In my last blog, I introduced The Richest Man in Babylon, a series of whimsical parables written by George Samuel Clason beginning in 1926. That article conveyed a tale of a single wisdom principle – a part of what you earn is yours to keep. This is the first of three follow-on articles introducing Seven Cures for a Lean Purse a series of truths for building and keeping wealth. The first three of the seven cures will be presented in this article and the remaining four in Part 2 and Part 3. As with the previous tale, the setting is ancient Babylon and the teacher of wealth principles is again Arkad. The principles are applicable to both business owners and to individuals.
The First Cure – For each ten coins put in thy purse, spend but nine. It sounds so simple. Set aside just 10% of your earnings. Yet controlling costs are usually a continuing challenge for both business owners and in the home. Suggesting that an owner set aside 10% of revenues and operate his or her business on the remaining 90% might be considered a bit extreme when a business seemingly consumes every cent. It comes down to being intentional about the business. It is simply being proactive in taking intentional actions to achieve a net profit that is 10% or revenues. Achieving a profit cannot be left to chance. This cure is similar to the principle presented in the previous article – a part of what your earn is yours to keep.
The Second Cure – Control thy expenditures. Expenses cannot be taken for granted. It is very easy to confuse wants with needs, desires with necessities. Most of us live in conflict that our desires are greater than we can possibly satisfy. Again, the owner must take intentional actions to control expenses rather than being controlled by expenditures. On solution is to make a list of all possible expenditures. Select those that are truly necessary and eliminate those that are not essential to the operation of the business. This is the first step to establishing a budget to maintain control or money will slip through your fingers. Arkad’s instructions are profound: “Budget thy expenses that thou mayest have the coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desire without spending more than nine-tenths of thy earnings.” Unless you have a budget, in business or at home, you will not control your expenses.
The Third Cure – Make thy gold multiply. Our teacher Arkad advised his students that “a man’s wealth is not in the coins he carries in his purse; it is in the income he buildeth, the golden stream that continually floweth into his purse and keep it always bulging.” It is of no use to save 10% of what is earned unless those savings are put to work causing both the principle and the accumulated interest to increase. Rather than retaining the savings in the company, I recommend that the monies be invested outside the company for a several of reasons. First, if the cash is setting around in the company, it is not, to use Arkad’s words, growing children. Second, it is to easy to raid the cookie jar if things get a bit tight rather than making the hard decision to manage expenses and go after additional revenue. Third, it is a way to diversify revenue by establishing a stream of income independent of your business.
In order to accumulate wealth, specific actions must be taken. Wealth gained by change, the lottery for instance, never lasts. You must learn a set of key principles if you are to make and keep wealth. This article has covered three of the Seven Cures for a Lean Purse – 1. save 10% of what you earn; 2. manage expenses; and 3. put the savings to work earning interest which can be further invested.