17th January 2022
Financial Independence, when you hear it, often means different things to different people. For some, it’s having more money/assets accumulated than they’ll ever be able to spend – for others, it’s having regular and reliable income that’ll cover their every future need. For others, it’s removing as many on-going expenses as they possibly can. Whichever way you look at it though; it almost always goes hand-in-hand with being confident about your financial independence. It is one thing seeing it on paper, it is another to actually believe it and have conviction that it is so.
This week I want to share some brief yet impactful nuggets from a legendary book called ‘The richest man in Babylon‘, which details one man’s journey to Financial Independence. I share these nuggets in the hope that it might add another layer of confidence and clarity in your own Financial Independence.
Written by George Clason in the 1920’s apparently – this book has grown to have a huge (cult-like!) following. The fact that it is still in print almost 100 years later is testament to it’s on-going relevance to our personal finances, and specifically to saving and investing and indeed retirement planning! Having recently re-read it after quite a few years, it struck me how relevant the messages in this book are. Like a lot of things we talk about here; the tools and philosophies within are simple yet effective.
In 3 bullets or less, the book is about:
Interestingly, lean these days is a word that generally is referring to one’s physique and generally has positive connotations – but 4,000 years ago most everyone was lean, and there was little obesity among the lower & middle classes! So ‘lean’ in the context of the book was meant as a negative; as thin, and certainly not meant as a positive! A lean pursue was not something you wanted to have! So Arkad shares his ‘7 Cures’ which are 7 principles of saving/investing/planning that we can all learn something from;. Lets have fun with this, I’m gonna share the 7 cures, and ask you to rate yourself on a scale of 1 to 5 on each, 1 if you are not doing any of it, 3 if doing a fair amount but could be better and 5 if you are nailing it – right!?
1. Start thy purse to fattening
Arkad’s number one tip, is that you should begin your journey to financial independence/wealth by setting aside 10% of your income every pay-day. By all means, use 90% of your incomes to pay for your expenses but you should be hell-bent on putting aside 10% for better and longer-term uses. This was probably the first time the concept of ‘pay yourself first’ came to publish vernacular, and it was done very well in the book in my view.
There are many people in the ‘financial independence community’ who may feel that 10% is not enough, but there’s no doubt that over time you’ll start to accumulate a sizeable sum. Arkad suggests that even he did not miss that 10% from his weekly spending, and that anyone really can put that level of ‘gold’ aside each payday.
Rate yourself on a scale of 1 to 5 for this one: and keep a tally! If saving 10% or more here you’re a ‘5’. More than 5% but less than 10%, maybe somewhere around a 2 or 3 rating. Not saving more than a couple % and you are a zero to 2 rating!
2. Control thy expenditures
Basically, Arkad suggests we must spend less than we earn. The easiest thing in the world is to spend all that we earn, to cover living costs and then to buy ‘stuff’ with the balance. Even the Babylonian’s had temptations – they couldn’t buy new cars or fancy electronic equipment, but there sure were merchants trying to sell fine things to those that had the spare sheckles!
Don’t let lifestyle creep continue to consume all of our (rising) incomes over time. Keep our expenses as level as we can.
Rate yourself on a scale of 1 to 5 for this one: and keep a tally! If you spending has grown as quickly as your incomes over recent decade or two you’re not scoring high here!
3. Make thy gold multiply
As opposed to keeping our savings buried under a rock somewhere, Arkad states that we must aim to wisely grow our savings (the 10% you’ve been setting aside). We must put that gold/money to work. The idea being, when we invest it wisely, it can grow, and generate reliable income in the future.
Arkad phrased this concept as us making our ‘gold have children’, who can then also work for us! Indeed he also mentions the metaphor of growing money like trees, which is how Will Rainey from Podcast #207 phrased it in his book. Most of us will relate to the concept of investing in some form of growth-oriented asset over time.
Rate yourself on a scale of 1 to 5 for this one: and keep that tally!
