Ok now that I’ve got your attention I’m going to provide you with the recipe for success. Read and apply the financial concepts in the classic book ‘The richest man in Babylon’. Simple.
This book takes a creative, yet simple story-telling approach to educate you about the basics and foundation of how to conservatively build wealth over time and become financially successful. As a financial planner this was music to my ears as it is very much aligned with the approach we take at Eqeus as we help our clients accumulate wealth over time while enjoying a certain quality of life today.
The richest man in Babylon is based in the ancient city of Babylon and follows how one man, who was wealthier than all the rest, achieved his success. The man is open to share his keys to success and the others intently listens as he tells stories and experiences in his life that get across the most fundamental techniques of personal money management, savings and investment. Unsure of how ancient Babylon could be relevant to you in Australia, in 2015?
The main concepts in the book and the basis of good financial success are just as prevalent today:
1. Part of what you earn is yours to keep–Save 10%
This is based on making your savings work for you. If you have an attitude where you save what is left after spending it may be worth considering the alternative viewpoint; you spend what is left after saving.
2. Control thy expenses
Having a spending plan that keeps you informed and on track to achieve your goals. Making a plan that allows you to have fun though adheres to the first concept.
3. Don’t borrow unwisely or unnecessarily
We often meet clients who have implemented a negative gearing strategy where the cost of borrowing to invest is higher than the income generated by the investment and they are able to claim interest expenses as a tax deduction. This totally ignores the risk of borrowing and what happens if the value of the investment decreases? Seek professional advice before entering into any lending arrangements.
4. Make gold multiply–invest wisely and prudently.
This is based on the power of compound interest; where the earnings made by your investments are re-invested and produce additional earnings. In essence -earnings on your earnings. Albert Einstein remarked that compound interest was the 8th Wonder of the World and is particularly powerful when considering investment time frames. Over longer time frames the power of compounding can make a huge difference. This is why, as financial planners, we encourage our clients to get in control of their finances and start planning for their futures as early as possible. Small adjustments now can make a huge difference to the amount of capital that can be accumulated over your lifetime.
5. Guard against loss–invest with a margin of safety
This concept is based on risk management – again a focus of good financial planners. Yes, the upside potential is important but the risks must be considered and mitigated where possible.
6. Understand where you invest
This is based on understanding where you are investing. A large part of what Eqeus does is based on educating our clients and helping them understand their investments. You need to understand your long term goals and your investments to achieve them.
While the above concepts may seem simple and a lot of common sense they are often, unfortunately, not the reality of things. Many people don’t grasp these basic concepts or if they do certainly don’t follow them. The book ‘The Richest Man in Babylon’ by George S Classon is one that I highly recommend for those who want to understand basic financial concepts that are a recipe for great success.
For professional financial planning advice based on sound concepts and a solid foundation, contact Eqeus today.