Poor Man Survival
Self Reliance tools
for independent minded people…
ISSN 2161-5543
A Digest of Urban Survival Resources
Lessons from
the Richest Man in Babylon (On Wealth Building)
Seventy-eight
percent of full-time workers said they live paycheck to paycheck, up from 75
percent last year, according to a recent report from CareerBuilder.
Overall, 71 percent of all U.S.
workers said they’re now in debt, up from 68 percent a year ago, CareerBuilder
said.
While 46 percent said their debt
is manageable, 56 percent said they were in over their heads. About 56 percent
also save $100 or less each month, according to CareerBuilder. During the years Obama served as President we
saw the highest number of residents on welfare and receiving food stamps.
Perhaps there is way of out…
In
1926, George Samuel Clason published a series of pamphlets written in parables
that was set in the ancient city of Babylon. The book became known as The Richest Man in Babylon
and has become a
classic in financial literature. I first encountered this little book
when I attended Arizona State University by Garry, a friend who is now a very
successful financial planner. I and was amazed by the simplicity of the story
and by the tried-and-true lessons it presented for accumulating wealth.
The story sprang from the characters Bansir who was a chariot builder and Kobbi who was a musician. The two had become the best at their craft but yet had no money and were poor. They went out to seek the advice of their childhood friend Arkad who in contrast had grown very rich and amassed fortunes.
The lessons that Arkad provided for his friends was the
premise of the book and they are lessons of wealth building habits that I
believe every rich person had followed to accumulate their wealth. Below are
lessons in this book that has helped me and many others become financially
stable and wealthy and I believe these lessons will help all of us build a firm
financial foundation on our way to becoming the richest person we can become.
1. Pay Ourselves First (
“Start thy purse to
fattening.”)
One of the greatest
lesson the book has taught is this first lesson. When Bansir and Kobbi seeked
the advice of their very wealthy friend Arkad he tells them a story. Arkad was
once a poor scribe who made a deal with a rich man to find out the secret to
wealth in exchange for his work on a clay inscription. The rich man gave
him a very valuable advice “I found the road to wealth,” he said, “When I
decided that a part of all I earned was mine to keep. And so will
you.” Although this is a very subtle message it is very powerful in
accumulating wealth. We cannot accumulate wealth if we do not save what
we earned. We can do that by paying ourselves first and foremost
before we spend any of the money we have earned.
Did you ever wonder why
the U.S. government takes taxes on our wages before we can get to it? The
U.S. government (IRS) knows this law well. They pay themselves first with
our money. This is why we must be vigilant to pay ourselves first with
every money we earn. The book recommends that we pay ourselves 10% of all
that we earn. For every dollar that we earn, 10 cents should go to pay
the person you see in the mirror every morning. You may call it the “Me
Tax” if you like. The difference between rich financially stable people
versus poor broke people is knowing this first rule. Wealthy people pay
themselves first and poor people do not. Before we start paying others or start
spending the money we earn we need to pay ourselves first.
“If you have not acquired
more than a bare existence in the years since we were youths, it is because you
either have failed to learn the laws that govern the building of wealth, or
else you do not observe them.”
“A part of all you earn
is yours to keep. It should be not less than a tenth no matter how little you
earn. It can be as much more as you can afford. “
“Pay yourself first”
2. Live below our means. (“Control thy expenditures”)
If
we have paid ourselves first at
least 10% of what we earn that leaves us with 90% or less of our income to live
on. Controlling our expenditures enable us to make good use of the money we
have left over after we have paid ourselves. There have been many advice
on frugality over the years but I think it will not solve the problem for the
majority of us until we truly define what money is to us and also define the
difference of need vs. want. I wrote about this on the guide to becoming smart about
money.
“Budget your expenses so that you may have money to
pay for your necessities, to pay for your enjoyments and to gratify your
worthwhile desires without spending more than nine-tenths of your earnings.”
