In an Over-Communicated, Intrusive World, Simple is Better
Ed

Clason’s “The Richest Man in Babylon” Part 2 – The 7 Cures for a Lean Wallet and The 5 Laws of Money

Copyright © 2007 Ed Bagley

Part 1 of this 2 Part series ends the synopsis of George Clason’s book “The Richest Man in Babylon,” but Clason raises an important question: Why should
so few men be able to acquire so much gold?

The answer is because they know how.

One may not condemn a man for succeeding because he knows how. Neither may one with justice take away from a man what he has fairly earned, to give to men of less ability.

And so it was that the good king of Babylon sought out the richest man in Babylon to teach to others in his kingdom the secrets of his success.

This is a synopsis of what the richest man taught to the people
of Babylon:

The Seven Cures for a Lean Wallet

1) Start your wallet to fattening. Save one-tenth of all you earn. Remember that a part
of all I earn is mine to keep. Do this faithfully. Do not let the simplicity of this escape you.

When I ceased to pay out more than nine-tenths of my earnings,
I got along just as well.
I was not shorter than before, and, money came to me more easily than before.

2) Control your expenses. How is it that all do not earn the same yet all have lean wallets? Here is the truth: That which each of us calls our “necessary expenses” will always grow to equal our incomes unless we protest to
the contrary.

Confuse not necessary expenses with desires. We all have more desires than our earnings can gratify. Examine which of the accepted expenses of living can be reduced or eliminated. Let your motto be 100% of appreciated value demanded for every dollar spent.

Budget your expenses so that your actual necessities are met without spending more than nine-tenths of your earnings.

3) Make your money multiply. Protect your growing treasure by putting it to labor and increasing. Money in your wallet earns nothing. Money that we earn from our money is but a start; it is the earnings generating earnings that builds fortunes.

When the richest man in Babylon loaned money to the shield maker to buy bronze, he said this: “Each time I loaned money to the shield maker, I loaned back also the rental he had paid me. Therefore not only did my capital increase, but its earnings likewise increased.”

4) Guard your money from loss. Everyone has an idea of how to make quick money; few, however, have the evidence of making money to justify their idea, scheme or offer of quick riches. The first sound principle of investment is security for your principal.

Before you loan your money to any man assure yourself of his ability to repay your loan, and of his reputation to do so. Make no one a present of your hard-earned treasure.

Consult the wisdom of those experienced in handling money for profit. Such advice is often freely given for
the asking, and may possess more value than the amount you
are about to invest.

5) Make your home a profitable investment. When you can set aside only nine-tenths of what you earn to live, and can use a part of that nine-tenths to improve the investment in your housing, do it; owning your own home is also an investment that grows with your wealth.

Your family deserves a home they can enjoy and call their own. It builds a sense of stability and well-being.

6) Ensure a future income. Build income-producing assets that do not require you to work forever. We will all grow old and die.

You should prepare a suitable income for the days to come when you are no longer younger and cannot work as hard, and to make preparations for your family should you no longer be with them to comfort and support them. Provide in advance for the needs of your growing age, and the protection of your family.

7) Increase your
ability to earn.
Desire precedes accomplishment, and the desire must be strong and definite. When you have backed your desire for saving $1,000 with the strength and purpose to secure it, you can then save $2,000.

Desires must be simple and definite. Desires defeat their own purpose when they are too many, too confusing, or too difficult to accomplish. Cultivate your own powers to study and become wiser, more skillful, and more productive.

Here is more sage advice from Clason’s masterpiece on financial matters:

The 5 Laws of Money

If you had to choose, would you choose tons of money or wisdom? Most men would take the money, ignore the wisdom, and waste the money. Here is the wisdom:

1) Money comes gladly and in increasing quantities to any man who will put aside not less than one-tenth of his earnings to create an estate for his future and the future of his family.

2) Money labors diligently and contently for the wise owner who finds for it profitable employment, multiplying unto itself in infinity if kept working diligently. Money multiplies itself in surprising fashion.

3) Money clings to
the protection of the cautious owner who invests it with the advice of men wise
in its handling.

4) Money slips away from the man who invests it in businesses or purposes that he is not familiar with, or which are not approved by those skilled in its keep. The inexperienced handler of money who trusts his own judgment, and puts his money in investments which he is not familiar, always pays with his money for his experience.

5) Money flees the man who would force it to impossible earnings, or who follows the alluring advice of tricksters and schemers, or who
trusts it to his own inexperience and romantic desires in investment.

Here is the hard lesson of the 5 Laws of Money: You cannot measure the value of wisdom in bags of money. Without wisdom, those who have it quickly lose money, but with wisdom, money can be secured by those who have it not.

This ends the condensation.

Copyright © 2006 Ed Bagley

I told my son that normal closing costs for a re-fi of $148,638 at 6.5% for 30 years is $2,500. Total closing costs for his $134,999 proposed loan were $5,412, only $2,912 more. So I asked him “Could you be paying too much for closing costs?” Answer: Yes.

Then we looked at his original principal balance owing of $123,773 versus his new principal amount owing of $134,999 should he accept the loan. I pointed out that he is losing $11,226 before he even starts servicing the new loan. Yes, he is getting a home equity loan of $10,409, but what is he really gaining? Answer: Nothing. He is losing again.

Then we calculated the closing cost recovery rate of $5,412 using a financial planning program. He learned it would take 30 months of payments just to recover his closing costs. I pointed out that until you recover your closing costs you have not saved a cent in the transaction.

He had already made 12 payments on his existing $123,773 loan, reducing his principal amount owing to $122,623. He had earned $1,150 in equity by making 12 payments at $862 a month.

