Transcription
In this video, I will share six lessons from the book called The Richest Man in Babylon. It's one of the most famous and oldest financial books. The book tells a story that happened in Babylon during ancient times. The book's written in a story format. Basically, a young man asks a rich person to mentor him, and the rich man slowly teaches him the rules of wealth.
Most of the ideas in the book seem to be common sense, but that doesn't mean that it is also a common practice.
First lesson, pay yourself first. For every 10 coins you earn, give yourself one coin first. No matter how much you earn, set aside at least 10% of your earnings for investment before you spend on anything else. Now, you might say, "But isn't all I earn mine to keep?" Well, unfortunately, it's not. The government takes its share first, and then you pay for rent, insurance, etc.
In the book, there's an analogy between expenses and slavery. It's a very powerful way to see every expense as you being a slave for someone else. If I earn $3,000 a month and pay $1,000 for rent, then it means 10 days I slave for my landlord, 2 days for my insurance company, one day for my internet provider, etc. And that's how most of us end up paying everyone else but not ourselves.
Now, one group of people watching the video is going to say that 10% is too much to save for investment. If you are among this group, then imagine the following scenario. Let's say you go to work tomorrow and your boss tells you that the company is in a very bad situation and he has to fire you or you have to agree to work with a 10% less salary. I'm sure you'll be very angry. You will complain for a while, but you're not going to quit your job. After a while, you will adjust to the new situation and will not even feel the difference in the quality of your life.
I personally think that you don't have to start with 10%, you can even start with three or 5%. The important thing is to start with some amount so that you start training your saving muscles. Another powerful analogy is to see every euro you save and invest as a new soldier you add to your army who is going to fight day and night tirelessly to capture another soldier to work for you. And that newly captured soldier will also fight to capture another soldier. This process will keep continuing. But if you start spending, then you'll start killing your own soldiers.
Now, I would like to tell you my opinion about this lesson because it is the central idea of this book. Many people who read the book start saving 10% and investing for the long term and rely on this strategy to make them rich. I did the same thing myself, but then stopped it. And here's the reason. When you invest long-term, compound interest requires a long time to see the result. And most of the result comes in the final stage of your life when you're already old. For example, if you invest $100,000 with a 10% annual return for 40 years, your final investment will be worth $4.5 million, which sounds great. But what most people don't realize is that after 30 years, your investment will be worth 1.7 million and after 20 years only 672,000.
If everything goes well, yes, you can earn a lot of money by relying on compound interest and investing in the long term. But here is the big question. Do you really want to wait to be rich until you are 65 years old? Do you want to wait to drive your dream car until you are 65 years old? I don't know about you, but I don't want that. I want to enjoy life when I am young, when there is life energy within me. I'm not saying that saving 10% and investing it for the long term does not work. No, it works and for many people it's a great way. But if you are young and want to get rich while you are young, then saving 10% and investing for the long term might not be a good way to go. That's the reason I stopped investing in the long term and started to put my 10% savings into business opportunities. And the book that made me change my mind is called the millionaire fast lane, which I will summarize very soon on this channel.
Lesson number two, only take advice from people who are skilled in that field. The book illustrates this with a story of the main character investing his money with foreign jewel traders that promised to bring back rare jewels for cheap. He was scammed and brought back fake jewels. If you ask me, I would say it's not enough to rely on experts. You have to understand the industry and do your own research before you meet with an expert. My experience has taught me three big lessons about the experts, especially in the financial field.
First, experts are people who are hired by the company and get paid by the company. So whose interests is he going to defend? Mine or the companies who pays for his salary? So I'm usually skeptical about what they are offering to me because what they are offering is usually in the best interest of the company, not mine.
Second, whenever some experts tell me that this is the best product to invest in, I always ask if he personally invests in it if this is such a great opportunity. Most of the time, what I find is that he is trying to sell something that he does not eat himself. The best investment opportunities don't require advertisement in a brochure. In fact, the best investment opportunities don't even leave the office room. It gets consumed internally. When a real estate company or its employee finds the best property, he doesn't go and advertise it on the website. If he can buy it, he buys it himself or make sure that it is purchased internally by his company or colleagues around him.
My third lesson with the experts is all about the fees. Fees are the killers of your earnings, especially in the long run. However, most of the time fees are introduced as a minor point. They usually say it's just a 1% fee. It's not a lot or it's not a big deal. But let me give you an example and you'll see how a 1% fee makes a huge difference in the long run. Let's say your grandmother gives you and your brother $100,000 each as a gift. Both of you think that you are young and don't need the money now. So, you decide to invest it for the long term. Your brother does research and finds a company that charges a 1% fee and pays 11% interest. However, you don't do research and you invest with a company that charges a 2% fee and also pays 11% interest. Let's fast forward 30 years and see how the 1% difference in the fees impacted your earnings. After 30 years, your brother's total earnings will be around $1,744,000, but your earnings will be $1,326,000. As you can see, everything is the same. Only the 1% difference in the fees led to $418,000 fewer earnings compared to your brother. In other words, you lose 23.9% of your earnings because of a 1% difference in fees.
