Sometimes the simplest of events can provide a plethora of wisdom.
A week or so ago, I was having lunch with one of the Philippines’ most successful businessmen — a man on all the lists for most wealthy in the Philippines, Asia, and globally. A self-made man. Someone I deeply admire and respect.
In the middle of lunch, he went to take a phone call, and lo and behold, when he pulled his phone out of his pocket, instead of being the latest iPhone 5 or the newest BlackBerry, it was a 2001 vintage Nokia! Almost an antique!
I asked the question: “Why not get a smartphone?” I mean, if one is among the richest people in the world, surely the cost of a smartphone is not going to be an issue!
His response was wonderfully simple and wise:
“The reason I have money is I don’t waste it. Too many people go out and spend every penny they have, on useless items to show off. So many people have iPhones who have no right to be carrying them, and then complaining about not having any money. I don’t care about such things. This Nokia works just fine for me. I don’t need all the bells and whistles, I don’t want a camera; I just want a phone to talk and text. That is all I need. So why pay for something I don’t need?”
Said another way — “Think poor to get rich.”
There is no better strategy to employ, in business or personal life, that can bring more wealth.
Business is, in essence, simple. There are only three ways to earn more profit (get richer). There are not four ways or 20 ways or 100 ways. There are only three ways. And there will only ever be three ways:
Raise your prices.
Sell more.
Reduce costs.
That’s it. The best companies work all three approaches, all the time. The less successful ones skip on the cost-reduction approach. They spend money, gold-plating their offices and flying first class and burning through cash. During the dot.com boom of the late 1990s, many of the IPOs put hundreds of million dollars into the hands of quite inexperienced leaders, who thought and acted “rich.” They spent millions on office design, travel, expensive artwork, and when it came time to spend where it mattered, they didn’t have the money! And their stock prices tanked.
Think poor to get rich.
It’s no different for an individual. Let’s take pay raises as an example. Most people today are making a living on their current salary. They are paying the bills, and perhaps even saving some money. Then one day they get a pay increase, and what do they do? They rush off and increase their spending! So they never get ahead; each time they get more income, they find ways to spend it! And of course it is justified — it always is. But this is no way to get ahead.
I am always thankful for my first boss 27 years ago, Tom Handley. After my first six months on the job, he gave me a raise and told me I was doing well. But he also gave me a wonderful gem of advice, from a man who lived and breathed “think poor to get rich.”
“Jim, here is your raise and congratulations. It is your business what you do with the extra money each month. But let me give you some advice: I will only say this once and I respect whatever you decide. Most people take a raise and go out and blow it on something stupid. They trade up cars or rent a bigger flat, and the money is gone. Don’t be stupid. Take every raise you get for the rest of your life, and invest half of every raise in some sort of equity, and the other half, reward yourself. You do this over the course of a career, and the miracle of compounding interest will take care of you.”
How right Tom Handley was. Today, I cannot thank him enough for the wisdom.
Take any young person like I was 27 years ago. Give that person a pay increase of P4,000/month. Ask them to invest only half for the next 27 years, or P2,000/month. The other P2,000 they can spend on what they want. Assume they never increase the amount, just the same P2,000 every month. Put it in the Philippine Stock Exchange and take the past five-year average return. Compound it over 27 years. And what do you end up with?
A nice little nest egg of P4,873,217!
Be smart in your business. Be smart in your life. Think poor to get rich. That’s the ticket.