It’s something that we all wrestle with, from salaried workers to small business owners to world leaders. How do you make your money grow?
Well, there are many schools of thought and whether you’re referring to your household finances or your business profits. Nonetheless, there are some financial and economic policies that are so bulletproof that they can translate to just about any aspect of life.
With the coming of a new year, it’s a time to look at our spending, saving and investment practices and ruminate on what we could do better.
Whether you’re looking for a way to save more for your retirement so that you can spend your autumn years in comfort, whether you’re looking for a way to save for a significant downpayment on the home of your dreams or whether you’re an entrepreneur itching for the ready capital that will help to launch their business to the next level, it’s important to recognize the need to look for advice and support.
That said, there’s so much advice out there, it can be hard to wrap your head around it all. One expert says to do one thing, yet another equally decorated expert says something else.
One group of people says you should save, the other says you should invest. If there’s one thing we’ve learned it’s that you should judge people by their actions rather than the advice that they dole out for free.
With that in mind, we’ve looked at some valuable lessons that you can learn from the monetary habits of successful people, from entrepreneurs to world leaders based on their actions rather than their words…
Invest in People
If you run your own business, it’s all too tempting to set your sights firmly on the bottom line. Your focus is largely (or even entirely) on the money coming into the business and how you can keep it in the business so that you’re prepared for lean times.
Nonetheless, this kind of tunnel vision can impede your business if you’re unprepared to invest in people. The people who make up your business, from employees to partners, are more than just another overhead which needs to be managed and prevented from impinging on your profit margin.
Investing in people is one of the surest ways to facilitate growth. How can you grow your enterprise if you don’t grow your people?
It’s been proven to work for both businesses and governments for centuries. You may not have heard of the emirate of Ras Al Khaimah, nor its ruler His Highness Saud bin Saqr al-Qasimi but both can provide a positive example of investment in people.
Under the Sheikh’s rule, a range of pro-growth policies has facilitated a per capita GDP growth of over 50% from 2004-2007. This was achieved by investing heavily in education and research. As a result, the nation is close to 100% literacy and more people than ever are pursuing further education.
Invest in areas that will lead to growth
Many entrepreneurs, but especially nascent entrepreneurs get somewhat nervous when it comes to investing their profits back into their businesses.
They’re conditioned to keep overheads to a minimum which is commendable but can lead to a sense of myopia. It’s always prudent to invest in opportunities that could result in growth.
This opportunity may come in the form of a capital investment like a new piece of equipment or software that will increase productivity thereby generating extra profit while reducing overheads. It may be a human resource investment in a member of staff who has a vision and a strategy to take your company in a bold new direction.
It may be an investment in costs to an outsourced third party like a digital marketing agency. Any of these is a prudent investment and could provide the opportunities for growth that will keep you one step ahead of your competitors.
Moving away from the business realm a similar investment may be a modification to your home that will increase its resale value or perhaps a solar panel or attic insulation which will scythe down your utility costs over the coming year.
In either case, it’s important to ensure that you have the cash flow to prevent these opportunities from passing you by and letting your opportunities for growth pass by with them. While investing in these areas while times are good is a given, let’s not forget that it’s equally important to invest for growth when times are at their worst.
For a historical precedent just look at the British Prime Minister Clement Attlee who saw the country through a period of unprecedented growth after World War II.
While Attlee doesn’t enjoy the good PR of his predecessor (and successor) Winston Churchill he nonetheless created full employment, reduced the national debt by over 40% and oversaw a sustained period of economic growth and an improvement in living conditions.
He invested heavily in the welfare state and National Health Service and introduced the “golden age of capitalism”.
Don’t make “across the board” spending cuts to reduce debt
Staying with British politics, we need only look to a more recent example in former Chancellor George Osborne for an example of how not to implement spending cuts to drive down debts.
While spending cuts can and should be implemented in areas of wasteful spending it’s always important to keep in mind the Fiscal Multiplier of any given expense.
A Fiscal Multiplier is the amount of economic activity generated by a spending decision or the rate of return you can expect to make on that particular investment. Digital marketing, for example, is known to have a high fiscal multiplier of 5 meaning that for every dollar spent it yields $5 in new revenue.
George Osborne, however, approached the recovery from the financial crisis of 2008 with a series of ruthless spending cuts to all public sectors and services regardless of their Fiscal Multipliers. Rather than facilitating post-crisis growth it actually diminished it. Great Britain currently has the lowest recovery rate in Europe alongside poverty-stricken Greece. A clear case of mismanagement if ever there was one.
Don’t get drunk on your own success
It may be an ancient proverb but the savvy entrepreneur knows to make hay while the sun shines. They also know to be responsible for their profits in times of economic prosperity, just in case hard times should come around the corner.
Unfortunately, The Wolf of Wall Street himself, Jordan Belfort didn’t heed this warning, living a famously ostentatious lifestyle wherein he spent money almost as fast as he was making it.
By his own admission, Belfort was intoxicated by his money and success (and one or two other substances) resulting in a hedonistic lifestyle that cascaded into an avalanche of greed and self-interest which quickly caught up with him.
He made a series of mistakes that all business people can learn from, from poor financial management to extremely poor people management. In the end, he lost everything. Being the smart and resourceful guy that he is, Belfort was able to bounce back and reinvent himself having learned from his mistakes and encouraging others to view his downfall as a cautionary tale.
Be your own brand
Branding is one of the biggest contributors to growth there is. Just look at how far Apple have come since 1976 and you see a lesson of branding at work.
Yet, there are some whose image and personality enhance, supplement and even transcend their brand. Just look at the likes of Richard Branson and even, dare we say it, Donald Trump.
People are far quicker to invest their time, effort and capital in people they can trust and believe in that they are slogans, logos, and platitudes. Ensure that your brand embodies your core beliefs and ideas and you’ll be well on your way to growth.