“let thy motto be 100% of appreciated value demanded for each coin spent”
– The Richest Man in Babylon
Today’s topic is another lesson from the Richest Man in Babylon written by George Samuel Clason. Today is the third installment where we will be discussing the 2nd cure for a lean purse, or as I like to think about it, a cure for a small account balance.
Episode 114: First Cure for a lean account – save 10% of everything you earn for the future
Episode 116: First Law of Wealth – Wealth comes to those who reserve AT LEAST 10% of their total earnings towards building their future financial independence/fortune.
Pothead Explanation: Start providing yourself and your family with security by paying yourself first, at least 10% of your earnings to be invested in your future.
And like so many lessons in life that we should heed, the principle is quite simple, but we humans seem to have trouble with the execution. And this is the lesson I believe I have the most trouble with personally:
I am gonna beat on an old sports analogy, but I believe it holds true in no matter what sport or activity we speak of.
Defense wins championships –
Don’t believe me, check this out:
In 2016, the Greenbay packers had the 21st ranked defense in the league. In the first round of the playoffs, Greenbay was able to come away with a victory over Dallas 34-31. The next week the Packers were defeated by the Atlanta Falcons who had the 27th ranked defense (seems contrary to my argument but stay with me) who put up 44 points against the Packers’ 21 in the NFC Championship game. Those Falcons went on lead 21-3 at halftime in the Super Bowl, only to end up losing 28 – 34 to the New England Patriots, in the greatest comeback in super bowl history.
28 points is normally enough to win a football game. But simple math tells me 34 is greater than 38. After cratering early on, the Patriot defense rallied and the offense came alive to be victorious.
And do you know where the Patriot defense was ranked that year? Number 1.
Don’t believe me – look it up. Fact Check Me!
So how do we bring a championship defense to our earning ability, wealth management, private lending, and legacy creation?
The answer is simple, yet the execution is difficult: control your expenses.
control your expenses – live within your means – act your wage
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Yes, look your spouse, partner, child your friend or even that stranger in the eye right now, point to the speaker from which you hear my voice, and think of Ricky Bobby and say “that just happened”
I’m not going to sit here and tell or sell you my path to saving money and building wealth because 1) it’s hard, really hard and takes commitment, 2) I don’t recommend anyone follow another’s path blindly, and 3) because I haven’t arrived at “wealth” just yet.
I believe there are many factors that comprises the sort of wealth I desire, not just the financial aspects. And while I have succeeded and found abundance in some areas, especially on the surface, I have to admit I am struggling to make any headway in some of the areas that matter most:
- My physical health
- Family of origin and family of choice
- My mental health/mindfulness
So, before you find another podcast to listen to you, I will tell you my story of how I ultimately began paying myself first and I’ll share the books and examples that were instrumental in helping me to develop the mindset to save, control expenses and invest for the future.
After slugging it out at an entry-level gig at Reliant energy, getting married, and then failing at a contractor business, I was fortunate enough to find a job on the oil rigs and I quickly found myself making “real money”. I was able to pay off a lot of debt (student loans, my truck, mary kay) but I quickly found myself still living paycheck to paycheck, I just had a little bit of a buffer in savings.
Enter or should I say entre Dave Ramsey. I order his book Total Money Makeover from Amazon and then told my mom what my intention was. She chided me a little and had me write down a plan to pay off my debt, save for college and retirement, etc.
My mom’s plan was a spitting image of Dave’s debt snowball plan – mom claims she didn’t know who Dave Ramsey was at the time.
None the less, Dave Ramsey helped me and my wife to begin thinking about our future and what it was going to take. I should caveat this and tell you that my progress was not a straight line upward and onward. No, it was a sine wave with a lot of ups and downs along the way.
Ex: Once we put life insurance policies in place, I would extend our credit cards on vacations and unplanned & unnecessary things like designer shoes, perfume, guns, bbq pits, and the like.
See what I did there?
Dave helped me see the light and got the ball rolling for us/me. Then I left the rigs came back into an office and I found myself wanting more. Fortunately, I was able to find a book called the Automatic Millionaire by David Bach.
I began increasing contributions to our retirement accounts as well as sought out online high-interest money market accounts for the cash I was able to save, when I saved it – I was not consistent. But I never stopped trying.
I took courage from Dave Ramsey and David Bach and kept looking forward. I began using the flexibility of a 401k, company matches, and profit-sharing as negotiating tactics when I changed companies. I wasn’t very successful, as most large companies’ benefits packages are fixed, but as began adjusting for smaller companies I found I had begun to accumulate a little leverage.
After that, I did well for a while, until my father-in-law passed. Then we moved to a nicer neighborhood (for the schools, of course), bouts of unemployment, and ultimately a divorce.
Remember, we have all ups and downs, and unplanned expenses are around every corner, but you can be ready.
In the Automatic Millionaire, David Back discusses the latte factor which I will paraphrase: If you spend $5 every day on your way to work (the book was written before Covid) you will spend roughly $1,185 over the course of a year, assuming:
- 1 latte purchased every workday
- 252 workdays in a year less 15 days of vacation
- 237 workdays X $5 = $1,185
This formula really put things into perspective for me when I applied it to things like tobacco, liquor, restaurants, and junk food – that really adds up and hides in the grocery budget.
The trick lies in bifurcating your expenses as either necessary (needs) and desires (wants).
I need caffeine in the morning and always desire a Café mocha, but I’ll take a $1 Sumatra from my kitchen on a daily basis.
I need a roof over my head and a home in which to raise my family, this is a necessary expense that could be satisfied by renting an apartment in a good school district. I desired to buy a house in a popular neighborhood that had a pool, and I bought one. It took me to getting in over my head on a house when my wife was unemployed to see that the expenses which I believed were necessary were anything but.
I need to eat lunch, but a combo meal at subway is cheaper than a brisket sandwich. It’s a choice, a decision that each of us makes every day. It is not easy to control your expenses, but it is necessary if you want to reach your goals, whatever they may be.
Eat a few footlong meals and then splurge on a brisket sandwich. That’s what I try to do now – I cook and eat lunch and dinner at home, but splurge and take the kids to a restaurant as a treat. But I tell them that we ate 2 cheap casseroles at home this week in order to earn the overpriced pizza or enchiladas, and of course ice cream!
Don’t just stop here, do you need to stream everything under the sun? Or do you really just need a decent internet speed and a few channels or apps?
I’m willing to bet, if you sat down and really thought about your expenses and were honest about your true needs, you could find a lot of money in your budget to help you create the future you want. We just have to decide to make it a priority and make it happen. If you are still hearing my voice, then you can do it, you got this. And I believe you can make it happen!
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It doesn’t take that long and it’s a small price for the value I try to provide.
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