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The Richest Man in Babylon: Part 2—Seven Cures for a Lean Purse

 

As was outlined in part one of my book review, I am frequently asked about my recommendations for inspirational books for business success and personal finance. My first recommendation is often for a book that was first published over 85 years ago – The Richest Man in Babylon by George S. Clason. You can read part one of my book review here.

The Richest Man in Babylon by George S. Clayson

Clason utilizes the background of the Kingdom of Babylon as the setting for the story to introduce several fictional characters (from both ancient and modern times) to explain the principals of money, responsibility, and personal finance. One of these characters is Arkad. Arkad’s journey is a “rags to riches” story where he begins life as a slave. Over time, he is able to buy his freedom, and eventually becomes the richest man in Babylon. The king of Babylon requests that Arkad teach what he has learned to a group of citizens. In a group of lectures Arkad introduces Seven Cures for a Lean Purse.

The Seven Cures for a Lean Purse

  1. “Start thy purse to fattening”                                                                                                                                 

The first cure, Start thy purse to fattening, demonstrates the need to recognize that no matter the amount of income you receive, a portion should be set aside for saving. The Richest Man in Babylon emphasizes that everyone should save a least ten percent of their income every month. The act of saving allows you to view money from a different perspective – money is not just for instant gratification or to be used to react to one alleged crisis or another. Instead, money becomes a long term instrument for your benefit.

  1. “Control thy expenditures.”

Under the principle, Control thy expenditures, one learns that the amount of income earned is not important to long-term wealth.   Instead, the importance is to concentrate on how that money is actually spent. A proactive plan and budget for expenses will have the greatest long-term impact on your financial success. We often see examples of this concept on the news in the stories of individuals who win millions of dollars in a lottery, only to have it spent within a few years. Compare this to the story of the person with a low yearly income who lives frugally and is able to retire comfortably and provide a multimillion dollar endowment to a charity. The primary difference between these two examples is the perspectives on how the individuals to spend the money they have—not the amount of money that is available at any one time.

  1. “Make thy gold multiply.”

Saving money does not mean to hide it in a mattress, in mason jars in the back yard, or inside the covers of books in your personal library. Instead, make your savings work for you by developing a reasonable financial plan to allow your money earn a return on investment.   Creating an investment plan that can provide a consistent return over time is essential to make thy gold multiply.

  1. “Guard thy treasures from loss.”                                                                                                                                                     

Cure number four – Guard thy treasures from loss, works in conjunction with the third cure. Success comes from the consistent application of an investment plan over time. It does not come from attempting to chase the newest financial trends or from a salesperson with claims of high rate returns with no risk. Financial success also does not come from following someone who promises a new money-making scheme that no one has ever thought of before.   Instead, these are more often than not ways to lose your treasures (often on a large scale). Concentrating on a consistent well-proven approach will help one avoid these salespeople and truly guard your money.

  1. “Make thy dwelling a profitable investment.”

Looking at the home you live in as an investment is the concept that purchasing a home can assist in long-term wealth accumulation.   There are financial advisors that teach quite the opposite view of real estate, and the financial crisis of the last few years dampened the enthusiasm of purchasing a home. However, the fact remains that once a mortgage is paid, the largest monthly expenditure for a family is usually eliminated and can then be utilized for other purposes. A renter will never be able to achieve this level of monetary freedom.

  1. “Insure a future income.”

An individual needs to look beyond saving and accumulating wealth in the present to the possibility that the ability to accumulate wealth may diminish or end at some point in the future. A retirement plan is essential to prepare for that future date. In addition to a basic retirement plan, contingency plans need to be in place to help insure an income if an unexpected event happens. These future plans should include addressing health, disability, life, and long-term care insurance needs.

  1. “Increase thy ability to earn.”

Frequently, when one reads books or articles written about successful individuals a common thread emerges. No matter the amount of wealth, prestige, or power obtained, successful individuals never lose their desire to learn and better themselves. The desire to better ones self and to accumulate knowledge prevents stagnation, allows an individual to understand new concepts, and become both a better earner and a better investor.

Although The Richest Man in Babylon is approaching 90 years in publication, the principles it teaches are just as important today as they were before the Great Depression.   The longevity of Clason’s book demonstrates that the principles outlined are timeless and have brought financial success to the generations of people who have applied them. In addition, if these principles had been more widely applied by individuals and businesses at the time of first publication, it would have lessened the impact of the Great Depression. Their further utilization would have made the most recent spate of financial troubles less catastrophic as well.