The
best advice to becoming wealthy is to keep expenditures down even when our
earning power increases. Many of us have the habit of spending more as we
earn more and it’s not unusual to see someone splurging and suddenly their
expenses go up as they start earning more. For example, if we suddenly
have a $2,000 – $3,000 raise it is best to maintain our current expense level
as if the raise never happened. Instead we can tuck that extra money away into
our savings or investment. Controlling
expenditures will mean living below our means. When we
live below our means we accumulate wealth faster. We can think of it in
this way, our earning power is our ‘offense’ and
controlling our expenditures is our greatest ‘defense’.
3. Make our money work
for us. (“Make thy gold
multiply”)
I believe this lesson is
about investing our money and letting it work for us. I personally
believe that each and every one of us should think about investing only after
we have built our savings and an Emergency Fund. After we have
accumulated 6-8 months worth of expenses in our Emergency Fund it is only then
that we should consider about investing our money on other investment vehicles.
Our Emergency Fund is a security blanket especially during this time of
economic downturns.
” …put each
coin to work so that it may reproduce its kind even as the flocks of the field
and help bring to you more income, a stream of wealth that will flow constantly
into your purse.”
If everything else is
good and gravy, making our money work for us is a great way to accumulate
wealth. There are many investment vehicles we can tackle but the best
thing we should all be aware of is that we should never invest in anything we
do not completely understand. Investing our money will mean becoming
knowledgeable about what we are investing in as well as the repercussions if
the investment does not pan out as well as our potential exit strategies when
we are ready to take our money out. There are many ways we can invest our
money such as stock markets, real estate, businesses, and so on. We must
do our diligent effort to find great investments so we ensure our money will
multiply and work for us.
We should also invest our
money to ensure we have a steady and safe income while taking advantage of
compounding interest we receive from our investments. Time is our biggest
ally and as our investment accumulate interest and the money we get from the
interest earns interest and so on this is how we can make our gold multiply.
4. Insurance protects our wealth. (“Guard they treasures
from loss.”)
Have
you ever had a car accident? I have. I was in an intersection when
a car on the left passed a red light and hit my car head on. Thankfully
we both did not get hurt. And thankfully we both had insurance. Insurance
helps safeguard our wealth by absorbing potential loss and mitigating our
financial situation. There are many insurance we can buy and we should
do our research on which one and how much we need. A renter’s
insurance or a homeowner’s insurance helps protect our homes. Another one
is longterm insurance which
become suitable to help us as we grow older and help protect us from medical
expenses and long-term care.
We
should all consider buying insurance now in case we need it if something
happens. This is a proactive approach and one we should take and not
forget. The idea is that we will never have to use the insurance but in
case something does happen we are protected financially from the loss it would
have caused.
5. Our home is our biggest expense. (“Make of they dwelling a profitable investment”)
Our
homes are potentially the biggest expense we have to tackle. Many of us
do not own a home and instead rent one. There is absolutely nothing wrong
with that but I believe the lesson we can learn from this one is that we should
manage our biggest expense smartly. Many of us have decided to take on a
huge mortgage to buy our home and after the real estate bust many were left
with homes that lost their value and in many cases were underwater. I
believe the lesson we can learn from that was that we needed to ‘live below our means’ and
buy or rent a home we can
comfortably afford.
Since our home is our
biggest expense we must play great defense in this arena to lessen that expense
as much as possible. I learned this lesson when I bought my first home. I
can afford a home twice as much as the price of my current home but I was
happy with the home I bought. It was affordable, in a location that I liked,
and had enough space for myself. I do not sweat the mortgage since it is
comfortably affordable for me and I am trying to pay it off faster with the
extra money I earn.
I know that many think
their homes are an investment but the truth is it really is not. It is an
expense and a very high expense at that and one we must manage carefully.
6. Have a retirement
plan. (“Insure a future
income.”)
A 25 year old earning an
annual salary of $40,000 with an annual raise of say 3% will have earned an
estimated $3 million if they retire by age 65. That’s about 40 years of working
and earning. We should have a retirement plan if we want to retire comfortably.
