Lessons from Babylon- The way to wealth

I recently discovered that in my never ending quest for knowledge I had somehow neglected to read one of the all time classic books “The Richest Man in Babylon” by George S. Classon. It was to my great delight that I discovered it under the Christmas tree this year. I was blown away by how some ever so simple principles have stood the test of time and are as true today as they were thousands of years ago when Babylon was the city of cities.

The fundamental principles of wealth laid out in the book are ones everyone should be aware of and use day to day. Many of them have been written about time and time again with each new author adding his or her unique twist to it but the principles remain unchanged. I wanted to take the opportunity to share with you the secret to success in its simplest form.

Take the money you earn and break it down three ways.

  1. 70% of your earnings are for your living expenses

  2. 20% of your earnings are to be used to repay your debts

  3. 10% of your earnings are yours to keep.

Following these three steps for the rest of your life will ensure a rich and prosperous life regardless of your chosen profession. Now let me elaborate on these just a bit.

Rule #1: Live on 70% of your income

In a world of easily accessible credit, the internet and the home shopping channel this is not always as easy as it seems. Living expenses include your rent or mortgage, food, clothing, TV service, Internet service, cell phones, restaurants, cars, jewelry and anything else along these lines you can think of. Today too many people are living well beyond their means and it is catching up to us. 2009 was a devastating year for the financial situation of many people. Those who have been hurt the most are the ones who are living well beyond their means.

The time has come to reign in your spending and limit it to 70% of what you take home each month. This may mean canceling cable for a while. Perhaps you need to ask yourself if you really NEED to access Facebook from your Iphone. David Bach has come up with a great concept he calls the Late Factor. It sums up our wasteful spending pretty well. Read any of David’s books to learn more about what I mean. For today however simply keep your living expenses within 70% of your income and your financial success can be guaranteed.

Rule #2: Use 20% of your income to pay off your debts

Let’s face it, most of us today have debt we have accumulated over the years. True financial freedom comes from paying it all off. Simply take 20% of every dollar you earn moving forward and apply it to your past transgressions and before you know it they will be gone. The trick here is to fight the urge to accumulate new debts caused by violating Rule #1. The amount of money most of us pay in interest each month is an astronomical figure which is preventing most people from becoming truly wealthy. So discipline yourself to hold steadfast to Rule #2 and your financial picture will begin to improve rapidly.

Rule #3: Keep 10% of every dollar you earn for yourself

This is the rule most of us overlook or claim is just too hard to do; however, it is the single most important step in the creation of wealth and financial security. Let me clarify something right off, saving 10% does NOT mean putting it into a jar and then when the jar is full buying a big screen TV. I mean this is to be set aside to create a nest egg for when you are old and grey. This is your retirment fund. This money is not to be touched, not to be spent. It is to be wisely invested and added to constantly.

An often quoted portion of the bible states “For whoever has, to him more shall be given; and whoever does not have, even what he has shall be taken away from him.” (this passage does vary a little from version to version but the message remains the same) In short as soon as you learn to accumulate wealth more of it will begin to find you. Living your life with a lack mentality means you will continually struggle. Learn to accumulate and save and more will be given to you.

I know many of you are living pay cheque to pay cheque and the notion of taking away even 10% of that seems ridiculous and impossible. However, to you I say I bet you are wasting at least 10% on vises like booze, cigarrettes, movies, restaurants, Starbucks coffee, cell phones, cable TV. I could go on but I think you get my point. It comes down to making a decision as to what is more important short term gratification or long term security.

For thousands and thousand of years these 3 simple rules have proven to be successful. Most true rags to riches stories can be traced to following these rules even if it was accidental. Follow them fervently and you will be rewarded. Choose not to follow them life will go on very much as it has for you. In closing I ask the you the question, is my life right now the life I want? If your answer is no perhaps it is time to change a thing or two.

Cheers,

Chuck

PS. To learn more about accumulation I have a post on the law of abundance you may like. http://chuckbrady.ca/?p=77