Also, I often think of my paternal grandparents’ philosophy of personal finance. As a young married couple, they lived in and faced the brunt of the Great Depression. Despite personal and financial setbacks, they developed a similar set of financial principles to the “cures for a lean purse.” That fiscal mind set led them to financial security that they were able to maintain throughout their lives.

To read Part One of the book review for The Richest Man in Babylon click here.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

The Richest Man in Babylon—a Pioneer Book in Personal Finance

 

As a business/commercial law attorney, I am often asked about my recommendations for inspirational books for business success and personal finance. Often times, people assume this genre of self-improvement books has a history within the last 20-30 years when the subject gained popularity. However, my first recommendation is often for a book that was first published over 85 years ago – The Richest Man in Babylon by George S. Clason. The principles it teaches are just as important today as they were before the Great Depression.The Richest Man in Babylon by George S. Clayson

The author, George S. Clason (1874-1957), was owner of the Clason Map Company and Clason Publishing Company one of the first companies to publish a road atlas of North America.   However, he was better known for publishing a series of pamphlets on thrift and financial success, which first appeared in 1926. These pamphlets became very popular and were bought by insurance companies and banks for distribution to their respective clients/account holders. The Richest Man in Babylon is a compilation of these pamphlets. You will also notice the principles outlined by George Clason are consistently utilized by current financial and self-help authors today.

This book is an examination of how the Kingdom of Babylon was transformed from a small village on the Euphrates River to become one of the wealthiest and most powerful kingdoms in the ancient world. To explain this transformation, Clason introduces several fictional characters (from both ancient and modern times) to explain the principals of money, responsibility, and personal finance. The Richest Man in Babylon highlights that personal wealth and success do not occur overnight– with fast solutions and through get-rich-quick schemes. Instead, wealth accumulates by applying a consistent set of principles over time.   The book introduces both the Seven Cures for a Lean Purse and the Five Laws of Gold. For purposes of this post, I will concentrate on the Five Laws of Gold.

The Five Laws of Gold

  1. “Gold cometh gladly and in increasing quantity to any man who will put no less than one-tenth of his earnings to create an estate for this future and that of his family.”

The first law is to become a saver and make saving a priority in every financial decision. In a world that emphasizes immediate gratification and the “buy now, pay later” mentality, shifting a focus to the initial thought of saving helps eliminate the need for immediate gratification and results.

  1. “Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.”

 A successful financial plan is developed by finding a process where one can consistently make a positive financial return over time. We need to avoid the extremes between hiding money in a mattress to wild speculation and day trading. Instead we are looking for the consistent return. The baseball example I use is that we want a high batting percentage of singles and the occasional double—not always swinging for the home run.

  1. Gold clingeth to the protection of the cautious owner who invests it under the advice of men in its handling.” No individual can have all the answers.

If we attempt to do it all, our focus and priorities are often watered down in the process. Instead, we must seek men and women around us whom we can trust to provide us sound advice and counsel.

  1. “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.”

This principle reminds me of the old saying “Dance with the one that brought you.” Often individuals want to follow the newest trend or fad even though their personal knowledge of this potential opportunity does not exist. Instead, the goal should be to find investments that we (through the course of our everyday work, hobbies, and interactions) have developed a practical experience and knowledge. That experience and knowledge can be utilized to our advantage.

  1. “Gold flees the man who would force it to impossible earnings or who followed the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.”

There are no quick answers and you cannot become “rich overnight.”   A lot of the financial catastrophes we have observed in the past 20 years (from the tech bubble bursting in the 1990s to the financial meltdown of 2007-2008) are based on the notion of quick results. New schemes are found that, in the long run, do not work and cause more harm than good. We need to avoid the quick decisions based on feelings and personal dreams. Instead, we should focus on a practical empirical approach that takes emotion and popularity out of our financial or business decisions.

I first read The Richest Man in Babylon soon after graduating from law school. As an attorney starting my legal career and first post-degree job, accompanied by typical law school student loan debt, I wondered how I would be able to tackle my new career along and establish myself for future financial success. The down-to-earth examples provided in The Richest Man in Babylon highlighted the fact that obtaining financial success is a marathon and not a sprint. Consistent application of basic financial principles is what leads to success.

To read Part 2 of the review of The Richest Man in Babylon click here.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

Key Steps When Starting A Business

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The Importance of Timeliness When Starting a Business

For the majority of entrepreneurs and new business owners, time is a precious commodity. Finding time – and managing an existing schedule – is a challenge. When launching a new business, however, it is critically important to follow a proper timeline. Failure to execute the new business start-up steps in the correct order can cost a fledgling enterprise much-needed funds. More importantly, waiting until the last minute to handle important tasks can seriously jeopardize a business’s likelihood of success.

