Have you read The Richest Man in Babylon? Great book! It was written way back in 1926 by George. S Clason and imparts financial advice through a collection of stories set in ancient Babylon. It’s set out in a series of short chapters, which makes it fun to read and easy to digest, in fact the book started as a series of information pamphlets that were distributed by banks and insurance companies and the most famous ones were compiled into the book. I’ve read a lot of books on wealth creation, personal finance and investing, but my whole philosophy has never really changed from what I first read in this book. There are a lot of take home messages, but much of the story is reinforcement or expansion on 3 key messages.
The Key to Wealth Creation
- Live on less than you earn
- Seek advice from those who are competent through their own experience to give it
- Make your gold work for you
For me, the one thing that resonates is the saying “a part of all I earn is mine to keep“. According to the wise Algamish from the book, you can make this any amount you like, but as a rule it shouldn’t be less than 10%. I’m sure that people will argue that this isn’t possible because they don’t earn enough, or their rent is too high or they have loans to repay first, but those are not reasons, they are excuses that prevent you from achieving your goals.
Now if you are still with me, here is the hard part – you have to keep this money forever. What, that’s not so hard? What if I told you that you had to keep the profit that this money makes for you as well and then reinvest it? Ok I hear you say, so when do I get to spend it? Ahhh…. that is the tricky part isn’t it? Because surely at some point you can spend it, otherwise there is no point in accumulating it in the first place. Well, I think it might be like those shops that stock items without price tags – if you have to ask, you can’t afford it. So if you have to ask when you get your money, you aren’t ready yet!
Saving or Creating Wealth?
Although it may seem like these are the same thing, they aren’t. Saving is what you do for a holiday, or that new pair of shoes you want. Creating wealth is what you do with the money you keep and continue to do without spending it. Savings might sit in an account that you can access when you need it, while the money you keep goes into managed funds, bonds or investment housing where you can’t access it. So what this means is that long before you can have any of the money that is working for you, you need to save more money for the things you want now. This can be as much as you like as well, but must be seperate from the money you keep, we don’t want to mix it up now do we?.
I think that it is important to point out that wealth creation is actually about more than just making money, it is about self control and patience. These are skills we develop in life and without practice, you won’t be any good at them. Ultimately the focus should be on creating the life you want to live. If you set goals and work towards this it will happen, just don’t expect it all to happen straight away!
Wealth creation is a journey, it will not happen overnight, but it will happen quickly. As soon as you start keeping your money you will instantly have more. If this money sits in a bank earning interest, it begins working for you right away. That’s pretty fast then isn’t it? Not fast enough I hear you say, well then keep more! Find a way for it to work harder for you, perhaps an investment? Be sure you follow rule number 2 though, research well, find the right people and understand that if something looks too good to be true, it probably is. Practice patience and self control, and embrace the warm tingly feeling of delayed gratification, because it is a lot better know that something is yours to keep when you have worked, waited and saved for it.