One of the first things I noticed when I began my investment newsletter was that many of the other newsletter writers I encountered seemed to focus on giving their readers a fish (stock picks) rather than teaching them how to fish (a holistic approach to wealth creation).
That is my goal with my newsletter Actionable Intelligence Alert. Yes, I bring readers my best research and stock picks but I also want my readers to understand how long-term wealth is created and how to maintain it.
I believe this is very important especially nowadays because of the stress we are seeing in private and public pensions along with government programs like Social Security. I just do not see how one can put their faith and future in government bureaucrats or promises based on overly aggressive portfolio returns required to meet pension payouts.
From emails, blog comments, and video comments I receive it is apparent many people lack even a rudimentary understanding of personal finance and wealth creation. This leads to all types of bad decisions being made by quite a few people.
Believe me when I say this was me. It took me decades to learn what I know now. If someone would have taught me some basics early on I would have avoided having to learn by making mistakes. Making mistakes wastes time and costs money. Why not just learn from others who have already made the mistakes and save time and money?
One of ways I learned was by reading some basic investment books. My intent is to review some of these and pull principles from them that my readers can apply to their wealth building journey.
One of the best books on basic investing and personal finance that was ever written is called “The Richest Man In Babylon”. This book was written in 1926 by George Samuel Clason.
Mr. Clason wrote various pamphlets on personal finance and wealth creation. These were normally given away by banks and insurance companies to their customers as gifts and as educational material.
The book is a series of parables and stories dictated by the richest man in Babylon, a former scribe known as Arkad to his friends.
A Part of All You Earn is Yours to Keep
Arkad relates that when he was younger he made a deal with a wealthy man named Algamish concerning the secret to wealth. Arkad had performed a vital service, in his capacity as a scribe, and in exchange Algamash related the secret to building wealth.
Algamash told Arkad the secret to building wealth was to “Pay Yourself First”. In order to “fatten one’s purse” pay yourself 10% of what you earn.
It is interesting that when I talk to people about building wealth I am amazed that they do not understand this basic concept. Just about everyone has a job. Yet most people do not practice this concept. If you are unable to put aside funds and build a bankroll how exactly do you intend to be able to avail yourself of any investment opportunities?
During your whole working career, you will earn money. Before you pay one bill pay yourself 10% off the top. You will have rent/mortgage payments, food, utility, clothes, insurance, and other bills forever. If your excuse is you have bills you will never get off jump street. If you are in debt should you pay off the debt first or save, I say that you should begin saving and pay the debt down at the same time. Saving is a habit and the sooner you being this habit the sooner you can build wealth. You can check out my debt reduction article by going here.
If you want to be able to build wealth you must start somewhere yet most people do not even have enough money saved i.e. $500 for a simple car repair or to get a tooth filled. Amazing!
The book goes onto a scene where the king of Babylon, Sargon of Akkad, is informed by his advisers that the kingdom has become poor and that the majority of the wealth is held by a few men. The king is incensed that this is the case and asks how it is possible. His advisers tell him it is because they know how.
The king than says that everyone in Babylon should be taught how so that they can become wealthy. The king than calls for Arkad to present himself at court and tells him to teach 100 men his secrets for creating wealth.
Below I have summarized the “Seven Cures for Lean Purse” that Arkad taught the 100 selected men. Although the principles might seem simple, dated, and do not seem relevant because this book was written in 1926 do not be quick to judge. What worked in 1926 works in 2018 and will work in the future. These are timeless and basic wealth building principles.
Start Fattening Thy Purse
We already covered this one earlier in the article. Save at least 10% of what you earn. One way to do this is to have money representing 10% of your salary directly deposited into your savings account. That way you will not miss it and it just happens automatically.
Control Your Expenditures
This is one of the stumbling blocks that most people run into when trying to build wealth. They will tell me that no matter how much they make they seem to have bills that they are barely paying. In the book Arkad, the richest man in Babylon, is told the same thing by the 100 men he is training.
He tells them the following; “Yesterday how many of you carried lean purses?” “All of us” cried the class.
“Yet, thou do not all earn the same. Some earn much more than others. Some have much larger families to support. Yet, all purses were equally lean. Now I will tell thee an unusual truth about men and sons of men. It is this; that what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
“Confuse not the necessary expenses with thy desires. Each of you, together with your good families, have more desires than your earnings can gratify.”
