THE BLOG
01/31/2013 09:44 am ET Updated Apr 02, 2013

Is Your Financial Ship Leaking?

Money wisdom from Benjamin Franklin to help plug the holes

As you may remember from your history books, Benjamin Franklin was an amazing figure of 18th century. The brilliant scientist/inventor, prolific author, and renowned statesman is credited with helping define our American values of thrift, hard work, education, and community spirit. I think it's appropriate that he shows up on our hundred-dollar bills because his adages about money are as pertinent today as they were three centuries ago.

Some of Franklin's sayings are familiar to all of us -- so familiar that we tend to not really pay attention to their wisdom. Other Franklin quotes aren't as well known. But I think much of his wisdom bears repeating -- and applying -- today.

"Beware of little expenses. A small leak will sink a ship."

When trying to right their financial ship, many people consider only their large expenditures. They look into refinancing the house or cutting memberships at the club. But what can be equally important is identifying those small leaks. These are usually areas of spending that are almost unconscious: the latte on the way to work each day, the extra $15 per month on cable channels you don't watch, the additional money spent on "name brand" groceries.

The first step to plugging these leaks is to identify them. Note each small spending habit and add up its annual cost. Next, ask yourself, "Do these small expenditures really make a difference to me? Do they really add to the quality of my life? Or are they just habits that could be eliminated or changed?

"If you know how to spend less than you get, you have the philosopher's stone."

In ancient alchemy, the philosopher's stone was said to be the elixir of life able to give you immortality and even turn lead into gold! In Franklin's mind, being able to spend less than you earn was equally valuable. In our credit-driven world, many people have lost sight of how to do this, and how satisfying it feels when we do.

The first step toward living within your means if you aren't doing so is to get very clear about exactly what your net income is and what your current expenses are, including the inevitable unexpected expenses such as auto and home repairs. With this information, you can begin to design a solid spending plan that makes sense based on current realities. Look at your income and expense line by line. Where can you make adjustments? There are many software programs for doing this, but even listing your expenses and income on a legal pad works.

"A penny saved is a penny earned."

Over the past decades, we've seen a lot of emphasis on so-called investing. I say "so-called" because many common investment vehicles, such as real estate and the stock market, are really risky gambles our recent recession has made painfully clear!

In today's world, it may not seem very sexy, but to build true financial security, consistent saving is critical. Personally, I like the time-tested "10/10/10 Savings Formula." It may seem like a stretch at first, but work towards setting aside 10 percent of your income for short-term needs, 10 percent for mid-term needs and potential emergencies, and 10 percent for long-term retirement planning. This will put you in control of your money and finances.

"He that can have patience will have what he will."

We live in an instant gratification, microwave, fast food, "have it all and have it now" culture. Most of us aren't good at taking the long-term perspective that our forefathers had. But we also have seen that the promises of fast returns by many conventional investments are about as substantial as those obviously suspicious get rich quick schemes!

Just like building your career or getting an education, building a strong financial foundation takes time. But we are all able to get to the financial security we desire if we take the long view and adjust our habits to plant seeds for the future.

"Tomorrow every fault is corrected. But tomorrow never comes."

How often do we put off a change we know we should make? We'll start exercising when the weather gets better or find time for our mate when the kids are grown. In terms of money matters, it may have seemed reasonable to put off making any changes until the economy gets better, you get that promotion, or you no longer have college expenses. But as Benjamin Franklin wisely noted, tomorrow never comes. The time to start securing your financial future is today.

Whatever your financial circumstances, you can take steps today -- even if it's just small ones -- to move toward your financial goals. And as soon as you take positive action, you will reap the reward of more peace of mind.

I'll end with one last quote from the man who graces our hundred-dollar bills: "The Constitution only gives people the right to pursue happiness. You have to catch it yourself."

As a consultant to financial advisors, Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Her research led her to a time-tested, predictable method of growing and protecting savings now used by more than 500,000 Americans. Pamela's book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, is a New York Times bestseller. Learn more at www.BankOnYourself.com