5 Laws of Gold: Series Introduction & 10%
The author is not a financial advisor or formally qualified in financial matters.
This article is the first in a series of articles on the ‘5 Laws of Gold’ based on George S Clasons’ The Richest Man in Babylon. If you would like to learn more, please consider picking up copies of any of the books mentioned in this article from your local library or independent bookstore.
“Anything not saved will be lost”
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Article Series Introduction
“There are no sure and easy paths to riches on Wall Street, or anywhere else.” So says the godfather of modern value investment Benjamin Graham in his book The Intelligent Investor.
“The underlying principles of sound investment” says Graham, “should not alter decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.”
If The Intelligent Investor were to have a core theme, a solid handhold for the financially layman such as myself to grip tightly while cascading down a torrent of new and scary fiduciary language; it is best surmised in the 4th edition preface by Warren Buffett:
To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.
The Intelligent Investor was the springboard into value-investment for a 19 year old Buffett who first read this book in 1950.
23 years prior to The Intelligent Investor publishing, an unknown name in the world of investment and personal finance, George S Clason, had published the same sentiment of financial wisdom and of an ‘intellectual framework’ when handling your money.
Clason owned and operated two small, but profitable map-making companies where his biggest accomplishment in the cartography world was to publish the first ever road atlas.
Clason had started writing and self-publishing pamphlets on thrift and handling money: lessons he had learned in his decades of owning and operating his own businesses. These pamphlets were picked up by and eventually distributed through banks and insurance companies to their customers.
With the sales success and warm reader reception he got for his series of pamphlets, Clason collated them into The Richest Man in Babylon which first published in 1926. Three years later, The Wall Street Crash of 1929 brought Clason’s map making businesses to a close. Clason‘s lessons on financial independence and the nature of money allowed him to endure these unprecedented times and go on to retire a wealthy man.
Clason had a simple framework, ‘5 Laws of Gold’ and ‘7 Cures for a Lean Purse’, the first of which I would like to share with you from The Richest Man in Babylon across a series of articles.
My intention is to share with you not only the laws of money as Clason has outlined them, but to also help you understand that financial freedom is within your own reach. Just as it was once in George S Clasons, once in Bejamin Grahams, once in Warren Buffett’s.
Do not imagine that if something is hard for you it is therefore impossible for [anyone]: but rather consider anything that is humanly possible and appropriate to lie within your own reach too.
Marcus Aurelius, Meditations
5 Laws of Gold: 10%
Gold cometh gladly and in increasing quantity to any [person] who will put by not less than one- tenth of [their] earnings to create an estate for [their] future and that of [their] family.
The first Law of Gold is thus: pay yourself 10% of ALL the money that is paid to you and keep it. That’s it, nice and simple.
This lesson is the first and without a doubt the single most important lesson to financial independence: pay yourself first, and ensure it is no less than 10% of your wages. If you take home $1000 a month, you pay yourself $100. If you take home $100 a month, then you pay yourself $10.
This first lesson starts with you learning to live bellow your means and to start saving money for yourself. This distinction cannot be overstated: you are not saving to spend this money on something specific.
Saving for a house deposit is not paying yourself: it’s money to pay the house seller or bank. Saving for a holiday is saving money for the flights, accommodations and expenses of fun.
This is not paying yourself. This is paying someone else.
Arkad’s Lesson
Arkad, the titular ‘Richest man in Babylon’, tells their childhood friends who have come to him for counsel “I found the road to wealth when I decided that a part of all I earned was mine to keep.” Arkad continues: “A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be much more as you can afford.”
A clarification should be made when Arkad says ‘It can be much more as you can afford’. If you are starting your journey to financial independence, start at 10%. You can always pay yourself more as your situation allows, but for a while, 10% is enough to see the benefits and to learn the lesson.
While reading this, if you — like I did originally — thought ‘well I can’t afford to pay myself 10% of my wages’. If you think your expenses are too high, or you simply do not earn enough to ‘sacrifice’ 10% of your take-home pay; Arkad continues:
Now, I will tell a strangetruth… When I ceased to pay out more than nine-tenths of my earnings I managed to get along just as well. I was not shorter than before. Also, ere long, did coins come to me more easily than before. Surely it is a law of the Gods that unto him who keepeth and spendeth not a certain part of all his earnings, shall gold come more easily.
In paying yourself 10% of all you earn, your expenses and your quality of life should remain practically the same. Only now, you’ll have 10% of your take home pay in your account. “…thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to the soul.”
In starting to pay yourself, you will now have money. If you’ve ever been broke, you know that there is no worse feeling than being broke. That feeling I call despair. Conversely, for anyone who has even a modest amount of money put away; not for spending but for growing: that feeling is one of the best. That feeling I call hope.
If you’re still not sold that you can afford 10% of your take home wages remember “That which each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.” If you pay yourself 10% of your wages; you will have 10% fewer expenses since you simply do not have the money to spend on them.
What this exercise of living below your means does, is it forces you to prioritise your expenses and you start to question your spending habits with money. If you have 10% less to spend on ‘stuff’, what ‘stuff’ are you willing to go without so that you can enjoy a ‘fattening purse’?
That’s it?
“Deride not what I say because of its simplicity.” says Arkad to a school of learned people who will go forth and teach his lessons to Babylon’s people, “Truth is always simple.”
To reiterate a point that Buffett made in the introduction: “What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” What George S Clason offers is a simple but logical framework; one that anyone can follow. The Richest Man in Babylon was written by a map-maker and small business owner based on lessons learned in the school of hard knocks, not at Columbia or Yale.
The first law: to pay yourself first and pay yourself 10% of your take home wages is dead simple in concept and it can be done by anyone. By paying yourself you are keeping the rewards of your labour and, in the next Law of Gold, Arkad will help you understand the nature of money.