Arkad tells the assembled men to list their expenditures, including desires, onto a clay tablet. Then go and scratch off those desires that are not able to be paid for by the expenditure of nine tenths of your salary (remember you are saving 10% minimum of your salary).
This is called living within your means and it requires discipline. Modern America is a consumer-based society that relies on consumption. We are continually bombarded by advertising that is trying to get us to buy, buy, buy! If you don’t have the money right now than we can give you 0% interest or just charge it on a credit card. You will have to fight this via self-discipline and by making a budget. If you can’t overcome your propensity to spend beyond your means than there is nothing Arkad or I can do for you.
Make Thy Money Multiply
Arkad start this lesson by telling his students the following;
“I tell you, my students, a man’s wealth is not in the coins he carries in his purse; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging. That is what every man desireth. That is what thou, each one of thee desireth; an income that continueth to come whether thou work or travel.”
Arkad goes onto to discuss various examples of how he put his savings to work to create additional wealth which he then also put to work in a compounding fashion.
“This, then, is the third cure for a lean purse: to put each coin to laboring that it may reproduce its kind even as the flocks of the field and help bring to thee income, a stream of wealth that shall flow constantly into thy purse.”
Guard Thy Treasures From Loss
In this chapter Arkad discusses risk and being careful in the advice one listens to regarding investing.
“Every owner of gold is tempted by opportunities whereby it would seem that he could make large sums by its investment in most plausible projects. Often friends and relatives are eagerly entering such investment and urge him to follow.”
“Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments.””
Remember bitcoin mania, housing back in 2008 (it never goes down, tech stocks in 1999-2000. One has to follow the advice of Warren Buffet; rule number one of investing is to not lost money. Rule number two is to not forget rule number one.
Make Thy Dwelling A Profitable Investment
“To a man’s heart it brings gladness to eat the figs from his own trees and the grapes of his own vines. To own his own domicile and to have it a place he is proud to care for, putteth confidence in his heart and greater effort behind all his endeavors. Therefore, do I recommend that every man own the roof that sheltereth him and his.”
I actually have mixed emotions about this particular rule. Yes, I believe in certain circumstances that it makes sense to buy a house and build equity instead of renting. For example, I was able to buy a house in a great neighborhood at a discount to its rebuild value.
I was also able to get a VA loan which allowed me to not put any money down on the house. Interest rates were also at near all time lows. It was basically a no brainer.
However, we have had years of price appreciation because of low rates and in some areas, prices are getting bubbly again. Interest rates are in fact heading up and this puts caps on prices or causes them to decrease.
A person has to be careful that they research the market they are buying into and understand the values so that you are not overpaying or buying at the top.
Sometimes being patient for a couple of years will yield tremendous value.
Insure a Future Income
“The man, who because of his understanding of the laws of wealth, acquireth a growing surplus, should give thought to those future days. He should plan certain investments or provision that may endure safely for many years, yet will be available when the time arrives which he has so wisely anticipated.”
This is basically advice to prepare for your old age and a time when you will no longer be able to work. I related the story of the 50% of the people that worked for me that refused to participate in our employers 401k program.
This is shortsighted and stupid and people will come to regret these types of poor decisions. Socialism and the safety net are collapsing all over the western countries. Too many generous promises were made that cannot be paid. Therefore, they will not be paid. You are on your own. I highlighted why Social Security will collapse the US dollar in an article you can read by clicking here.
“This, then, is the sixth cure for a lean purse. Provide in advance for the needs of thy growing age and the protection of thy family.”
Increase Thy Ability to Earn
“Thus the seventh and last remedy for a lean purse is to cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself. Thereby shalt thou acquire confidence in thy self to achieve thy carefully considered desires.”
The internet has now enabled the world to become connected. More and more people are coming online and they are bringing their money with them. This represents a tremendous opportunity to create services and products which can be marketed to people.
People all have problems that need to be solved. Identifying people’s problems creates an opportunity for a solution. This can than become a business for you to earn additional money.
The blog you are reading is a business. I am trying to reach people who know little about investing and creating wealth and help them so that they do not make the mistakes I made and waste time that could have been used to compound their wealth.
Everyone has an expertise or experience that can bring value to other peoples lives. Guess what you can charge for that information.
In summary
“The Richest Man In Babylon” was written in 1926 but the information contained in its pages is timeless. In order to be successful in building wealth one must master some basic principles. This book is a good start and if I was just beginning my learning curve I would check it out. It is a short yet entertaining read.
You can buy it on Amazon by clicking here.
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