7 Cures for a Lean Purse from The Richest Man in Babylon

There are several terms we use to describe not having enough money to establish financial independence. Some of you may say you are “living paycheck to paycheck.” While others may say “there is more month than money.”

Recently, I finished reading The Richest Man in Babylon by George S. Clason. It is a rather interesting personal finance book as it tells great personal finance principles in a series of short stories instead of giving you the textbook answers. Best of all, these stories are aimed to teach the average person who just can’t seem to get ahead with money.

Within the novel, the King calls upon Arkad, who was the richest man of Babylon, to teach people how he became wealthy. It was noted that Arkad did not work as hard as others and he had the same amount of time in the day, but yet he had more money than everyone else.

Arkad agreed to teach several students what he called the seven cures for a lean purse. A more appropriate title for the modern era would be an empty wallet or overdrawn bank account. No matter what you call it, his cures are designed to break the cycle of living each day with just enough money to get by.

Although the book was written over 90 years ago and takes place thousands of years ago, the principles still hold true for anyone to establish financial independence.

1. Start thy Purse to Fattening

With the first principle, Arkad asked one of his students, who was a chicken farmer, what would happen if he put ten eggs into a basket every day but only took out nine eggs. The student replied that eventually, the basket would overfill with eggs.

The question Arkad asked was his attempt to illustrate what would happen if you save just one-tenth of all of the money you made. Instead of the basket overflowing with eggs, your bank account would overflow with additional savings.

So wait a second, you are reading this to get out of the pay check to pay check cycle and the first lesson is to do it with 10% less money? I know you are thinking this advice is crazy and it can’t be done.

Maybe you are right, and you should continue on the path you are on. But if you are living pay check to pay check, the path you are on hasn’t been cutting it for you already. So why not give it a try? You have absolutely nothing to lose except the worry of there being money in your bank account at the end of the month.

In more modern times, we call this cure “paying yourself first.” There are a few ways you could go about doing this. One is to transfer 10% of your paycheck from your checking account to your savings account every time you are paid.

This system though requires some personal restraint. If you or your spouse have a hard time not withdrawing the funds, you may consider putting the money into another bank account. This strategy would then require you to transfer the money to a different bank for you to withdraw it. This extra step would make you think twice before stealing from yourself.

Another option for protecting your 10% savings from yourself is to place it into an Individual Retirement Account (IRA). These accounts have rules which prevent you from withdrawing your money. Yes, you can withdraw your money prior to retirement, but the government will tax you for this. So again, you have an extra barrier from yourself taking the funds.

If you decide to go with the new bank account or IRA options, you can automate the savings process with an allotment on myPay. I have used allotments for years to contribute to my savings. The best part about allotments is the funds are withdrawn from your account before you ever see them. Eventually, you will learn to live without the money and you won’t have to think about it while you work on a budget.

If you are not interested in opening a new bank account or you aren’t ready to adventure into IRA accounts then the Thrift Savings Plan (TSP) is another great option to save 10% of your paycheck. Funds contributed to your TSP account are taken out of your paychecks, similar to an allotment, making it an automated option to save.

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2. Control thy Expenditures

If you were barely managing to get by with your paycheck as it was, you are probably thinking of the struggles that will ensue when you are only bringing home 90% of your paycheck. The Richest Man in Babylon foresaw this as an issue and so the second cure to the lean purse was born.

This is where you (and if you are married, you and your spouse) will need to figure out what needs to be cut from your life. The best tool for identifying and cutting waste is a budget.

A man, the budget is the one thing everyone fights hard not to complete. Unfortunately, budgets are seen as unrealistic and too controlling. This is odd to me, especially considering you make your own budget. So you are unrealistic and controlling to yourself?

A really quick guide to a budget, but first write down how much money you take home. If you have an allotment set up, your 10% savings from the first cure is already gone. So just focus now on what you take home.

Then from there, subtract out your rent or mortgage, utilities, and how much you estimate you need for food. These are the essentials to survive, so let’s make sure we pay those first. Then subtract out your debt payments such as your credit card, car loan, student loan, or heaven forbid a payday loan. Since these are obligations we have made, they need to go second.

Finally, we have all the money that is left over. This is where you get to have fun with the budget and you will see where your priorities lie. Do you want to have a massage during the month, pay extra to your debts, get a tattoo, get the NFL sports package for your TV, drink an energy drink every day from the shoppette, save for your children’s college fund, going on a USO or MWR trip, smoke a pack of cigarettes every day, put money away to buy Christmas presents, have a family pizza party, go to an amusement park, put your kids in a school activity, or whatever you want?