Lesson number three, people who take action get luckier because they make their own luck. Luck often takes the form of an opportunity that you need to seize at the right time. Men of action who are quick to seize opportunities and make the best of them are the ones who get lucky. Procrastination upon decision-m only leads to regrets. Procrastinators and doers face the same amount of opportunities. What sets them apart is the number of opportunities the doer tries. By the time the difference between them gets bigger, the procrastinator starts thinking that the doer got lucky or he was born in the right family, had the right genetics, etc.
Several weeks ago, I was talking to a friend and we started to talk about a book called Think and Grow Rich. He told me that he has seen many people buying and reading the book, but has never seen anyone actually becoming rich. He was trying to prove that ideas in this book don't work, which I don't agree with. I strongly believe that people don't get rich because they don't take any action. They read the book, start saying some affirmations, setting goals, visualizing, and that's all they do. They don't take any damn action. They want to win a million dollars from the lottery, but they don't even take action and buy a lottery ticket. Now, I'm not recommending buying a lottery ticket to get rich. In fact, I've never bought a lottery ticket in my life. But even if your goal is to win the lottery, it requires an action, which is buying the lottery ticket. So many people believe that if they constantly visualize living a rich life, somehow money will magically show up on their doorstep. And when it does not happen, they say, "Think and grow rich is garbage." If you want to get lucky, if you want to be rich, take action. By the way, I'm going to summarize Think and Grow Rich on this channel soon, so make sure you are subscribed so you don't miss it.
Lesson number four, don't wish for a lump sum of cash. Work to achieve a consistent cash flow instead. Many people wish that they inherit money or win a lottery, but any lump sum of cash you win will eventually go to zero, and you'll be broke again. Many people who get a lump sum of money spend the entire amount within a year. You've probably seen people who go on a strict diet and lose many kilos within a short period of time, but after a while, they return to their previous shape and diet because they didn't develop the systems and habits necessary. The craziest part is that usually people who get sudden wealth are no better off than when they started. Their fashion, standard of living, and everything else are surprisingly the same. Getting rich is like learning how to ride a bicycle. Once you learn it, you never forget it, and no one can take it away from you. Even after many years, you can still ride it. A few days ago, I was listening to a CEO who said, "You can take away everything we have now and leave us with nothing in the middle of nowhere and we will be in the same place after a short period of time." I really loved his attitude and I think it nicely explains the main message from this lesson.
Lesson number five, invest in your ability to earn more. What does this really mean? It means you should spend your time improving your skills, knowledge, and ability to earn more money. This is one of the golden rules, yet overlooked constantly. Most people quit learning once they finish school. Others are lifelong learners. Until they die at age 90 years old, they keep learning and improving. This gives them a huge advantage over time. While the average worker goes home after work to watch TV, he does nothing to improve himself.
Lesson number six, you will lose money if you let greed cloud your judgment. There's a difference between having big dreams versus letting your dreams and greed influence your decisions. Once greed takes over, you start believing unrealistic things and ignoring facts. You want it to be true so bad that you stop questioning. Crazier things have been accomplished before, but that doesn't mean you buy into a promise of someone offering you magical returns. That's a scam. If you study successful investors such as Warren Buffett, you will see that they are very conservative with their investments. They would rather build slowly versus rushing into a risky opportunity.
That was the last lesson. If I had to summarize this book in two sentences, it would be this. First, save and invest 10% of what you earn with people and businesses that are skilled at their craft so you earn more money. Second, think of every dollar you make as a worker that works for you. Make sure it works to earn you more money, not less.
Finally, as a reader, I have a few comments about the book itself and the author. The language that this book is written in sometimes makes you feel like you are reading some old religious book. In some paragraphs, it also seemed boring and difficult to understand what the author was trying to say.
Now, about the author, George Clayson was not one of the richest people of his time. So, it raises a healthy skepticism and makes you say, "What makes him credible to give financial advice?" Upon research, it turns out the book was not actually written during the old era displayed in the book. In fact, George wrote it in 1926, a couple of years before the Great Depression. There's not much information on George Clayson. What I do know is that he was not one of the richest people during his time because business tycoons like Carnegie, Ford, and Rockefeller lived during those times. And you probably know how wealthy they were.
Despite the skepticism, it doesn't mean his principles are wrong. Though based on what I have seen, a lot of other millionaires and billionaires say similar things about wealth creation and preservation. When you are reading a book, it's very important to differentiate between the message and the messenger. The author of the book is the messenger and what he says is the message. There are several authors that I don't like personally, but they have valuable messages and I try not to mix the message and the messenger. Sometimes people comment negative things toward me, the channel, or the author, but they don't understand that I'm just the messenger. It's important to judge the message and the messenger separately.
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