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.
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70% of your earnings are for your living expenses
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20% of your earnings are to be used to repay your debts
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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