Notes, Richest man in Babylon
These notes are based on "The richest man in Babylon", they were written for personal use, but they might be helpful to others as well. The book is written as a series of stories, meant to teach the reader about the optimal ways of managing one's budget, and what mistakes to avoid.
In retrospect, it is clear that most people (my past self included) lack training in this area. Therefore:
- These matters should be discussed in schools (perhaps "ora clasei"?), so children have a basic idea of how things work;
- Whenever the opportunity arises, run such classes myself, or lobby for their introduction;
- Share my notes with friends;
- Discuss how my friends and acquaintances manage their budgets.
General points
- No one lends his entire fortune, not even to his best friend.
- It costs nothing to ask for advice.
- You can fail to obey the laws of X, or you can fail to observe them. (X could be investment, economics)
- The sun that shines today is the same sun that shone for your grandfathers, and it is the same sun that will shine for the last of your descendants
- Advice is a thing that is freely given away, but watch that you take only what is worth having. (said in the context of taking advice about X from a non-expert in X)
- Willpower to keep going even after several failures
- The greatest wealth is not in the coins already in your purse, but in the continuous influx of what keeps coming into it. (the "golden slaves" that work for me)
Basic rules
- Savings - a part of what I earn is mine to keep (treat it like paying yourself).
- Pay yourself first. No less than 1/10th of what you make.
- Learn to live on less than what you make.
- A small and safe return is far more desirable than risk.
- Do not strain to save too much.
- Categorize your expenses: necessary, nice-to-have, luxury; cross out the non-critical ones.
The 7 cures for a lean purse
- For each 10 coins you earn, spend only 9 (i.e., save 10%)
- Plan your budget: savings, basic needs, etc; cut out unnecessary stuff
- Put each of your coins into labour, so it works for you.
- Guard your treasure, entrust it only to reliable entities that know what they are doing.
- Live under your own roof. If needed, take a loan to buy it. In that case you will be paying monthly to the creditor, to cover your debt, rather than to the landlord, who actually owns the place.
- Plan for the future, when you are older and cannot work as effectively. Houses and land are a good choice.
- Increase your ability to earn - improve your skills, work more efficiently, work harder.
On luck
Those who are "lucky" are just people who could identify an opportunity when it arose, and acted swiftly.
- Do not rely on blind luck.
- Think of the moments when "success was within reach, but you missed it" - reflect upon that, what made it so?
- Do not procrastinate, take the opportunity when it arises.
Stories from the gold lender
- Investing into emotionally-driven people is not a good endeavour.
- Do not lend to people who don't know what they are doing, nor have a reliable plan, nor can provide guarantees in case of failure.
Mistakes from personal experience:
- Keeping all funds in one currency, that happened to be weak; in one bank, that happened to be in an unstable country.
- Not putting the funds to use (just storage, vs. investment; at a minimum, it could have been a deposit).
- Continuing to do so for a part of my current funds.
Constantin Melniciuc — 2019-12-24 01:28
I came to the conclusions long term investments are the best way to store and make your money work. But now the question is where do you invest them? An actual advice would be considered helpful. Of course under own judgement as mentioned above :).
Thanks for a nice sum-up.
My mistakes would be:
* keeping saving in the same currency in one bank but hopefully in a stable country and bank :).
* not categorizing money, and killing the expenses.
* I fail to learning to live on less than I earn
* Puting money into something that brings me back something.
gr8dude — 2019-12-31 16:23
There are several things I experimented with over the years:
- “Valori mobiliare de stat", as explained by Natan Garștea: http://natangarstea.blogspot.com/2011/11/unde-sa-ne-investim-banii.html. It was good while it lasted, but the situation has changed. The rates are lower, Moldova’s economy is weaker and “stability” is the last thing that comes to mind when I think of Moldova these days.
- Bank deposits - that’s better than nothing, but after the “billion dollar theft", I lost whatever confidence I still had in Moldovan banks.
- Bank deposits abroad - the rates are very low (at least if we’re talking about EUR and USD) and last time I checked, they were even lower than the expected inflation rate; which means that you’re still losing worth if the money stays idle.
- Cryptocurrencies - I like the concept, but the problem is that people are holding onto whatever they have, which means that bitcoins, for example, are not circulating like regular currency, i.e. they’re not “in use", which reduces their probability of becoming a successful currency. (there’s a book called “Insolence of office", which discusses this matter, I found it very helpful).
- Buying shares of various companies - that’s my current experiment and it is too early to make any conclusions. I must admit that at this stage I’m mostly pressing buttons without fully understanding the implications of my actions and all the statistical data that typical investment sites provide. There’s a lot to learn here.
As for the other points - now that you are aware of them, perhaps it will be easier to deal with it. Living on less than what you earn is probably the easiest thing to tackle - just ask yourself questions such as “do I really need it?", or “do I already own something that does the same job?” (this especially applies to clothing). Or [if it is a device] “where will I plug it in?", “do I have space for it?".
One of my personal favourites is cooking my own meals - that has substantially reduced the number of times I eat in a restaurant. I cook at home at “industrial scales", so I don’t have to do this often, because the batch will last for ~2..3 days (lunch at work + dinner at home).
Another low-hanging fruit is to always have a “thermos” with you - your own supply of a beverage will spare you from paying ridiculous amounts for a goddamn cup of tea :-)
Start thinking about these things early. The sooner you apply changes, the sooner you’ll get results.