When I told my friend Kat about my goals for this year, she immediately recommended the book The Richest Man in Babylon, by George S. Clason. She said her dad gave it to her when she turned 18, and she found it incredibly helpful in shaping her perspectives about money (she definitely listened to her dad). So I picked up a copy and decided to follow it, step by step.
The book is a compilation of lessons that the author learned by interviewing some of the world’s richest people, written in the style of a parable. It reads a bit cheesy at times, but I’ve only read the first few chapters and already, I can feel my mindset shifting.
The first lesson in this book is: Save 10% of everything you earn. Over time, your “purse will start to fatten” and it will feel satisfyingly good. After all, the author asks, what do you desire more – the gratification of your daily desires that are quickly gone and forgotten, or substantial belongings like property and income-bringing investments?
This seems like an incredibly simple rule, but I have never thought of savings like this. After rent, student loan payments, living expenses, and credit card payments, I never had anything meaningful left over – and even if I did, it would soon go towards paying off some debt I subsequently accumulated. How could I save when I always had debt?
Switching to a savings mentality requires a change in mindset – you must believe that “a part of all I earn is mine to keep.” So often, we give everything we earn to others, but fail to give it to ourselves. The author says “pay yourself first. Do not buy from the clothes-maker and the sandal-maker more than you can pay out of the rest and still have enough for [your other necessary expenses].” He promises that, over time, you won’t notice any difference in your standard of living, and you’ll be able to get along just fine with 10% less.
So, that was my first step. At the beginning of the year, I set up an automatic transfer of 10% of my take-home pay into a savings account for the beginning of every month, just like all my other bills are auto-paid at the beginning of the month. It’s been three months now, and the author is right – I haven’t noticed the difference, and it does feel amazing to watch my savings account grow each month. I even re-named the account “Emergency Fund” (more on that later) so that I wouldn’t be tempted to withdraw from it.
I realize that for some of you, saving is second nature, and you’ve probably been doing this for years. But I’m hoping that for others, this will also be an easy first step on the path towards good personal financial management.
Next week, I’ll write more about what I do with the rest of the money that doesn’t go into my savings!
Austerity Kate 