‘The Richest Man in Babylon’ was a collected work, written in fable form, about how to become and stay rich. The book was published in 1926, but the assumption is that the stories are much older. The 7 rules from this book to become and stay rich are described here. They have been somewhat ‘adapted’ to current ideas of wealth.
The 7 Rules of Wealth
These rules appear to be a matter of discipline and control, something that is not very ‘cool’ and seems boring. Yet they are the sure path to possessions and wealth!
1. The 1/10 requirement
Wealth comes willingly and in ever-increasing quantities to anyone who puts aside at least one-tenth (1/10th) of his earnings for his future.
- 1/10 of what you receive in money must be put aside (saved)
- As long as you do not have a mortgage on a house, this 1/10th of your income can be put in a savings bank. A savings account with interest payments is the best option.
- If you have taken out a mortgage on a house or other asset, you are, as it were, saving on the repayment. (The interest is a cost aspect.) So never take out a mortgage according to this rule that is interest-only, because then you will not save!
- Make sure that your monthly mortgage repayment portion is at least 10 percent of your monthly income, then you also meet the 1/10th rule. Calculate that accurately! This rule also prevents you from spending too much on a mortgage.
2. Keep your expenses under control
There are many ways to spend money uncontrollably and at first invisible.
Many people spend what they think they have, but which can only help them get into debt:
- for example, the balance on a credit card, which is generally much higher than their monthly income,
- the so-called ‘benefits’ of a loan that can be withdrawn and repaid at any time (a personal credit), etc.
- Paying off your credit card instead of paying back your expenses every month guarantees you will suddenly have sky-high loans, which come with enormous costs and which you may not be able to get rid of for 5 years.
- Spending money that one thinks they will receive at some point in the future (an inheritance, etc.). Even an assessed tax refund or the like should only be spent once you have received it: if there is a delay you will be left with a gap for which you will have to incur debt. Any form of loan involves creating debt.
These types of expenses turn into debts at the time of payment. You should always avoid having debts, no matter what tax consultant or bank say. This rule does not apply to a mortgage, as long as your repayment is at least 10 percent of your monthly income. After all, the mortgage debt is offset by the ownership of the house.
You can only keep your expenses under control if you do not spend more per month than your income, minus the 1/10th of your income that you must set aside according to the Babylonian rules.
There is a lot of joy in taking out a loan because you can buy what your heart desires and then you lose sight of how much the loan will erode your income each month for the next few years, while the item purchased may have long since decayed or become obsolete. A loan is the opposite of saving and, given this Babylonian wisdom, will make you poorer and not richer. And is a new car every two years really necessary? How many clothes and shoes do you already have in your closet that are still completely ‘good’, although perhaps less modern? You can look like you’re going through the motions while impoverishing yourself.
- It’s awkward, but taking a few steps back from your spending habits is easier than it seems. As it were: ‘a glass of wine instead of Champagne’ will save you a lot and afterwards you will get the happy feeling that you still have some money to spend in your wallet.
- Buying second-hand goods is not a shame: it is the right thing to do economically and environmentally.
- If you really want an iPad, save for it instead of borrowing for it.
- Don’t be too eager and eager for every gadget if you really can’t afford it. A 3D TV is wonderful, but your ‘old HDI TV’ can probably last another year, giving you the opportunity to save up for such a 3D TV. Besides, in a year such new TVs will probably be a lot cheaper.
3. Money ‘works’ for its diligent owner
Your savings should be invested in safe forms of investment: a high savings interest account, your mortgage, perhaps safe bonds (although there is something to be said about that these days), (co-)ownership of an apartment to be rented out or a holiday home.
Wealth tends to multiply itself. It’s an old and vulgar saying: ‘the devil always poops on the big pile’, but it has turned out that there is some truth in it.
4. Meet your financial obligations every month
- Always pay your bills immediately, postponement of paying your bills generally entails higher costs and you still have to pay.
- Leaving bills behind only makes you lose track of your monthly expenses.
- ‘Give unto Caesar the things that are Caesar’s…’ If you have to pay taxes, just pay them, don’t try to be smart because that can cost you sorely.
- Check from time to time which bills you could avoid or reduce, for example: change your telephone contract if your (mobile) phone is too expensive and call less, texting is a lot less expensive. And maybe you have a subscription to something that you no longer need or never read or use. Cancel such subscriptions.
- Above all, do not spend money intended for paying the bills. It is ‘make believe’ money over real expenses and ultimately plunges you deep into debt.
5. Provide an income ‘in your old age’
Although pension funds are currently not in a good mood due to the credit crisis, it is still better to put something aside for your pension, in addition to the 1/10 of your monthly income that you are already saving. Saying that the pension funds will no longer exist when you are ready will give you a nasty surprise when the time for retirement comes and you are left with only a little state pension.
You can of course provide your own pension fund by investing specifically for your ‘old age’, for example by purchasing a house that you rent out as long as you do not live in it yourself. By the time you retire you can dispose of such an investment, if you don’t buy too high you will at least have the money saved back on the mortgage, plus you will have provided yourself with extra income through rental. This way you control your income with regard to a pension.
6. Try to find ways to make more money
Some examples:
- Take (evening) courses
- Take additional courses related to the job or interests so that you become more and more specialized.
- Take a course on money and earnings, how to do bookkeeping. If you don’t know the difference between debit and credit, you will never get rich.
- Find a mentor, someone who can show you how to make money. Advice: Never give him your money without making sure he won’t run away with it.
- The advice is therefore to work hard and focused on everything that has to do with your money, your job and your investments.
- A man who lets his business slip will lose much more than he thinks!
- On the other hand, you don’t have to overdo it in your pursuit of money. A relaxed existence makes you live longer. See everything in the right perspective.
- It is always best to keep an overview of your own assets. Remember that it is human nature that people would like to make you feel a little lighter, in an ugly or improper way. As soon as you show signs of wealth, people will want to get rid of it for the sake of self-enrichment.
7. Wealth flies away from the one who thinks he can find schemes to get rich quickly.
- Sudden wealth is a white raven: it happens, but not often and not as quickly as one would like. It’s okay to spend 10 euros a month on a state lottery ticket, but otherwise you should stay away from gambling.
- Do not hand over your money to gamblers/traders on the stock exchange. Gambling is exactly what it says: there is chance or no chance and no chance is usually higher than 50 percent. Gambling is bad for your peace of mind and addictive.
- Desire for sudden wealth makes us susceptible to charlatans and criminals.
- Growing wealth is usually a steady thing, if you are an ordinary person, not in the spotlight of the famous.
- It is human nature to be impatient and overly greedy about possessions and money. The current credit crisis only shows that in recent years we have fallen victim to the idea that everything should be possible and that you have just as much right to it as all those celebrities you see in the soaps. (‘Because you deserve it…, an extraordinary seductive advertising slogan.)
Money adeptness grows over time and at a certain point becomes automatic. A slowly growing income is much more satisfying. It’s much more boring and not as cool, but remember who will have the last laugh.
Have fun with your riches!