Add these things to your budget and subtract out the remaining funds for the month. You are going to see one of two things. One, your budget works. You can do everything you and your family’s hearts desire, as long as you agree to follow your budget. Congratulations, you figured out how to live each month after giving 10% to yourself. Remember, if you spend more in one area, you are stealing from yourself in another area.

The second outcome is you don’t have enough money to do everything you want. Hmmm, this is going to get tough. You are going to need to make cuts for your budget to work. If you are single, you have it easier. But for your married types, you are going to need to sit down with your spouse and figure this problem out.

These cuts may come in the form of going to the clinic to get into a free program to quit smoking, maybe bring coffee from home instead of buying it at work, skip out on going to the bar one extra time a week, bring a lunch from home or eat at the dining facility on post.

The answers are there if you work as a team to solve the budget cuts. Remember, if you have food and shelter, everything else is extra.

The best part about budgeting at the beginning of the month is that you become aware of any income shortfalls before they become a problem. And remember, you build the budget to reflect your priorities after the necessities are taken care of.

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3. Make thy Gold Multiply

Imagine not working but yet you are still making money. Sounds too good to be true right? But that is exactly what the third cure is, investing your money. I know, I have heard it many times, you know nothing about investing and therefore you are too scared to even begin.

I highly recommend keeping some of your savings in an account which is protected from loss (such as a savings account) for emergencies. But once your emergency fund is full, having your extra money sitting in a savings account will not make you rich.

Instead, it is time for that extra money to go to work for you and bring in more money. There are numerous options to choose from on how to invest. But, I will save you from some confusion and only mention a few of them.

TSP Account: Setting up a TSP account is super easy with myPay. Once your account is up and going, you will have access to 5 funds and some Lifecycle funds which are a blend of the 5 funds. This makes investing super easy as you just don’t have much to choose from. In addition to easy savings and investing, you may also be able to enjoy some tax benefits.

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Thrift Savings Plan: Beginner’s level Explanation of the TSP funds.

IRA Accounts: These are accounts you make at a stockbroker, such as Schwab, E-Trade, TD Ameritrade, and Fidelity. You can make these accounts online and electronically send money to your account. Once your account is funded, you can then invest in companies and funds. Unlike TSP that is limited, the sky is the limit on how to invest here. That could make you feel intimidated at first. The benefit of an IRA account is that you may get tax benefits. These benefits differ if you are doing a Traditional or Roth IRA. A downside of Roth is you typically can’t withdraw the funds, without penalties, until you are 59.5 years old.

Brokerage Account: These are accounts you can make with the same brokerage you have your IRA account with. You can invest in the with the same options available under your IRA account. The only difference between a normal brokerage account and your IRA account is that these accounts do not have any tax benefits. But, they do allow you to transfer your money out of the account without penalties.

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4. Guard thy Treasures from Loss

Wouldn’t it be a shame if you had saved 10% of your income, finally take the leap into investing, and jumped onto a unique opportunity only to find out it was a fraud?

Think of this cure as an enhancement for the third cure. All around us, everyone has a better idea of how to invest your money. The only problem is, not everyone has your best interests in mind. This is where the fourth cure comes from.

History is full of fraudsters who are preying on the uneducated with the sole purpose of taking their money and give nothing in return. From Bernie Madoff to your co-worker that still owes you $10.

There are plenty of bad investment opportunities out there as well. One example of a bad investment was cryptocurrencies. Sure, there is someone on YouTube claiming to have made a fortune but they are the exception. 

Many people felt the wrath of poor judgment when they blindly jumped into the cryptocurrency bandwagon. As the news media reported constant record highs for Bitcoin and the altcoins, more and more people began to invest with this unknown medium.

In 2017, Bitcoin gained about 1000% growth due to all of the hype. Amazing if you were the first one in. But as people wildly bought in December, they quickly felt the education from their ignorance. Cryptocurrency went into an even faster tailspin wiping out two-thirds of its value.

So how are you to invest if you don’t know anything? Great question. Listen to the sound advice of people who do know about investments. Two great minds you could listen to are Warren Buffet and Dave Ramsey. These men have completely different strategies, but they offer great knowledge.

In regards to cryptocurrencies and other “hip” investments, both men have recommended against it. People asked me in 2017 if I was investing in cryptocurrencies and I told them no. When they inquired why I told them I used Warren Buffet’s logic that if you don’t understand something don’t invest in it.