We can do that by setting aside money to be invested for our
retirement. There are many retirement investment plans out there such as 401K,
Traditional IRA, Roth, etc. The younger we can start putting money away
for our retirement the better. When we start putting money away for
retirement early we take advantage of a magical thing called ‘compounding
interest‘.
Our
net-worth does not equal our self-worth. We need to keep them separated.
Compounding interest is
known as the eight wonder of the world. Benjamin Franklin knew of this
knowledge. Did you know that Benjamin Franklin left 1,000 pounds (about
$5,000 in today’s money) when he died to a trust. He bequeathed that trust and
left it to his favorite cities Philadelphia and Boston with the provision that
the money was to remain untouched for as long as 200 years. What was left
in the trust after it grew was the amount of $2 million given to Philadelphia
and a whooping $5 million for Boston. The lesson we can learn from this is to
make time work for us when we plan for retirement by starting early. Time can
be our retirement’s greatest friend.
“Remember that money is of a prolific generating
nature. Money can beget money, and its offspring can beget more.” – Benjamin
Franklin
7. Invest in ourselves. (“Increase thy ability to
earn.”)
The
best way we can increase our earning is by investing in ourselves. We
can do that by continually learning and striving to develop ourselves. We
are now in a very exciting time: the Information Age where knowledge is
literally within our fingertips thanks to the Internet. I really love
the OpenCourseware idea
where many schools including Ivy Leagues post their whole class courses for free.
It’s a great way to learn on our own. Another one is Coursera which
has many online courses for free from Finance to Philosophy, check it out.
“Those eager to grasp
opportunities for their betterment, do attract the interest of the
goddess of fortune. She is ever anxious to help those who please her. And who
is she pleased with? She is pleased with those who do – rather than those
who merely talk and engage in wishful thinking. Action will lead you forth to
the successes you desire.”
There are many things we
can learn on our own and should strive to make ourselves well-rounded.
Whether we learn to eat more healthy, enhance our current work skills, or
learn to make more money, we must take the initiative to invest in ourselves.
When we become smarter and wiser our ability to earn more also
increases.
The 5 Rules of Gold from
the “Richest Man in Babylon”
Gold comes gladly and in
increasing quantity to any man who will put by not less than one-tenth of his
earnings to create an estate for his future and that of his family
Gold labours diligently
and contentedly for the wiser owner who finds fir it profitable employment,
multiplying even as the flocks of the field
Gold clings to the
protection of the cautious owner who invests it under the advice of men wise in
its handling
Gold slips away from the
man who invests it in business or purposes with which he is not familiar or
which are not approved by those skilled in its keep
Gold flees the man who
would force it to impossible earnings or who follows the alluring advice of
tricksters and schemers or who trusts it to his own inexperience and romantic
desires in investment
8. Track Our Wealth.
(Know where you are and where you are going.)
In order for us to know
where we stand financially we need to face the whole truth of our current
situation. We can do that by tracking our current wealth or lack
thereof. This is a tough exercise but we must face the truth of how we
earn and spend our money in order for us to know where we are going.
There is a big difference between wealthy people and those who are not,
wealthy people know their net worth while the poor do not pay particular
attention nor care at all about tracking their assets and liabilities.
You’ll find additional
financial free tools available at my other blog:
BruceDavidAssociates.com
Yours for better living,
Bruce ‘the Poor Man’
Additional Resources
How to Survive the War on the Middle Class
14 of the best reports I’ve assembled on protecting your freedom…Here is the download link.
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The Poor Man’s
Essential Survival Package
--The Doctors Protocol: Secrets of Survival
--How to Survive the Coming Economic Collapse
--Guide to Self Reliant Living
--Becoming Self Sufficient for Six Months
--How I Found Freedom in an Un-free World
http://1drv.ms/1d9kfiU
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8 Reasons Why You Don't Have an Emergency Fund
Are any of them reasonable?
Are any of them reasonable?
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