By working with an experienced business attorney, a new business owner can stop worrying about the legal details and focus on running their business. The following are some of the initial steps that should not be left until the last minute:

Creating a Unique Business Name

There are several considerations that contribute to choosing a business name. For a variety of reasons, business owners must choose a name that is not too similar to an existing Arizona business name. The name should not infringe on an existing federal trademark. Ideally, it should also be available as an Internet domain.

Separating Personal and Business Accounts

Many first-time business owners make the mistake of relying on personal credit to launch a new business. Understandably, they do not always have access to business credit as a means of funding a new business. By pledging personal assets, however, they expose themselves to business creditors. A business attorney can help a new business owner find a solution that does not put the business owner’s personal credit and assets at risk.

Planning for Intellectual Property

Copyright and trademark law is complex. Business owners must ensure they do not violate other businesses’ work, while at the same time guaranteeing they protect their own efforts. This is where the help and knowledge of an experienced business attorney is invaluable.

Drafting Business Contracts

Many business owners are tempted to create their own contracts or rely on agreements they pull from the Internet. Although this may initially seem like a money-saving step, it can be a critical and costly mistake in the long run. Arizona courts construe ambiguous contracts against the drafting party. Harford v. National Life & Casualty Ins. Co. (1956), 81 Ariz. 43, 45, 299 P.2d 635, 637; see also, Sears Roebuck and Co. v. Avery (2004), 593 S.E.2d 424 (North Carolina applying Arizona law). Business owners who create confusing, misleading, or simply incomplete contracts just to save a little money could end up losing a significant amount of funds should a dispute later develop.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

Five Things To Consider When Starting a New Business

 

If you’ve recently launched a new business or you’ve been contemplating starting your own company for some time, chances are you’ve put a considerable amount of thought into how you plan to achieve your dreams of business ownership. Most entrepreneurs are driven, energetic people who devote considerable time and effort to strategy and planning.

Despite the best intentions, however, the majority of new business owners fall victim to the same mistakes when starting out. Although this is by no means an exhaustive new business checklist, it is a solid overview of some of the most common things people neglect when starting down the road to being their own boss.

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1. Business Structure Is Crucial

The way you structure your business is arguably the most important decision you will ever make as a business owner. The corporate structure of your business has far-reaching tax and personal liability implications that can make or break a fledgling business. Unless you plan on operating as a sole proprietor, the options generally come down to organizing as a limited liability company or as a corporation. Both entities involve complex legal analyses that require the in-depth knowledge of a business attorney who understands the pros and cons of each structure and how each could support your business. In summary, corporate structuring is not a decision to be made on a whim.

2. A Credit Line or Alternate Cash Flow

Cash flow is the lifeblood of business. Even a small start-up operating from a basement office has overhead costs. Late-paying customers or a series of unexpected expenses, may cause a drought in your cash flow. Having a backup funding source, such as a business line of credit, is crucial to keeping business finances afloat while waiting for income to begin flowing back in.

3. Profitability Takes Time

Most business experts recommend saving at least one year’s salary before launching a new business. Other advisers suggest saving for a minimum of two years before going out on your own. You shouldn’t rely on turning a profit right away. With money in reserve, you can focus on building your new business for the long term rather than worrying about how you will pay your everyday living expenses.

4. Employer Regulations

Hiring an employee is a monumental step that goes well beyond shaking a candidate’s hand over a resume. Employers must comply with the variety of federal and state regulations that govern everything from workers’ compensation insurance and income tax withholding to Social Security tax and OSHA regulations. Failure to observe the myriad of laws that govern the employer-employee relationship can result in severe (not to mention expensive) penalties for employers.

5. The Importance of Well-Drafted Legal Documents

Most business owners prepare for start-up costs. They have a plan for buying equipment, renting a location, and paying for advertising. Surprisingly, however, many new business owners cut corners and omit working with an attorney who can help them protect everything they are working so hard to build. When you’re starting your own business, that often includes personal assets as well as property owned by the business. From creating solid, operating agreements, personalized contracts and commercial lease agreements that anticipate contingencies to insulating your personal assets from the reach of business creditors, a business attorney will work one-on-one with you to reduce the long-term costs of doing business. Your operating budget may function on a shoestring, but your legal budget should be more robust. Your business will reap the benefits in the long run.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This information have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.