“Deride not what I say because of its simplicity. Truth is always simple.” – George Samuel Clason
Last week I highlighted The Richest Man in Babylon by discussing the five laws of gold and how the rich or those with meager means are not immune to them. Perhaps I got a little ahead of myself, as there are many of us who are not at the point of following the Five Laws of Gold. Sure, it’s great to get a head start on understanding how gold works…but what if you have no gold to work with?
If this describes you, you are suffering from a ‘lean purse’. Let’s take a look at George Clason’s seven cures to a lean purse and how to put them into action.
Start Thy Purse to Fattening
“For every ten coins thou placest within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.” If you remember from the previous article, Arkad from Babylon is our teacher in this book. He allays everyone’s doubts about being able to get by without spending all of your income by detailing his own experience with a lean purse and how when he began to only take nine coins out of it for every ten placed into it he did not suffer. In the same way, you may think that only spending 9 out of every 10 dollars will lead to deprivation, but that does not have to be the case.
Arkad distinguishes between short term gains and long term gains, and asks if you desire jewels, finery, and more food (short term gains) or if you desire more substantial belongings, gold, lands, and income-bringing investment? “The coins thou takest from they purse bring the first. The coins thou leavest within it will bring the latter.”
Action: Save at least 10% of your income.
Control Thy Expenditures
Every one of Arkad’s pupils makes a different salary from one another…yet every person in the room has a lean purse. How could this be? Wouldn’t you think that the people who make more money should have fatter purses than the people with meager incomes? This is a clear example that people spend more than they need to, even if they believe their spending to be on necessities only. Arkad speaks the truth here “…[t]hat what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.” Think about promotions, raises, extra money, and those received by others. How often does this money just become absorbed into our monthly expenses and we begin to wonder how it is that we are making more money and still not saving any of it?
Instead of trying to satiate all of our desires—desires will never fade and even the wealthy cannot satiate all of their desires—we need to think about being 100% satisfied with each coin spent (nine out of every ten). By prioritizing our money, it enables us “to realize thy most cherished desires by defending them from casual wants.”
Action: Make a list of necessary expenses and desires; prioritize your spending so that you do not spend more than 90% of your earnings.
Make Thy Gold Multiply
Arkad does not want us to leave our extra gold from the two cures above in our purses or under a mattress at home. “Gold in a purse is gratifying to own and satisfieth a miserly soul but earns nothing…wealth is not in the coins he carries in his purse; it is in the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging.” Arkad wants us to put each of our coin (or dollar) to labor so that it can reproduce like rabbits.
Action: Find a way for your money to earn money. This can be through a savings account, CDs, stocks, bonds, etc.
Guard Thy Treasures from Loss
“The first sound principle of investment is security for thy principal…Be not misled by thine own romantic desires to make wealth rapidly.”
Action: Invest with a sound understanding of risk to your principal; stay away from investments that seem too good to be true.
Make of Thy Dwelling a Profitable Investment
By owning a home “…thou canst pay the money lender with the same regularity as thou didst pay the landlord. Because each payment will reduce thy indebtedness to the money lender a few years will satisfy his loan. Then thy heart be glad because thou wilt own in thy own right a valuable property and thy only cost will be the king’s taxes.” Some housing markets do not work this way, but when Paul and I were deciding whether or not to purchase a home in Houston from a financial perspective, I quickly determined that it made perfect sense. Houston’s real estate is so cheap that you can find a home where you will only be paying a few hundred dollars more per month than if you rent when you include insurance and taxes. In fact, our actual mortgage payment each month is $100 less than what we were spending to rent from a landlord a property we would never own or build equity in. It was an easy decision for us. Of course, you also have to take into consideration home maintenance, closing costs, tax increases, etc.
Action: Do a cost analysis of renting versus owning a home in your house market; decide if it makes sense to own or rent after including all costs involved.
Insure a Future Income
Arkad states that “…a lean purse to a man no longer able to earn or to a family without its head is a sore tragedy.” Because his book takes place in Babylonian times when there is no insurance, he introduces this idea as a future possibility: “In my mind rests a belief that some day wise-thinking men will devise a plan to insure against death whereby many men pay in but a trifling sum regularly, the aggregate making a handsome sum for the family of each member who passeth to the beyond.”
Action: How will you provide for your family’s future should you pass away? Clason suggests securing insurance of some type.
Increase Thy Ability to Earn
“Always do the affairs of man change and improve because keen-minded men seek greater skill that they may better serve those upon whose patronage they depend. Therefore, I urge all men to be in the front rank of progress and not to stand still, lest they be left behind.”We should all be continually improving our skill set and becoming greater assets to our employers and in our businesses.
At the same time, we should start with small goals, achieve them, and the goals and results will gradually increase in size. By learning to attain small goals, you will train yourself to secure larger ones. Wealth is accumulated first in small sums and then in larger ones as you become more capable, so start small and go from there.
Action: Continue to invest in yourself in ways that will help your career and income-earning potential. Start small in saving and investing and celebrate your accomplishments. For example, if you set a goal of saving $2,500 this year, break it down into mini-goals of $208.33 per month. Next year shoot for $5,000.
These cures may seem a little overwhelming at first. Just remember to start from the beginning and work your way through. The first two cures go hand-in-hand: control your expenditures so that you can save 10% of your income, and really everything else flows from them.
Part of the Carnival of Personal Finance # 317 Edition.