4. Guard thy treasures from loss
A favourite of mine here! Arkad encourages us to avoid fly-by-night investment ‘opportunities’ that sound too good to be true or that are get-rich-quick in any way. Arkad reminds us that there is no reliable way to multiply our savings quickly. Interestingly, Arkad ranks security for the principal over achievement of huge returns. He does at times operate as a money-lender, but at lower than exorbitant rates, and with prudently selected bond-holders. Having got burned a couple of times on his own journey, losing his entire capital, he is careful about who and what he invests in, and only engages with qualified and trusted advisors and partners.
Rate yourself on a scale of 1 to 5 for this one: and keep the tally! If you are well diversified in sensible investments of various sorts you might be up at the 5 mark on this one. All savings in bitcoin or all in deposit accounts, Arkad might give you ‘null point’ here! Max points is 20 here so far, where are you at?!
5. Make of thy dwelling a profitable investment
Instead of having a large rent, aim to own our own home, Arkad suggests. In that way, we will either be freeing up monthly cashflow to put to other good uses (when we own the property outright) or we will be building equity in the house if we are repaying a loan on it.
Again, not something that is achievable over-night for most of us, but will appeal to many and be a large goal for future planning.
Rate yourself on a scale of 1 to 5 for this one: and keep that tally! If you are half-way to clearing the mortgage maybe your a 3 out of 5 – if it’s fully gone you’re a 5.
6. Insure a future income
Something that a lot of those who work with me are laser-focused on, making sure they have a sustainable and growing income for the rest of their lives! Arkad encourages us to prepare for the time when we won’t actively be working and earning a living. We must plan to generate incomes when we step back from full-time/paid employment.
By planning early, we can give ourselves the best probability of successfully generating the incomes we will want if we live too long, but also ensure that our dependents will be financially secure if we die too early!
Rate yourself on a scale of 1 to 5 for this one: and keep a tally! Maybe our Blog 176 might be a useful template to use to determine your rating re your preparation for retirement!
7. Increase thy ability to earn
Arkad touches on two key aspects here with the final ‘cure’; our knowledge about making money, and the number of sources of income we are preparing.
Arkad suggests that if we are curious, have a mindset of striving for knowledge and wealth, we will be all the more successful in achieving financial independence. We will become better investors and generate more income and wealth over time as a result.
Rate yourself on a scale of 1 to 5 for desire to learn and explore avenues for wealth: and total your scores for all 7 cures.
So, what did you score out of 35?? Personally, I scored 27, with a heavy dose of self-criticism! Am scoring 3 or more in all aspects but there’s a couple I want to up my game in!
That’s the summary – so what might we glean from the book?
I remember being at a conference years ago at which former rugby player Paul O’Connell was speaking at. I had met him briefly a couple of times over the years, and always found him to be salt-of-the-earth sort of a man, who only spoke when he had something wise (or funny) to say – so you tended to listen when he did! It was unusual to see him in the full suit addressing a theatre of about 1,000 people – he was noticably uncomfortable at the outset (not his natural environment I guess) but once he got warmed-up he had the place hanging on his every word. I have since reflected many times on a story he shared. When he was a young player he’d play his matches or go to training and always be looking to the next match or next session.
But as he grew older as a player and more mature, instead of exclusively looking towards the next match or session, he’d start reviewing what he had just done. He’d review it with a hope of objectively assessing his performance in the relevant aspects of the match/session. He’d critique it more deeply, what was good, what wasn’t, what aspect can be worked on next time etc. Ultimately, he posed a question to himself after each match/session; ‘What did I learn from that, and what can I apply tomorrow?’ (paraphrasing here!). He termed it ‘Do And Review’.
So with that perspective; of ‘Read & Review’, here are 5 things that I learned/observed from re-reading this book about Financial Independence.
Book summaries are all fine and well but they aren’t a patch on actually reading one, so may I suggest you do yourself a favour, read the book! Its an enjoyable read as opposed to being just another tediously boring and decades-old finance book, really.
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