The Definition of Wealth

The Definition of Wealth
By: Brian Tracy
If you want to be wealthy, you must understand what wealth is. Here is the best definition of wealth you will ever find. Wealth is “Cash flow from other sources.”
Make Your Money Work For You
What this means is that, you are not wealthy just because you earn a lot of money. You are only wealthy when your money works for you. To become wealthy, your main job is to acquire money and then put it to work making more money for you.
Add Value Continually
The key to creating wealth is simple. It is called “adding value.” Successful people are those who are always looking for ways to add value in some way to a person, a company, a product or a service.
Do It Faster
Here is an example of adding value: Domino’s Pizza. The founders of Domino’s Pizza took a common food, offered by thousands of little restaurants and added a value to the pizza by delivering it more rapidly than anyone else. The added value of speed enabled Domino’s to create a billion dollar empire and made the founder of Domino’s, Tom Monahan, one of the richest men in the world.
Buy It Cheaper Somewhere Else
Another way to add value is to buy something in one place at one price and then make it available in another place for another price. For example, buying a product or service manufactured in Europe or Asia, importing it to the United States and making it available to people to whom it was not available before, is a way of adding value for which you can charge a higher price.
Improve the Life or Work of Others
All manufacturing and marketing is based on this principle of added value. All importation and distribution aims to add value. Performing a service that enhances the life or work of another person adds value. A dentist who takes away pain is adding value. An accountant who saves a client money on taxes is adding or actually creating value. A salesperson who introduces a new product or service to a customer that helps that customer in some way is adding value. All financial success, especially business success, is based on adding value. It is based on the old saying, “Find a need and fill it.”
Combine and Recombine the Elements of Value
All successful business is based on someone bringing together the factors of production, such as labor, capital, raw materials and management, and creating a product or service that a customer will pay a price for that is in excess of the cost of producing it.
How All Fortunes Are Made
Adding value is the way that all fortunes are made. Whenever you see an opportunity to give people what they want at a price greater than it costs you to produce that product or service, you see an opportunity to make a profit, build a business and begin moving toward financial success. Almost any business or occupation can make you financially independent if you can find a way to add enough value.
Action Exercises
Now, here are two actions you can take immediately to add more value to your time and activities:
First, take the time to be absolutely clear about what it is that people want and need to improve their lives and work. The more clear you are about their real needs, the easier it is for you to satisfy them at a higher level.
Second, look for ways to add value to what you are doing every day in every way. Never be satisfied with the status quo. One small idea to add value can be the starting point of a great fortune.

Buck the Trend, Retire with Money

While doing some of my regular reading today in Canadian Business magazine I came across an article talking about the health of our retirement system here is Canada and I was quite alarmed by the numbers they laid out. Fewer than 30% of us make any annual contribution to the government retirement program RRSP. 7 out of 10 of us are putting nothing away each year for our golden years. Of those who are saving the average is a paltry $2780 per year or $231 per month. Compared to what we waste on non- essentials each month this is peanuts.

 I found these numbers to be extremely frightening. Though I knew we were in dire straights seeing the actual numbers in black and white print in front of my face almost took my breath away. At what point did we develop the mindset of thinking someone else is responsible to take care of us when we get old? When did it become acceptable to procrastinate for our entire lives?

 It has been well documented that only about 5% of the population as a whole will ever save enough money to retire comfortably and it is pretty obvious why. The state we find ourselves in has nothing to do with our annual income, nothing to do with our formal education. It has everything to do with our mental conditioning and state of mind.

 I am reminded of Parkinson’s Law which was developed by English writer C. Northcote Parkinson many years ago and it explains why most people retire poor. This law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more. Their expenses rise in lockstep with their earnings. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, there never seems to be enough. It is a downward spiral caused by poor mental programing.

 The only way to escape this spiral is to make a choice, make a decision to become successful and buck the social trend. I am amazed at how someone working minimum wage can never find money to put aside for retirement but can always scrape together money for beer, cigarettes or pizza. There seems to be a strong desire for us to keep up with the Jones and yet the Jones are ending up broke in the end so why try and be like them?

 Want a better approach you can implement easily? If you do nothing else but take 50% of any raise you receive and save that each month I guarantee you will retire a millionaire. Albert Einstein said the most powerful force in the world is that of compound interest. Get it working for you and a million dollars is within your grasp. All you are doing is saving half of any “New Money”, nothing else is changing. We all get raises along the way, the question becomes is it raising you up or keeping you down?

 The only thing standing between you and a comfortable retirement is yourself and your poor mental programming. Still want to be like the Jones? What is it going to cost you in the end? Your dignity? Your self respect? Perhaps your marriage? Finance worries is the single biggest cause of divorce in our society. Are you one of the 70% who is not saving anything? Perhaps it is time to change your thought patterns because remember. If you always do what you have always done the results you achieve will remain consistent. Change your thoughts, change your approach and you can buck the trend and be in the small percentile who can actually enjoy retirement.

Don't lose money

Don’t Lose Money!
By: Brian Tracy

Throughout the history of American enterprise, you’ve heard the words, “work hard and save your money.” Work hard and save your money. It is the oldest rule for success in America. It’s so important, as a matter of fact, that W. Clement Stone once said, “if you cannot save money, then the seeds of greatness are not in you.”

Saving Is a Discipline
Why is it that saving money is so important? Because saving money is a discipline and any discipline affects all other disciplines in your life. If you do not have the discipline to refrain from spending all the money that you earn, then you are not qualified to become wealthy and if you do become wealthy, you’ll not be capable of holding on to it.

The Law of Attraction
A principle with regard to saving your money is the law of attraction. The law of attraction is activated by saved money. Even one dollar saved will start to attract more money. Here’s what I suggest that you do. If you’re really serious about your future, go down and open a savings account. Put as much money as you can into it, even if it’s only ten dollars. And then begin to collect little bits of money, and every week go down and put something into that account.

