Warren Buffet says “The more you learn, the more you earn”. Knowledge in your financial decisions is crucial. That’s why I’ve decided that once a week, I would review a book that will not only help you in the financial side of life, but also in other areas. It is worth mentioning that these are principles and not rules to follow in every situation, so be cautious on how you apply these principles in your finances because they might not be right for everyone.
This week, the book is The richest man in Babylon, written by George S. Clason and published in 1926. The book is written in parable form, that is in short stories that give you morals or guidelines to follow. I will give you the most important things to take away from the book.
The 90-10 rule “Save no less than one-tenth of thy income”
In the book, they introduce the “pay yourself first” principle. That is, when you get your salary, you put away one tenth of it in savings and you do not spend it. As the months and years go by, you will see your savings grow and it will do two things: encourage you to be frugal (within reason) and will give you motivation to earn more. This money is to ensure you a future income if you ever lose your means of production or when you retire. I would also suggest, when possible, saving another 10% of your income for investing in other things to make your money multiply.
Increase thy ability to earn/ make thy gold multiply
As mentioned in the paragraph above, you can save another 10% if you can and live on 80% of your income. It can vary, especially at the start if you are just making ends meet. In extreme cases, just save 1% for investing and 1% for savings and live on 98% of your income; it’s the principle that counts. As time goes by, you’ll be able to put more and more. Some people can even save 50% or more of their money. It is worth noting that when I say save your money, I do not mean put it in the bank and do not touch it. It is okay to have some money in the bank, but you loose a lot by inflation of money. It is better to start investing it to make a profit.
Invest in things you understand
This principle is found in a number of books including this one, and it is because it is very important. To make good investments you have to understand what you are buying. Whatever you invest in, real estate, stocks, bonds, precious metals, etc, you have to understand what you are buying. If you invest in someone’s company, be sure they are competent to take care of the company and that you like the company as a whole. The same goes for all kinds of investments.
Luck favors action
The last principle that I took away from this book is that luck favors action. Most people only dream of being financially independent or wealthy and do nothing about it. You have to be a person of action. You have to work constantly on your wealth. When opportunity strikes, you have to be ready to take it. Dreaming about it will not make you wealthy. Gambling is also looked upon as dreaming of being wealthy because the chances of you winning are not in your favor and are very slim. Most people just waste their money when they gamble or buy lottery tickets. You don’t have to stop all forms of gambling if it is something you like to do once in a while, but do not rely on it to make you financially independent, because you will most likely go broke if you only invest in that.