My guest writer, Joseph Wells, was an early guest on the Man Overseas Podcast. In that episode, he talked about “buying time-freedom before The 4% Rule.'”
This week I asked Joseph to write an article for the blog about one of our favorite books: The Richest Man in Babylon by George Clason.
Joseph’s blog is one of only a handful I subscribe to. His choice of topics combined with a crisp & clear style makes for great reading. Enjoy.
How to Become the Richest Man in Babylon
The Richest Man in Babylon by George S. Clason is a frequently referenced book in personal finance circles. Man Overseas mentions it in almost every podcast.
Like some of my favorite bloggers, Clason uses stories to convey important tidbits of wisdom.
One of the chapters is titled Seven Cures for a Lean Purse. It offers seven simple instructions to build your wealth.
While these instructions were used by the ancient Babylonians, they are just as applicable on your present day path to financial freedom.
Start thy purse to fattening
If you want to grow wealthy, the best place to start is with the money you already earn.
Whether you’re an accountant or a carpenter, a car salesman or a doctor, a chef or a professional athlete – it doesn’t matter. You have a source of income.
The best way to fatten your purse is to ensure you earn more than you spend. Clason suggests that for every ten coins you put in your purse, you only spend nine.
A ten percent savings rate is a great place to start. If your income is low, and you’re struggling to pay your bills, maybe you start with one percent.
Maybe your income is high and you can do more than ten percent.
The important message is that you save a portion of your income. Do this every month, and your wealth will consistently grow.
Technology makes this easy for us. Set it and forget it is my favorite way to make saving a habit.
Control thy expenditures
You might be wondering how you can save ten percent if your income isn’t enough to cover your expenses.
To which Clason would respond, “That which each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
That’s the nice way of saying, “you’re full of shit.”
If you sit down and look at every dollar you spend each month, you’re going to find a lot of waste.
I know because I did it.
The five Chipotle lunches last week: $70.
That new jacket you had to buy because it was on sale: $87.
A taxi home when the subway would do: $24.
I could go on for days.
If you don’t track your spending and budget your money, you will always spend it all. This seems fine when you’re young and stupid, but it becomes a problem when you want to:
- Buy an engagement ring,
- Pay for a wedding,
- Put a down payment on a house, or
- Have a kid.
Do the work now to save yourself the stress later.
Make thy gold multiply
“A man’s wealth is not in the coins he carries; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging,” says Clason.
Saving money is great, but to grow wealthy you must put that money to work.
A good place to start is in your 401k, a Roth IRA, or a traditional IRA. Take the 10% you’re saving and invest it into low cost mutual funds or ETFs. Let compound interest do the rest.
If you invest $100 per month from age 22 until age 62, you will end up with about $256,000 (assuming a 7% interest rate). For only $48,000 invested, you come out with a quarter million dollars!
If you can manage $500 per month from age 22 until age 62, you will end up with about $1.28 million – from an investment of $240,000.
Guard thy treasures from loss
Don’t do stupid things with your money.
Don’t buy bitcoin.
Don’t invest in your dumbass friend’s “great opportunity”. It’s probably a pyramid scheme.
It is important to invest your money, but don’t do it blindly. Before you make any investment, make sure you understand it.
Buying real estate? Run all the numbers, talk to a Realtor, drive the neighborhood, and get a property inspection.
Lending money? Make sure you have something for collateral.
If a deal seems too good to be true, it probably is. You will do much better over the long term investing consistently in things you understand with modest returns than trying to hit home runs and get rich quick.
Here’s how I look at balancing risk and reward with my investing.
Make of thy dwelling a profitable investment
In this point, Clason argues that people pay high rent for small spaces, and they are better off owning their own home.
I caution anyone who views their home as an investment. It doesn’t provide any income, and the only return is on appreciation – which isn’t guaranteed.
A better way to view home ownership is as a forced savings plan.
Don’t buy more than you can afford. Buy less than you can afford. Take a 15 year mortgage. Only buy when you are confident you will stay put for a while.
If you buy less than you can afford, then a 15 year mortgage is reasonable. If you pay off your house in 15 years, you’ve got a twofold win:
- You’re sitting on a sizable savings account, and
- You eliminated a major monthly expense.
If you’re young, you’re more likely to move frequently. If this is the case, transaction costs wipe out any financial benefit of home ownership.
If you live in a high cost area, you may not be able to buy less than you can afford, so renting is probably a better option.
While Clason says to make of thy dwelling a profitable investment, I say, make of thy dwelling a savings account, if the numbers work.
Insure a future income
At some point, you won’t be able to work anymore.
That point is the wrong time to think about how you will continue to pay your bills.
Aside from a savings account, I am working to ensure future income through four methods:
- A 401k account
- Indexed Universal Life Insurance
- Rental Property Income
- Blogcastr, the audio blog subscription service I built
The more sources of income you create, the better off you will be. Success in one hedges the risk of failure in others.
Any wealthy person will tell you that passive income is the best income.
Write a book, create an online course, build a subscription based business. After the up front investment of time and money, these income sources hum along on their own, lining your pockets but not consuming your time.
Get your ducks in a row now. Your future self will thank you.
Increase thy ability to earn
“For a man to wish to be rich is of little purpose,” says Clason.
Start simple. First figure out how to earn five dollars, then how to earn ten.
Define your desires so you can create the right process by which to pursue
them. Declaring you want to be rich doesn’t do you any good. Declaring you
want to earn $10,000 in the next three months gives you somewhere to start
building a process.
Winners and losers have the same goals. The difference between the two is
that winners have a process.
Once you’ve defined your goals and your process, start acquiring
knowledge.
“The more of wisdom we know, the more we may earn. That man who seeks to
learn more of his craft shall be richly rewarded,” says Clason.
In the age of YouTube and Udemy, we have no excuse for ignorance.
Determine what you need to learn to make yourself more marketable than
your co-workers. Then go find videos and online courses and get to work.
It’s an easy way to stand out and earn more – most people won’t put in the
effort.
On top of the videos and courses, devour books (using this strategy),
podcasts, and blogs. Make sure you are able to converse on many topics and
deeply on a few – adaptability is important.
The more you learn does not necessarily mean the more you will earn. But if
you can combine voracious learning with action and processes, you will
exponentially increase your earning potential.
The value of a book can be measured by how relevant its ideas are 100 years
after its publication. Clason passed the test with The Richest Man in
Babylon.
Now you have a simple update for how it applies to your life. It’s time to get
to work.
Joseph Wells is a writer, real estate investor, and founder of Blogcastr. He works full time in financial crime compliance for a consulting firm in New York City. Wells hopes to retire from corporate America in his mid-thirties to focus on writing and pursue various entrepreneurial endeavors.
Click here to listen to his guest appearance on the Man Overseas Podcast. Stay tuned for Part II coming in January 2020.
Fantastic! Great book, great chapter, great post. I just last week was speaking to a coworker who has decided to read the book while he is taking some stay-cation time from work. The timeless practicality of self-development is what he was drawn to in my description. Knowledge and execution are two different things, but i appreciate posts like this.
Thanks, Adam. Glad you liked it. Some of my favorite writing teaches a lesson while telling a story. Clason does a great job with that. It’s also pretty cool how the book is almost 100 years old, but the principles are just as applicable today. Thanks for reading, and I hope your co-worker enjoys the book as much as we have!