The Richest Man In Babylon
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Here’s a quick summary of the book’s financial tenets, called the “Seven Cures for a Lean Purse”:
1. Start Thy Purse to Fattening
This chapter of the book is dedicated to the principle of paying yourself first. The chapter subheading states “For each ten coins you earn, spend only nine.” As you save the one coin out ten, you form the habit of getting ahead financially. As time passes your savings grows and you gain more and more peace of mind knowing you have an emergency fund to protect you in case of financial troubles.
2.Control Thy Expenditures
This chapter is dedicated to budgeting your money. As you dedicate your earnings to the different aspects of your life, you ensure that your needs are met while still enjoying life and spoiling yourself a little. All of this is accomplished without spending more than 9/10 of all your earnings, and your financial situation continues to improve.
3. Make thy gold multiply.
This chapter introduces the concept of investing for a healthy return. “Put each coin to labor so it may reproduce its kind.” We should think of our money as a seed. If you ‘plant’ a dollar in a sound investment, it will blossom into your own money tree that bears fruit forever!
4. Guard Thy Treasures from Loss
As you invest your ‘money seeds’, make sure you’re putting them into investments where the principle is secure. Benjamin Graham, who was one of Warren Buffet’s bigget influences, defines an investment as anything that “guarantees safety of prinicple and a healthy return.” Anything that falls outside those parameters is considered speculation, similar to what goes on in Las Vegas.
5. Make of Thy Dwelling a Profitable Investment
Own your home instead of renting so the money you put into it will come back to you with a healthy return. Money spent on rent is money you can’t have back.
6. Insure a Future Income
Work and save with an eye to the future. Recognize that your income is a stream that flows to you, and you should dedicate yourself to making sure that stream flows whether you’re working or not. If you don’t, you’ll be in a position to have to work forever.
7. Increase Thy Ability to Earn
The money you make is more about who you are than what you do. As you develop new skills and new knowledge your ability to earn money increases. Make sure you gain that knowledge in areas that have the potential to pay you a residual, passive income forever.
My favorite part of this book gives a piece of advice that flies in the face of conventional wisdom. I’ve heard so many people say that you should pay off all your debt before you begin saving. That has never seeme quite right to me. If you wait to save and invest until you’re finished with your debt, you run a couple of serious risks:
First of all, you lose time. Your biggest ally in investing is time, because your money earns interest every second it’s in an investment. If you wait years or even months to get started with your investments, it’s probably costing you hundreds of thousands of dollars down the road.
Second, our financial decisions have more to do with habits than logic. Paying off your debt before investing may seem logical, but the habit of saving is too important to put off. If you pay off your debt more slowly for the sake of starting the saving habit, it may cost a few thousand dollars in interest you pay, but it will make you hundreds of thousands in your investments.
I strongly recommend that everyone read this book, and then give it to their friends, family, and especially their children. Our country (and the world) would be so much better off if we all followed its advice.
Get started! None of us are perfect, so just do your best and start moving in the right direction. The payoff will be huge in the end.
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This is easily one of my favorite personal finance books! Very inspirational.
Really got me thinking about things differently. I recommend this to everyone I meet (well, mostly :).
Some good advice. And I love the way you’ve summarized the best points of the book.