Yes – another week simply zoomed past. Welcome once again to this fast growing blog.
Straight to the subject of today – laws of money. First and foremost, I know some people do not like the expression ‘Laws’. Whatever you would like to refer to these ‘laws’ – whether rules, guidelines or whatever, just feel free to do what you like. That should not cloud your opinion. In whatever perspective you would like to view these, be it for practical entrepreneurship (I call these lessons from the streets), or for academic purposes (lessons from the classroom), the fundamentals remain pretty much the same. You might also ask me who created and passed these laws. That will be for another day’s discussion.
So, why the laws anyway, Mr. Entrepreneur? We all know that laws, rules, guidelines help us do the right or most suitable thing and also avoid getting into problems. The laws of money obviously relate to issues of management of money, both personal money and business money. Today I simply desire to briefly look at some of the top laws of money, in an effort to ensure that those entrepreneurs who don’t know and practice these laws, possibly adapt them in the interest of their enterprises or investments, and personal lives too. Let’s have a look.
- The law of capital. By this law we simply mean that your most valuable asset is your earning capacity, that is, your physical and mental capabilities. We know that capital is basically the money and assets you use to raise or generate wealth. Many people limit their entrepreneurial dreams by thinking they must first get some financier to bankroll their dreams. Isn’t this true? Yet even the financers or venture capitalists etc. desire to first see some financial commitment by the entrepreneur. Mr. Entrepreneur, what I’m saying is this; make use of your mental and physical capabilities as part of the capital you need to embark on your business dreams, otherwise you might wait forever to get that precious funding you need. Be audacious with your financing models!
- Parkinson’s law. Again, an entrepreneur cannot afford to ignore this law. This law states that expenses always rise to meet income. Please, don’t get angry with me if you found this law defined in another way somewhere, or if you are not happy with the way I’ve stated it. OK? What is important is whether as an entrepreneur you are ready to disobey this law, and spend less that what you earn. Haven’t you experienced the psychological need to increase your expenses when your income increases? Be honest my dear. Many of us do, and yet it’s financially good to disobey this and ensure that our personal and business expenses stay way below our incomes, even if the income increases. Am I making some sense here? There are exclusions to this, but probably I will revisit this later.
- The law of conservatism. By the way, this law of conservatism is very closely connected to Parkinson’s law. Through conservatism, it’s not what you make, but what you keep out of what you make, that determines your financial future. Again the entrepreneur is thrown back to spending less than what he or she makes here. Don’t you agree that this is critical? Come on. If you want to ignore them, simply proceed and do what you want, but don’t come back yelling that something has gone terribly wrong with your business finances.
- The law of magnetism. Yes – ever played with a magnet in one of those science classes? I used to love it. The sense of something physically and forcefully attracting and pulling another thing was good to me. Now, the law of magnetism says that money begets money. Money indeed attracts money, and the economists know this principle. Mr. Entrepreneur, when you manage your little start-up capital well that capital will attract another. When you manage very well your money in that small and medium enterprise, you will attract more money and later transform into a large enterprise. Isn’t this true? Somebody help me here! This law is real – at least for the smart I think. So you have to be smart and multiply your money.
- The law of time perspective. Money has a time value. The time value of money is the interest. This is the reason why our friends the bankers are happy to pay you something just for you to leave your money with them for a given time period. It might be peanuts, or way below what you desire or what your appetite would want, but it’s something. If you have a bigger appetite then simply sit with a bank manager and negotiate your interest. Let’s see who will push the other. So, the law of time perspective advises you to plan for the long-term for your money. I’m talking about investment here. Of course there are sometimes short and medium term investment plans and goals, but this thing called money tends to reward you more if you think long-term.
- The law of investing. We all know that investment generates income, again as I said earlier, if well managed. I need to emphasize this exclusion clause because there are some people out there who will throw their hard-earned money into whatever comes along as an investment, and later come back complaining of being wrongly advised. By the law of investment, you need to invest wisely to multiply your business income. Haven’t you seen some enterprises that are so smart in their investments, that simply positively impact their income in multiples or exponentially? Can you not as an entrepreneur learn those tactics and strategies and invest wisely also?
- The law of compound interest. Now, as a savy entrepreneur you might brush of this law of compound interest. Isn’t it? Sure – I spoke about exponential investment growth above. Again, this law has been used more for personal finance advice, but we can turn it around and apply it to enterprises also. Simply put, saved money grown at compound interest generates wealth. Now, it’s up to you how you are going to compound your savings. Is it by leaving it to the bankers or other financial houses to first earn from it and then pay you interest, or you will compound it yourself by wisely investing it. It’s up to you. Are you getting me here?
Now, you might rubbish the above laws as minor, and document your own laws. There could be hundreds of laws of money but I think the above are critical for you to watch if you want to be wealthy. On the other hand, there could be some entrepreneurs who hardly have the foggiest idea about the above laws, hence this could be an eye opener. So, never underrate anything.
The man from Omaha, I mean Warren Buffet, tells his executives not to lose shareholders money, and secondly in case of doubt they should refer to the same rule. This is terrifically interesting. You can’t ignore the kind of money that guy has by the way. It means that his summary law about money works pretty well. So you might also choose to shorten your laws to this one, or even craft your laws, Mr Entrepreneur – but be smart!
The Wise Entrepreneur