Learnings

An ancient way to Financial Freedom

Just finished reading “The Richest Man in Babylon” by George S. Clason. A very good book if you’re looking for personal financial advice in terms of saving money, building your wealth, paying debts, enjoying life with discipline, and eventually to financial freedom. A piece of ancient financial advice that still holds very true today.

Below is a summary of how you can manage your finances to build your wealth regardless of how much you earn. Just like what most financial advisers/books tell us, it is not how much you earn, it is about how much you save. These are from the “7 Cures to a Lean Purse” of the book:

1. Start thy purse to fattening

According to the book, you should save 10% of your income, then live within the 90% remaining. Regardless of your income, stick with this. Besides, 90% is still a very big percentage for your daily expenses. I think it will not deprive you of some good things in life if you set aside 10% of your income as your savings.

This is the first step to acquiring wealth is to save money.

2. Control thy expenditures

For sure, some of you think that cure #1 is impossible for you as your whole income is just enough (or not enough) for your daily expenses. But come to think about it, for sure 1-3 years ago, your income is smaller as compared with your current income, yet you still think that your whole income is just enough for the expenses that you cannot afford to set aside 10% as your savings (I already considered inflation here). As it is commonly said, as your income grows, your expenses also grow.

That is why here in cure #2, reevaluate your expenditures. Do you really need some of it? Personally, I was able to cut my monthly expenses by switching my mobile plan from Postpaid to Prepaid because based on my usage, I’m wasting ₱999 a month for a mobile postpaid plan even if I didn’t use it or use just a portion of it. Now that I’m on prepaid, I only spend ₱150 per month and sometimes ₱0 if I still have enough balance. That’s already a huge saving. I also cut some subscriptions and disconnected my credit card to online shopping websites and apps to avoid impulse buying. I use cash or prepaid virtual cards instead. I also start buying our groceries in a public market instead of in the supermarket since we all know, that in the Philippines, it is more expensive to buy fresh meats, vegetables, and fruits in the supermarket as compared to the public market.

To make this short… Instead of just living within your income, let’s make it live within 90% of your income.

3. Make thy gold multiply

Just saving money will not make you rich, or lead you to financial freedom. Saving is just the first step. You need to make your money work for you. Use your savings (I suggest just a portion of it so that you still have some money as your emergency fund) to invest in a business or in a mutual fund or stock market (if you know how to play it) or anything that you think your money may grow. Don’t just save it on your secret treasure box inside your house, or just put it all in your bank savings account, the interest rate in banks is not enough, they are even lower as compared to the inflation rate, and the worst is, you are being taxed from it.

Take advantage of the power of compound interest. Your money, and your money’s children, and their grandchildren should work for you. Not the other way around.

4. Guard thy treasure from loss

Cure #4 simply states that you should invest your money where the risk is not very high or you have a great advantage as you know the investment or business very well. As opposed to what other financial advisors like Robert Kiyosaki proposing in his Rich Dad Poor Dad book, this one is quite conservative. You’ll get rich fast if you put your money in high-risk investments, but the downside is, you may also lose big time.

In this cure, the Richest Man in Babylon Arkad is not giving us “Get-Rich-Quickly” advice. He is giving a long-term solution that will lead us to financial freedom. Being rich is different from being financially free. Getting rich with the cures he suggested is only a consequence of having the right attitude and discipline towards managing your finances, and also some luck, hehehe!

Also, aside from guarding it against bad investments, you should also guard your money against external physical factors like thieves, natural calamities, and man-made calamities.

Though not specifically stated in the book, I will add here that we should take care of ourselves as part of guarding our treasure. We all know that hospital bills are not cheap, that includes medicines. We can avoid or lessen these kinds of expenses if we just take good care of ourselves. Have a healthy lifestyle; eat right, exercise, and stay away from vices.

5. Make of thy dwelling a profitable investment

In contrary to some modern financial advice that your house is not an asset (ehem Robert Kiyosaki, ehem), I totally agree with Arkad here. To be honest, I was once believed that having your own house is not an investment, but the longer I live, the more I realize that having your own house really helps you financially.

Having your own house means, yes, you are paying for the mortgage, but at least it is only for a very limited time, and once you have paid the whole mortgage, you can now spend that extra money on anything that your heart desires. You can even give your property to your children or anyone as an inheritance once you are no longer in this world. Unlike in renting, you’ll be paying the rent for the rest of your life, and no inheritance for your children and grandchildren.

And if you invest in a house and lot property (not a condominium), you can even spare a piece of your land to have some plants that will provide you food (like calamansi and tomato plants). In that way, it can cut your expenses with groceries. You can also allocate a portion of your property to put up a small business. So that’s an additional source of income.

6. Ensure a future income

The 6th cure is for your retirement. Obviously, we need to prepare for our future self and family. We are not always as strong as we are today, eventually, we will grow old, and becomes weaker that we can no longer do the things that we can do today. So having enough money for our retirement, and a passive income that we can rely on for our future daily expenses is a must to secure our future.

Let’s also break the poverty chain of being a burden to our children once we get old. Making them as our retirement plan instead of securing a source of funds with or without our children’s support.

7. Increase thy ability to earn

The last and final cure according to Arkad is to increase our ability to earn. You can increase it by having a part-time job, a business, or simply investing in our skills and knowledge to further make our salary increase thru promotion and/or opens new opportunities that will result in a higher salary.

To be honest, if you’re going to ask me, it is very practical that we invest to further enhance our skills and knowledge to have a higher salary than to have so many part-time jobs, simply because of the time and energy that we can save if we just keep on improving our skills, which in return, will result to a higher salary. Having a higher salary on one job means you’re increasing your ability to earn but not increasing the needed time to earn it (ideally, hehehe). But when the pandemic hits the world, relying on one job becomes impractical.

It is quite very common nowadays to have other sources of income aside from our 8-5 job. Instead of wasting our time browsing social media, watching non-sense videos, movie marathons on Netflix, playing long hours of video games, etc., better that we put a portion of our extra time and energy into something that will generate us more income. In our current generation where the internet is almost accessible to everyone, the opportunity to earn is almost limitless. People selling their goods on the internet via social media or online marketplaces, do remote part-time jobs like teaching, software development, and content creation, or make use of existing online and mobile platforms that give us the opportunity to earn like in delivery services, transportation, on-call mechanic, etc. There’s almost no excuse today to not have an additional source of income. The platforms and systems are already there, it is really up to us to grab the opportunities.