Seven Cures For a Lean Purse
The Richest Man in Babylon by George S. Clason was first published in 1926. The book is a collection of short stories set in ancient Babylon. Each story provides an easy to understand lesson about money management.
This book is nearly 100 years old, but it’s still referenced as a must read on most personal finance podcasts. In less than 200 pages, Clason gave us lessons that still apply today.
One of the chapters is titled Seven Cures for a Lean Purse. It offers seven simple instructions to build your wealth.
Let’s take a quick look at those lessons, with an update for how you can apply them today.
Start thy purse to fattening
If you want to grow wealthy, the best place to start is with the money you already earn.
Whether you’re an accountant or a carpenter, a car salesman or a doctor, a chef or a professional athlete – it doesn’t matter. You have a source of income.
The best way to fatten your purse is to ensure you earn more than you spend. Clason suggests that for every ten coins you put in your purse, you only spend nine.
A ten percent savings rate is a great place to start. If your income is low, and you’re struggling to pay your bills, maybe you start with one percent.
Maybe your income is high and you can do more than ten percent.
The important message is that you save a portion of your income. Do this every month, and your wealth will consistently grow.
Technology makes this easy for us. Set it and forget it is my favorite way to make saving a habit.
Check out my step by step plan for automating your saving and investing.
Control thy expenditures
You might be wondering how you can save ten percent if your income isn’t enough to cover your expenses.
To which Clason would respond, “That which each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
That’s the nice way of saying, “you’re full of shit.”
If you sit down and look at every dollar you spend each month, you’re going to find a lot of waste.
I know because I did it.
The seven Starbucks coffees when you didn’t have time to brew a pot at home: $21.
Two new pairs of shoes because they were on sale: $87.
Five dinners out even though you had food in the fridge: $124.
I could go on for days.
Take your monthly income. Multiply it by .9, and this will tell you how much you can spend each month (remember you’re going to save 10%?).
After you have that number, subtract the things that are truly necessities – mortgage/rent, car payment and insurance, groceries,utilities, etc.
Whatever you have left is what you can spend on Starbucks,new shoes, and dinners out. If you’re thinking about making a big ticket purchase, make sure you ask for a discount.
If you don’t track your spending and budget your money, you will always spend it all. This seems fine when you’re young and stupid, but it becomes a problem when you want to:
Buy an engagement ring,
Pay for a wedding,
Put a down payment on a house, or
Have a kid.
Do the work now to save yourself the stress later.
Click here to receive a free copy of my simple spending tracker. It’s how I track my spending every month.
Make thy gold multiply
“A man’s wealth is not in the coins he carries; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging,” says Clason.
Saving money is great, but to grow wealthy you must put that money to work.
A good place to start is in your 401k, a Roth IRA, or a traditional IRA. Take the 10% you’re saving, and invest it into low cost mutual funds or ETFs. Let compound interest do the rest.
If you invest $100 per month from age 22 until age 62, you will end up with about $256,000 (assuming a 7% interest rate). For only $48,000 invested, you come out with a quarter million dollars!
If you can manage $500 per month from age 22 until age 62, you will end up with about $1.28 million – from an investment of $240,000.
Guard thy treasures from loss
Don’t do stupid things with your money.
Don’t buy bitcoin.
Don’t invest in your dumbass friend’s "great opportunity". It's probably a pyramid scheme.
It is important to invest your money, but don’t do it blindly. Before you make any investment, make sure you understand it.
Buying real estate? Run all the numbers, talk to a Realtor, drive the neighborhood, and get a property inspection.
Lending money? Make sure you have something for collateral.
If a deal seems too good to be true, it probably is. You will do much better over the long term investing consistently in things you understand with modest returns than trying to hit home runs and get rich quick.
Here’s how I look at balancing risk and reward with my investing.
Make of thy dwelling a profitable investment
In this point, Clason argues that people pay high rent for small spaces, and they are better off owning their own home.
I caution anyone who views their home as an investment. It doesn’t provide any income, and the only return is on appreciation – which isn’t guaranteed.
A better way to view home ownership is as a forced savings plan.
Don’t buy more than you can afford. Buy less than you can afford. Take a 15 year mortgage. Only buy when you are confident you will stay put for a while.
If you buy less than you can afford, then a 15 year mortgage is reasonable. If you pay off your house in 15 years, you’ve got a twofold win:
You’resitting on a sizable savings account, and
You eliminated a major monthly expense.
If you’re young, you’re more likely to move frequently. If this is the case, transaction costs wipe out any financial benefit of home ownership.
If you live in a high cost area, you may not be able to buy less than you can afford, so renting is probably a better option.
While Clason says to make of thy dwelling a profitable investment, I say, make of thy dwelling a savings account, if the numbers work.
Insure a future income
At some point, you won’t be able to work anymore.
That point is the wrong time to think about how you will continue to pay your bills.
Aside from a savings account, I am working to ensure future income through three methods:
A 401k account
Indexed Universal Life Insurance
Rental Property Income
The more sources of income you can create for yourself, the better off you will be, as success in one hedges the risk of failure in others.
Write a book, create an online class, build a subscription-based business. The key to success in this category is creating streams of income that don’t require your time and attention after they are set up.
These are called passive income streams, and they’re the best friend of the wealthy.
Another good way to ensure a future income is to work a second job while you’re young. Use your free time to build wealth instead of pissing it away at the bar.
If your job pays overtime, work extra hours. If not, drive Uber, bar tend, walk dogs, do whatever you can on the side to earn money. Then take 100% of that extra money and invest it.
Your future self will thank you.
Increase thy ability to earn
“For a man to wish to be rich is of little purpose,” says Clason.
Start simple. First figure out how to earn five dollars, then how to earn ten.
Define your desires so you can create the right process by which to pursue them. Declaring you want to be rich doesn’t do you any good. Declaring you want to earn $10,000 in the next three months gives you somewhere to start building a process.
Once you’ve defined your goals and your process, start acquiring knowledge.
“The more of wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded,” says Clason.
In the age of YouTube and Udemy, we have no excuse for ignorance. Determine what you need to learn to make yourself more marketable than your co-workers. Then go find videos and online courses and get to work.
It’s an easy way to stand out and earn more - most people won’t put in the effort.
On top of the videos and courses, devour books (using this strategy), podcasts, and blogs. Make sure you are able to converse on many topics and deeply on a few – adaptability is important.
The more you learn does not necessarily mean the more you will earn. But if you can combine voracious learning with action and processes, you will exponentially increase your earning potential.
The value of a book can be measured by how relevant its ideas are 100 years after its publication. Clason passed the test with The Richest Man in Babylon.
Now you have a simple update for how it applies to your life. It's time to get to work.