Attract More Money Into Your Life
You will find that the more you put in that account, the more you will attract from sources that you cannot now predict. But if you do not begin the savings process, if you don’t begin putting something away towards your financial independence, then nothing will happen to you. The law of attraction just simply won’t work.

Invest Your Money Conservatively
Once you begin to accumulate money, here’s another rule. Invest the money conservatively. Marvin Davis, self-made billionaire, was asked by Forbes Magazine, “How do you account for your financial success?” And he said, “Well, I have two rules for financial investing.” He said, “Rule number one is, don’t lose money.” He said, whenever I’m tempted, whenever I see an opportunity to invest where there’s a possibility I could lose it all, I just simply refrain from putting the money in. Rule number two is, whenever I get tempted, I refer back to rule number one. Don’t lose money.

Get Rich Slowly
George Classon says, in The Richest Man In Babylon, that the key is to accumulate your funds and then invest them very conservatively. One of the characteristics of self-made millionaires, one of the characteristics of old money in America is that it’s very cautiously, conservatively and prudently invested.Don’t try to get rich quickly. Concentrate rather on getting rich slowly. If all you do is save ten percent of your earnings, put it away, and let it accumulate at compound interest, that alone will make you wealthy.

Action Exercises
Here are two things you can do to apply these lessons to your financial life:First, open a separate savings and investing account today. From this day forward, put every single dollar you can spare into this account and resolve to never touch it or spend it for any reason.

Second, whenever you consider any investment of your savings, remember the rule, “Don’t lose money!” It is better to keep the money working at a low rate of interest than to take the chance of losing it. Be careful. A fool and his money are soon parted.

Why the Cheap Will Never Get Rich

Why the Cheap Will Never Get Rich
by Robert Kiyosaki

The other day a friend of mine approached me excitedly, saying, “I found the house of my dreams. It’s in foreclosure and the bank will sell it to me for a great price.”
“How good is the price?” I asked.
“Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?” she asked.
“How would I know?” I replied. “All you’ve given me is the price.”
“Yes!” she squealed. “Now my husband and I can afford it.”
“Only cheap people buy on price,” I replied. “Just because something is cheap doesn’t mean it’s worth the cost.”

I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don’t like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don’t. If a person wants to sell, they will sell. If I feel what I am buying is of value, I’ll pay the price. Value rather than price has made me rich.

Against my advice, my friend sought financing for her “dream” home.
Fortunately, the bank turned her down. The house was on a busy street in a deteriorating neighborhood. The high school four blocks away was one of the most dangerous schools in the city. Her son and daughter would either have to go to private school or take karate lessons. She is now looking for a cheaper house to buy and has asked her father, who is retired, for help with the down payment. If her past is a crystal ball to her future, she will likely always be cheap and poor, even though she is a good, kind, educated, hard-working person.

My Point of View
What follows are some thoughts on why my friend will probably never get ahead financially — especially in this market.
1. She and her husband have college degrees but zero financial education. Even worse, neither plans to attend any investment classes. Choosing to remain financially uneducated has caused them to miss out on the greatest bull and bear markets in history. As my rich dad often said, “What you don’t know keeps you poor.”
2. She is too emotional. In the world of money and investing, you must learn to control your emotions. When you think about it, three of our biggest financial decisions in life are made at times of peak emotional excitement: deciding to get married, buying a home, and having kids.
My dad often said, “High emotions, low intelligence.” To be rich, you need to see the good and the bad, the short- and long-term consequences of your decisions. Obviously, this is easier said than done, but it’s key to building wealth.
3. She doesn’t know the difference between advice from rich people and advice from sales people. Most people get their financial advice from the latter — people who profit even if you lose. One reason why financial education is so important is because it helps you know the difference between good and bad advice.

As the current crisis demonstrates, our schools teach very little about money management. Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.

A Thank You to Jon Stewart
Speaking of finance experts, I personally want to thank Jon Stewart of ‘The Daily Show’ for taking on Jim Cramer and CNBC. Jon Stewart did an incredible job of representing the millions of people all over the world who have lost their savings in the market. He was right in saying he thought it “disingenuous” to advise people to invest for the long term through their retirement plans while knowing full well that traders could steal Americans’ retirement money by trading in and out of the market. Most traders like Cramer realize that investing in mutual funds for the long term is financial suicide. Cramer should have spoken up, but we all know why CNBC won’t let him tell the truth. If he did, the station’s advertisers would leave.
While I applaud Cramer for going on ‘The Daily Show’ and facing the music, I’m afraid he was marginalized by Stewart — certainly outgunned — and he has lost his credibility. He may pay an even bigger price if the SEC decides to dig deeper.

Jim Cramer is a very smart man. I watch his show. I just do not follow his advice.
In closing, I will say what I have said for years: We need financial education in our schools. Without it, we cannot tell the good advice from the bad.

Copyright © 2020 Chuck Brady.