So what are sound investments? For the unsure, and new to investing, please stick with TSP. It will get your toes wet to the idea of investing and it is highly diversified. If you are more adventurous, branch out into diversified funds which follow indexes.

This strategy does not sound exciting, you won’t brag on social media about it, and the news won’t jump all over your success. But, you will have success. Remember, slow and steady wins the race.

One last topic of discussion, when getting advice, consider where it is coming from. If your friend or family member is a complete financial mess, you should be wary of their recommendations. If they tell you that your investment strategy is all wrong, you are probably right.

5. Make of thy Dwelling a Profitable Investment

They say that the two things that are for sure in life are death and taxes. I would like to add a third one here, and that is you need a place to live. Finding a place to live is as easy as renting. But are you going to rent your whole life?

Imagine if you didn’t have to pay rent, but rather you outright owned your own home. How many of our elderly talk about not affording things because they are on a fixed income. As rent goes up, their ability to pay for anything else goes down.

But if you outright own your home, you wouldn’t need that payment. Reflect back on your budget you did in the second cure. Imagine what that budget would look like if you did not have a housing payment.

Just think about how much further, your retirement would go once you owned a home. You could argue that you would never have to work again upon retirement from the military. Home ownership does not only provide you with financial independence, but it could allow you to retire early.

I have heard the objection numerous times, you don’t want to live at Fort Swampy. No one said you had to live at one house for the rest of your life if you buy. An advantage of being in the military is that they move you every few years. This gives you a great opportunity to own houses all over.

Why does this matter? Instead of just owning a home and not having to pay rent, you could own several homes and have other people pay you rent. Your retirement pay could easily double by owning one or two rentals. And the best part about rent, it keeps going up. That means your retirement income from rent will also go up.

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6. Insure a Future Income

There will come a day when you will want to retire. That day should come long before you die so that you may enjoy your remaining time. Unfortunately, the idea of not working is scary. What if I run out of money is the question that keeps everyone employed.

Hopefully, by now you have begun paying yourself first at a rate of at least 10% as recommended by Arkad’s first cure. And hopefully, you have put your money to work for you with wise investments.

If you have done this, you are on the right path to ensure you have money for retirement. But you can also create other passive income streams to make your saved money last longer.

Being a career member of the military is a great way to obtain a pension. One additional advantage of the pension is that it begins at the point of your departure from the military.

Real estate is another great option for creating a passive income stream for your retirement. Having tenants pay you rent monthly will create a nice cash flow. The houses might not be paid off right away, but the tenants continue to pay your mortgage for you. In due time, they will pay the house off for you and all the money which previously went to the mortgage will now go toward your retirement dreams.

Another important aspect of this cure is to have a proper amount of term life insurance. What would your family do if you were to die? Having an ample amount of life insurance would allow your family to survive should something happen to you.

So how much is enough? My personal recommendation is that you have enough to pay down all of your debts and then have enough for your family to survive for several years without having to work. You would also want enough to cover and college expenses your family may have in the future should you not be there to fund a college fund.

I also like Dave Ramsey’s recommendation for the amount of life insurance you need. He recommends you carry 10-12 times your annual income. His reasoning for this is that your spouse could invest the money to earn about 10% a year. In doing so, your family would continue to receive your income forever.

So how long should you have term life insurance? My simple rule of thumb is until your youngest child is in their mid-twenties. The reasoning for this is your children would have completed college and moved out of your house. Therefore, there is no one who is truly relying on your income outside of your spouse.

7. Increase thy Ability to Earn

The final cure is somewhat self-explanatory, find ways to make more money. Unfortunately, in the military, we can’t get overtime or volunteer to do something which makes us more money right now.

But that does not stop us from making money. In the current “sharing economy,” we can share our houses, our cars, or love for pets, and our knowledge to make money.

We can also branch out and start our own enterprises. It has never been easier to create a business from scratch. What business should you get into? Easy, what excites you, what is the one thing you can’t wait for work to end and do? That hobby, it is what will make you money.

When it comes to becoming an entrepreneur, the sky is the limit. Have fun with it and don’t be afraid to fail. My first couple of side businesses failed before I created a success. From each failure, I learned and changed my ways from evaluating what caused the failure.

Bottom Line

It may seem like you are living a life of paycheck to paycheck and there is no way out of this endless spiral. But the “7 cures for a lean purse” from The Richest Man in Babylon lay an easy foundation for anyone to follow to end this cycle.

Not only will you begin to amass funds in your bank account, but you will be able to start investing for your future, and plan for an early retirement.

Begin living the life you want. 

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