Then we looked at what his principal amount owing would be when he reached his 30th payment with the new loan. (Remember, it is going to take 30 payments to recover his closing costs.) Answer: $133,085 at a monthly payment of $1,233.

Then I asked him what his principal amount owing would be if he just kept paying another 30 months on his current loan plus the 12 months he had already paid. Answer: $119,342 at $898 a month.

The lights began to turn on in his mind. Now he recognized that he would be $13,743 ahead in principal owing if he just kept paying on the existing loan at the lower monthly payment ($335 less!).

This sudden revelation begged the question: How can this be? Answer: The interest on mortgage loans is front loaded. He learned that if he went for this nationally known lender’s great loan deal that he would be making loan payments for 30 months (2.5 years) and still owe $13,743 more in principal balance than if he kept his present loan and paid $335 less in his monthly payment.

Finally we looked at what it would cost to service both loans. His current loan had 348 months remaining (29 years) at $898 monthly. Total cost? $312,504. The proposed loan had 360 months remaining (30 years) at $1,233 monthly. Total cost? $443,880. The difference? $131,376.

Just how badly did he need that home equity loan? Answer: Not at all.

And how much would he save in actual dollars by not accepting the proposed re-fi from the lender who was supposedly helping him out? Answer: $157,495.

Here are the savings:

1) $11,226, the difference in the original amounts of the loans.

2) $1,150, the equity he already had earned from making 12 payments on his present loan.

3) $13,743, the difference in principal owing if he continued paying his present loan.

4) $131,376, the difference in the cost to service the proposed loan.

Never forget that finance is a dirty business like finding a cockroach on a cow pie.

The banker, mortgage broker or financial predator you are dealing with is not your friend trying to help you. He (or she) is your enemy trying to hurt you so his company can profit at your expense while he gets his big commission check and looks good to his employer.

If you want an excellent example of how your banker educates you about your finances, try swallowing his line about your first home purchase being probably the greatest and most rewarding investment you will ever make.

Remember that he talked about how your new home would be such a great asset for you. Anything to get you thinking you could not possibly afford your new home without his help, and that it would be your greatest investment.

Your banking friend never told you that your fantastic new asset is not even an asset but a liability. A liability, you say? Of course, silly, the bank holds the paper on your home until you pay it off, and your loan is really an asset on the bank’s balance sheet, not on yours.

By lending you the money to buy your home, your bank creates an asset on its balance sheet, and if it is an asset for the bank, it must, by straight accounting procedures and common sense, be a liability on your personal balance sheet.

Heck, if the banker told you this, you might think twice about becoming a 30-year employee of the bank while you are making your payments for the next 360 months.

Are all bankers and mortgage brokers bad people? Naw, only 95% of them. When you go to borrow money for your next mortgage, my best advice is Good Luck, and God Speed. I certainly hope you educate yourself enough to realize that dealing with the 5% will save you a ton of money and grief over the next 30 years.

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Sid Miller Wants to Know: What are you voting for?

 

That moment when someone says, “I can’t believe you would vote for Trump”

I simply reply “I’m not voting for Trump.”

I’m voting for the First Amendment and Freedom of Speech.

I’m voting for the Second Amendment and my right to defend my life and my family.

I’m voting for the next Supreme Court Justice(s) to protect the Constitution and the Bill of Rights.

I’m voting for the continued growth of my retirement investments and the stock market.

I’m voting for an end to America’s involvement in foreign conflicts.

I’m voting for the Electoral College & the Republic we live in.

I’m voting for the Police to be respected once again and to ensure Law & Order.

I’m voting for the continued appointment of Federal Judges who respect the Constitution and the Bill of Rights.

I’m voting for our jobs to remain in America and not be outsourced all over again to China, Mexico and other foreign countries.

I’m voting for secure borders and legal immigration.

I’m voting for the Military & the Veterans who fought for this Country to give the American people their freedoms.

I’m voting for the unborn babies that have a right to live.

I’m voting for continued peace progress in the Middle East.

I’m voting to fight against human/child trafficking.

I’m voting for Freedom of Religion.

I’m voting for the American Flag that is disrespected by the “mob.”

I’m voting for the right to speak my opinion & not be censored.

I’m not just voting for one person, I’m voting for the future of my Country.

I’m voting for my children and my grandchildren to ensure their freedoms and their future.

What are you voting for?

About the Source: Sid Miller is the Commissioner of Agriculture in the Great State of Texas.

(Ed’s Note: The current 2020 Presidential Election has been reduced to a choice between our “constitutional republic” form of government and creeping into a “socialist” form of government in America. We should not allow any political party in America to bring advancing socialism—example: The Green New Deal—under the guise of improving our constitutional republic. Every form of socialism as a government in history has failed to advance the welfare of the citizens therein. Smart people know that socialism does not secure our rights as citizens but rather reduces our personal rights to the point where we have none and ultimately end up as a dictatorship.)

Financial Thoughts
on Investing
by Warren Buffett

(Ed’s Note: The following condensation is from The Tao of Warren Buffett, written by Mary Buffett and David Clark and available for sale at Amazon and bookstores nationwide. I am always impressed by what Warren Buffett has to say and am doing this condensation to help promote their book.)

On Investing: Never be afraid to ask too much when selling offer too little when buying.
(Ed’s Note: How much you get from a sale or how much you have to pay when making a purchase determines whether you make or lose money and how rich you ultimately become.)

(Ed’s Note: For more of Warren Buffett’s advice go to the menu bar above and click on Financial Thoughts.)