more cash is strictly no-no!
Itís based on the idea that the old fashioned pay envelope containing your wages was all
the money you had until you got the next one so you had to budget well if you didnít
want to run out of cash or forgo things that were important to you.
The ultimate goal of the "envelope system" was to budget smartly so that you not only
had the means to pay essential outgoings such as board and room and enjoy a few luxuries but also to have a little bit left over at the end of the month that you could put aside into savings and build your wealth. For some people, "savings" is actually a category in itself (with its own envelope) and a certain amount of the budget is allocated to savings, with anything left over also going there. To really make sure you donít spend
what youíve allocated for savings, there is always the option to have it deposited directly into a savings account each month after payday. That way, any temptation to reallocate it to another envelope is gone!
Itís Not All About Income
These days, the focus is all on how much money you make. After all, the more you earn, the more you save, right? Not always!
You could be earning a huge amount of money but if your spending is also significant and you donít save much of it, itís not going to help you to build much wealth. But if you earn less and save most of it, youíre actually in a better position than someone who spends a bigger income.
The Holy Grail is of course to earn well and save a good proportion of it. But if youíre starting off smaller, changing your mindset and adopting an old school way of thinking about your finances can help you to keep hold of more of your income and grow your wealth.
Being More Self Sufficient
Our ancestors often didnít have a lot of choice but to be fairly self-sufficient and either make their own items or make do with what they already had. Darning socks and sewing patches to repair worn clothes was par for the course and still in evidence in our grandparentsí generation. Even when clothes are about to fall apart, the thriftiness didnít end there - they were generally cut up and used as cleaning rags instead!
Being more self sufficient is another trick that we can borrow from the past. These days, it might be more convenient to buy foods from the grocery store, eat out, order takeaways and replace things when they have seen better days but itís usually more expensive too.
If youíre in a position to grow your own vegetables, cook homemade meals regularly,
make your own bread and repair or mend things when they have seen better days rather than replace them straight away, you can often make your money go a lot further. You might need to learn a few new skills and train yourself to ask "do I really need this?" when you get the urge to buy something non -essential but the savings can be worth the
effort. And that means having a bit extra to use to build more wealth!
There is another upside to the "make do" mentality - you have a lot more appreciation for what you do have if youíre not rushing out to buy brand new items as much.