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Seven Cures for a Lean Purse – The Richest Man in Babylon, Pt. 2 of 9

The Richest Man in Babylon

Photo credit: jb

This is the second in a series of posts in review of the lessons found in the book The Richest Man in Babylon. The first article can be found here.

Seven Cures for a Lean Purse

Arkad, the richest man in all of Babylon, has been persuaded by the king to teach others the secrets of his wealth. The king wants all of his subjects to know how to acquire wealth, as he wishes for Babylon to be known as the wealthiest city in the world.

Arkad agrees to the scheme – he will teach his secrets to a group of citizens, who will be destined to become teachers themselves. These teachers will then go on to teach others the wisdom of Arkad, how to acquire and maintain wealth.

In this chapter, Arkad lays out the cures for a lean purse to the future teachers over the course of seven succeeding nights.

As a preface, Arkad admits to the king and later to his students that he started with nothing at all, just the same as the students. His only advantage at that point was a desire to become wealthy – plus the knowledge given to him by someone who had “been there, done that”. In other words, he started with no more advantage than any of his students have.

The First Cure:  Start Thy Purse to Fattening

Every person who has a capacity to earn a income has the ability to begin saving money. A job is a source of income, and through income is where the entire process of wealth creation begins.

As was revealed to Bansir, Kobbi and their friends in the second chapters, Arkad explains the great benefit of paying yourself first out of all income. The recommended amount is not less than one tenth (10%) of all earnings. Even though we covered this lesson in the first article, its value cannot be underestimated. This particular lesson is revisited over and over throughout the book.

There is no better way to increase savings than to regularly set aside a portion of all earnings, designated as savings. As these seemingly insignificant sums are set aside, you don’t notice them missing from your day-to-day cash flow, and before long the savings begin to mount up. Getting in the habit of saving (and therefore spending a bit less) is the foundation of any successful wealth creation plan.

In these times when many folks are nearing retirement with perhaps less savings than they need, the best way to make up the differential is to put more money aside. Many consider the benefit of taking larger risks with what remains of their savings, or somehow reducing their future expenditures, but the best (and really only, in most cases) way to get back on track is to continue regularly saving – and likely delaying retirement by a year or two from the original plan.

The Second Cure:  Control Thy Expenditures

Once you’ve begun setting aside ten percent of your earnings, you must learn to get by on only ninety percent, and the lesson here is to get by with only ninety percent, or even less if possible. Arkad explains that “what each of us calls ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary'”.

This again is a long-held truth: if we do not examine our outlays we will always find a place to spend every last cent of our income. It is for this reason that it is often helpful to, upon receiving an increase in salary, begin by setting aside the amount of the increase into savings. After all – we were able to “get by” on our pay amount before, right? And if we have been overspending our salaries, we must split those expenses out into “necessities” and “wants”. Your “wants” can be had later when you’ve become wealthy. Remember, patience is a virtue.

For controlling expenditures, it may be necessary to enlist the help of a tracking tool of some sort, which can be as simple as a spreadsheet. By tracking your every expenditure, you gain an understanding of where all of your income is flowing to. And by understanding where your money is going, you can make decisions about which expenses are necessities, and which are simply “wants”.

The Third Cure:  Make Thy Gold Multiply

As we set aside the prescribed ten percent of our earnings, it is important to start that money working for you, multiplying your savings. Arkad describes this as causing your money to be workers for you and to have children who are workers as well, and the children of your money to have children of their own, all working for you. This is one way of describing compounding returns.

The investment of your “gold” can be as simple as a bank savings account or as elaborate as an IRA or other deferred-tax account. The point is that you are setting this money aside – make it work for you and return a dividend, and in turn put the dividends to work as well.

Of course there are many ways to invest your savings, but it is wise to invest in ventures that are assured of return. Compounding this return upon itself causes your multiplying savings to increase at an ever-quicker pace.


The Fourth Cure:  Guard Thy Treasures From Loss

Here Arkad makes a very important point: “The first principle of investment is security for thy principal.” Even though there are possible investments with large “promised” returns, these often come at a high risk to your principal – the money you’ve been saving all along. As a minimum, you need to start out with very safe investments that guard your principal, so that at any time you can get at least the amount back that you’ve saved over time.

When you have savings built up, there are many ventures that will come into your sights – some promising outrageous returns, others a fair return with less risk. As you consider your alternatives, make certain that you seek out advice from others who know and understand the venture. Use this advice as you choose investments for your savings, with the first principle of security in mind.

The Fifth Cure:  Make of Thy Dwelling a Profitable Investment

In this lesson, Arkad points out the benefit to be had by owning one’s own home. Instead of paying rent throughout the years and having nothing to show for it but a box of rent receipts, it is wise to pay roughly the same amount as your rent toward a mortgage and eventually have a paid-for home of your own. Plus, very often the value of the home appreciates over time, while you’re still making the same mortgage payment as before; rent amounts increase with the passage of the lease term in many cases.

Arkad also points out the spiritual benefits of owning a home – where you and your family can enjoy a yard and perhaps a garden, and how owning property in and of itself does good to a person’s heart.

I realize there are often good reasons to rent rather than buy. These reasons are often linked to being in a transitional phase, where you might not be staying in the same geographic area for very long, or the high entry point for home ownership in a particular area. I concede that home ownership is not a panacea for everyone, but for many it can be a very useful component of the wealth creation process.

The Sixth Cure:  Insure a Future Income

This is the lesson concerning retirement and disability income planning – or in Arkad’s words, “it behooves a man to make preparation for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.”

Planning for the foreseen and unforeseen is critical in your wealth creation process. You must consider those things that could occur to eliminate your income (unemployment, disability or death) and prepare yourself for those potentialities. Plus you need to think about that time of life when you’re hoping to retire from work and live off of your savings. There are many ways to prepare for these situations.

First suggested is to bury some money in the sand – of course this isn’t the best answer, although it might be partly useful. However, Arkad suggests putting money aside with the money lender (bank) and adding to it regularly, receiving rental (interest) for the loan. In time, the compounded interest and regular contributions will grow to a sizeable sum from which you can draw in old age or your family could use if you were not with them any longer.

Obviously, life insurance and disability income insurance would be products available today to cover premature death or disability, while retirement savings accounts, pensions, and annuities are available to cover the your income needs in old age. Otherwise, the “cure” is the same, just modernized with the products available in today’s world.

The Seventh Cure:  Increase Thy Ability to Earn

This last of the cures speaks to a way to increase the benefits of the other six: If you can increase your ability to earn, you can readily set aside more income toward building wealth. The way to do this is twofold… begin with industriousness and a desire to earn more. This attitude will serve you well in your current job. Working hard and taking pride in what we do doesn’t go unnoticed, and perhaps might gain you a raise for doing the same work.

At the same time, improving your skillset and knowledge of your profession will open doors of opportunity for increasing earnings. This could be at the current job or expanding out to new opportunities, or even going into business for yourself. You could start up a side-gig and augment your income in that manner as well.

In closing, here in Arkad’s words are several more items to consider in increasing your earnings capacity as well as your self-respect:

Many things come to make a man’s life rich with gainful experiences.  Such things as the following, a man must do if he respect himself:

He must pay his debts with all the promptness within his power, not purchasing that for which he is unable to pay.

He must take care of his family that they may think and speak well of him.

He must make a will of record that, in case the Gods call him, proper and honorable division of his property be accomplished.

He must have compassion upon those who are injured and smitten by misfortune and aid them within reasonable limits.  He must do deeds of thoughtfulness to those dear to them.

And lastly, to cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself.

The next article will deal with the chapter “Meet The Goddess of Good Luck“.

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