These are certainly crazy times we are living in. If someone had suggested – even 6 months ago – that the entire world would essentially grind to a halt for MONTHS due to a global pandemic, I would have thought they were crazy. If someone told me that finding toilet paper in stock at my local grocery store would be as exciting as that time back in 1998 when I hit the “Santa” jackpot at Christmas by finding Furbys for my girls, I would have laughed out loud. And yet, that’s where we find ourselves.
It is unbelievable how many people have lost their jobs, been furloughed, or simply can’t engage in their livelihoods because of stay-at-home orders and social distancing mandates. The application systems for financial assistance have been clogged to the point of barely functioning and system crashes seem to be the norm. It’s a truly a frightening time and more people each day are finding themselves in serious financial trouble.
I’m regularly being asked for advice on what to do and, although I’ve been helping as best I can, I’ve been frustrated that I couldn’t do more. Then, one morning about 3 weeks ago, I was looking through my bookshelves in search of a new book to read and I stopped on a small book sitting at the end of a row. The book has been in my possession for more than a decade but yet I have never taken the time to read it.
I dove in and couldn’t put it down. I read the book in only a few hours (and I am not the fastest reader on the planet). In its pages I found nothing technically new. It laid out the very system I have used all my life to conduct my own finances, but yet something was different. The parables and story format spell out the system simply and concisely – in a way that seems almost magical. I have tested the principles in my own life over and over again, so I KNOW they work. I have been in situations where I wasn’t sure HOW I would be able to apply the principles, but each time, once I made the decision that I would figure it out, the answers somehow always came- the principles WORK! Although I’ve tried to articulate “my” system to many people over the years (funny, it wasn’t MY system at all), this book does a much better job than I ever have. I am so excited that I finally have a way to help my family, friends, and clients who are seeking guidance in this arena.
The book is called “The Richest Man in Babylon” by George S. Clason (the Kindle version just so happens to be free at this time; just follow the link). It is a quick read and each chapter is written in parable form, so it’s like a story – not just another self-help theory book.
So, in this crazy time in our history, where so many people are struggling, I thought maybe this age-old advice might be helpful:
Principles from “The Richest Man In Babylon”
A part of EVERY dollar you earn is yours to keep. Learn to live on 90% of your income and save 10% NO MATTER WHAT! Do not touch the 10% you save. Invest it in ways that will earn a return. Every dollar saved earns interest and then the interest earns interest (compounding effect).
NEVER INTERRUPT THE COMPOUNDING EFFECT!
It may sound impossible to cut your current expenses by 10% so that you can start saving money, but trust me, YOU CAN DO IT! It will be surprisingly easily and something magical seems to happen when you take control of this 10% of your money. It’s like money starts flowing TO you more easily.
Control your expenses. Unless you consciously take control of your desires, your expenses will always match or exceed your income. Desires are like weeds and they grow like crazy when there is money to satisfy them. Clason suggests listing out your desires and then categorizing them as “necessary” or “something you want”. Keep the necessary items. Choose the wants that fit into whats left of your 90% budget. Discard the rest for now. Keep adjusting your budget as needed because the purpose of a budget is to help your money grow. This approach will help you separate your true desires from your casual wants or impulses of the moment. A budget also shows holes in your fiscal “dam” where money is leaking out and helps you plug them up.
Don’t put off saving until you can afford to do so. I get it. I really do! It may seem impossible to even make ends meet right now, let alone save 10%, but please do not let this perception stop you from employing this system. I have seen it time and time again – with my children, my clients, and in my own life – “luck” favors the person who persistently moves in the right direction, but flees from the person who procrastinates!
But Deb, what if I take a look at my finances and realize that I’m in debt way over my head? What if I not only can’t make ends meet, but I also owe money on credit cards, car loans, etc.? Well, if you are in debt, then you need to pull things in even tighter and live on 70% of your income – saving 10% and applying 20% toward your debts – and whatever you do, don’t accumulate any additional debt! I know, I know, it sounds impossible! Yes, I know! I thought so too when I was in that situation, but it wasn’t impossible! It just took some creativity and some very open and honest conversations with anyone else who had co-responsibility for household finances so that everyone was on the same page. If you have a partner or a spouse who is not on board, this will never work – everyone needs to own the results and be willing to take action! The details are in the book. TRUST ME, the system works!
Okay Deb, I get it. I’m excited. But what if I do all the work and discover that my debt payments exceed 20% of my income? Am I “screwed?” Is it just better to declare bankruptcy and start over? No! Absolutely not! Why? Because “No man can respect himself if he reneges on an honest debt.” If you have debt, then you need to face up to it; however, these are unprecedented times. From what I hear from my banking friends, people are defaulting left and right, and I would venture to guess that your lenders would rather have something than nothing. So contact them and explain your situation. Assure them that you have every intention of repaying your debt in full and let them know how much you CAN pay each month and ask them to work with you. This approach may not work in every case, but I’ll wager that it will work in some cases, and that may just give you the breathing room you need. Again, the details are in the book!
WHERE THE DETERMINATION IS, THE WAY CAN BE FOUND
There is a lot more terrific advice buried in this small book and if you feel like you have lost touch with your money – even a little bit – I can’t recommend it strongly enough. This is basic Finance 101, but the principles are timeless and when applied, they provide for an incredibly solid foundation for more complex and elegant investing strategies later on.
DON’T ALLOW LOGIC TO TELL YOU THAT IT CAN’T BE DONE
We are living through difficult times – there’s no doubt about it – but all it takes is a decision and some soul-searching work to put your financial house in order. Wouldn’t it be an amazing, unexpected gift if you came out of this crisis feeling like you have more control over your finances than ever before? It’s not only possible, it’s absolutely guaranteed IF you are willing to do the work! Remember, where the determination is, the way can be found!
Audio version of “The Richest Man In Babylon” on YouTube