The 7 cures for a lean purse explained. Wealth building guidelines from the classic book “The Richest Man in Babylon”

People are always asking me for book recommendations and there are a few books that always come to my mind first, especially for people who are just getting started on their wealth building journey.  I always advise people to begin by learning how money works. 

If you don’t have a basic concept about how money works, you will never be able to accumulate money in any significant amount. One of the books that I love to recommend that people read to learn some of the basic laws of money is The Richest Man in Babylon by George S. Classon. 

In this book, there is a section called “The 7 Cures for a Lean Purse.”  Today I wanted to list these 7 cures and talk a little bit about each of them.

1) Start thy purse to fattening

The very first step to solving any personal finance problems is to cut back on spending and allow for a monthly cash flow.  If your expenses are equal or greater than your monthly income, I am sorry to say but you are going to have a hard time creating wealth.  You need to ensure your income is greater than your expenses and that you have money left over at the end of the month.

One way to do this is to “pay yourself first.”  In the book there is a quote that says “a part of all I earn is mine to keep.”  When you spend all of your money each month on things like food, bills, gas, clothes, etc… you are paying other people.  You are paying the grocery store, the utility company, the gas station and the department store.  When do you pay yourself?

The book recommends you pay yourself at least 10% of your income.  Set this money aside and do not pay anyone else with it (by spending it).  I personally pay myself first with over 40% of my income.  The more you are able to save, the faster you can ramp up your wealth building game.

Remember that this money is not savings for you to make big purchases with.  You should not touch this money for ANYTHING.  As Grant Cardone says, this is a “sacred account.”  The only thing that this money will be used for is creating wealth in the future.  Start thy purse to fattening.

2) Control thy expenditures

This goes back to what I was saying about making sure you have a monthly cash flow.  Cut back on unnecessary expenses so that you have the ability to pay yourself first.  The more you can cut back, the more you can save. 

This is not about being cheap.  I think there is a big difference between being smart with money and being cheap.  Frugality is just being disciplined enough to make good decisions with money… it’s knowing when to hold off on something you can buy later or just realizing that you don’t need to buy it at all. 

In a world where American’s spend an average of 104% of their annual income, this concept is extremely important if you want to improve your financial situation or learn to build wealth.  Control thy expenditures.

3) Make thy gold multiply

At some point after you have been paying yourself first and cutting back on expenses you are going to have a significant sum of money in your savings account.  Now it’s time to put that money to work. 

Put most simply, it is time to buy and/or build assets.  An asset is something that puts money into your pocket each month.  A stock that yields a good annual dividend.  A rental property that provides a solid monthly cash flow.  A side business that generates a good profit.  I am not going to go into which assets you should focus on right now, but the point is that you use the money in your “sacred account” to acquire assets that will increase your income.  Make thy gold multiply.

“Here is how I think of my money- as soldiers- I send them out to war every day.  I want them to take prisoners and come home, so there’s more of them.” –Kevin O’Leary

4) Guard thy treasures from loss

Now that you have accumulated a substantial sum of money and you have begun to invest your money into income generating assets, you need to be cautious about what you invest in. 

Only invest in assets that you have a good understanding about.  You shouldn’t invest in things that don’t make sense to you or that you know nothing about.  Also, do not be tempted by investments that offer huge and unrealistic returns.  Often they are too good to be true. 

The point is that you do not want to lose money.  When you lose money you are traveling backwards on your path to wealth.  Guard thy treasures from loss.

“Rule number 1: Never lose money.  Rule number 2: Don’t forget rule number 1.” –Warren Buffett

5) Make of thy dwelling a profitable investment

Robert Kiyosaki, the author of the #1 best selling personal finance book Rich Dad Poor Dad, is famous for saying “your house is not an asset.”  I 100% agree with Robert.  When you own a home, that home does not generate income for you, it actually costs you money to live there.

However, you have to live somewhere whether you rent a home or own a home.  Although you should not consider your home an asset because it does not put money in your pocket each month, it can still be a profitable investment if you are smart.  Not only will you receive tax deductions for owning a home, but your home may appreciate in value over time.  Also, each time you make a mortgage payment you are paying off a little bit of your mortgage which is building equity.

If you rent, each payment you make is gone forever, and you’ll never have anything to show for it.    

I bought my house in 2013 for $195,000 with a down payment of only about $7,000.  Today it is worth about $295,000.  So essentially, I turned $7,000 into over $100,000 in less than 5 years.  Make of thy dwelling a profitable investment. 

6) Insure a future income

You probably do not want to have to work at your job forever.  You need to set yourself up so that when you reach your elderly years you have a source of passive income that you can live on.  Many people have retirement accounts like 401(k)s, 403(b)s and the like.  They have a “nest egg” or large sum of money that they can spend to live on.  The problem is that this money is not INCOME.  It is just a sum of money.  What happens if you outlive your nest egg?  What happens if there are big unforeseen expenses?

Set yourself up with a retirement INCOME rather than a retirement SAVINGS.  Hopefully by this point, if you have been “making thy gold multiply” you were busy accumulating income generating assets.  As an example, if you were to by a rental house every two years starting at the age of 25, by the time you were 60 you would have 17 rental properties.  These properties would surely provide a nice, stable, never ending stream of income for you to retire on.  Insure a future income.

7) Increase thy ability to earn

Always be focused on increasing your income.  This can be done in many ways:

  • Getting a raise at your job
  • Working more overtime at your job
  • Taking on a second job
  • Starting a side business
  • Hiring employees to work your business for you so you can spend your time making more money elsewhere at the same time
  • Taking a commissions job and learning to sell more

The fact is that there a millions of ways you can increase your income.  You just have to put in the effort and hard work to do it.  Increase thy ability to earn.

“Offer so much to those you work for that they worry they aren’t paying you enough.” –Grant Cardone

***If you enjoyed this blog post and got some form of value from it, please take a moment and share it with someone else who would also enjoy it.  Thank you!

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