“A PART OF ALL YOU EARN IS YOURS TO KEEP.” – George S. Clason
Coming from a working class family, as a young kid I was used to seeing my parents spend all their money until their next payments came along. Even though the money was spent on necessities like rent, utilities, gas, food, school, even when we had a little to spare, we would find a way to spend it. We lived paycheck to paycheck, and we were lucky if we still had some money left at the end of the month. Saving was an unfamiliar word in our family. We were unaware of other ways to manage money.
That’s why my mind was blown away the first time I read The Richest Man in Babylon, by George Clason. And the second time. And the third time… It opened my eyes to the possibility that I could become wealthy, or at least financially safe, if I followed a few simple money management principles. And I still learn something new every time I read it, usually at least once a year. It is, without a doubt, my all time favourite book about personal finance.
The most important thing I learned? Pay yourself first!
The great majority of people just go through the motions: work, get paid, spend, work, get paid, spend… And so on and so on. They pay all their expenses and bills without much planning, and if by luck some money is left over at the end of the month, then they might put it into a savings account or leave it in their current account for next month’s expenses.
Instead of following this same old routine, the most important rule in the book says that we should save first, and then use the remaining amount for your cost of living. Pay yourself first! As soon as you get paid, take at least 10% of your income (you can take a bigger percentage, if you wish), put it into a savings account and out of your sight. Very simple, right? Simple, but not easy…
The first several times I read The Richest Man in Babylon I missed the most important point. I started saving a little, and then when I had an emergency, or an unexpected charge, or when I just wanted to buy something and didn’t have enough money in my current account, I would dip into my savings (huge no no). It took quite a few more reads to understand it fully: your savings are not to pay bills, not for taxes, not for food or travel, not to go out, not to buy toys or shiny objects. It is for you and you alone, to invest. Period!
Pay yourself first, and use the rest of your paycheck for your normal expenses. This way you automatically control your spending, because you only see and use the money in your current account. If you find yourself needing money for an unforeseen event, find a way to make more money, or cut back on your expenses, but do not touch your savings!
Your savings are solely to invest in assets that provide you more income. Make your money work for you. That is how you start to build wealth.
Besides this principle, you will learn about the ‘seven cures for a lean purse’ and ‘the five laws of gold’ (among others). It is a short book (about 72 pages) full of parables written in old english (old fashioned but I like it) that you can read in about two hours, and whatever price you pay for it, you’ll get back more than a thousand fold in money management wisdom. Invaluable!