Inspiration From Youtube

As I’ve mentioned elsewhere, your thoughts become you deeds.  Thus, if you control your thoughts, you end up controlling your deeds.  That’s called self-control and it’s essential if you want to reduce your spending and thus be able to increase your saving.  One way to control your thoughts is by listening, reading, and watching media on the subject of personal finance.  You can find podcasts and radio shows, books, and (of course) videos.  Here’s an example.

Maybe not everything mentioned in this video is applicable to your situation.  Okay.  So find another video.  You know how to work the internet don’t you?  Then you can find books at the library or among the used books at your local thrift shop.

Finally, I’ll mention that as you get lots of personal finance advice from a variety of sources, some of what you’ll hear or read might be not only not applicable to your situation … it might also be downright incorrect or untrue.  But that’s okay.  If something isn’t true, remember that free advice is sometimes worth what you pay for it.  And it isn’t just the actual factual content that you’re looking for.  It’s also the inspiration that comes from seeing and hearing someone else talk about doing what you want to do.  Just knowing that other people have done it should show you that you can do it too.  That’s one reason why The Richest Man in Babylon is still one of the best books about personal finance, despite the fact that it’s almost 100 years old.  So get inspired and save money!

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Why Read This Blog?

I can think of three reasons.

First, and not the most important:  You might learn something, some specific little tip or trick, that might save you money.  Just maybe, there might be something here that is directly applicable to your life and your circumstances.

Second, and more important:  You might change your way of thinking about spending and saving money.  That might allow you to come up with your own ways of using your limited resources (e.g., money, time) more efficiently.  That’s what it’s really about: using what you’ve got more efficiently, doing more with less, so you can save more.

Third, and most important:  Personal finance blogs, books, radio shows, and the like can inspire you.  There’s an old saying, one version of which goes like this:

Your thoughts become your words;
Your words become your actions;
Your actions become your habits;
Your habits become your character;
Your character becomes your destiny.

Another version is:

The thought manifests as the word;
The word manifests as the deed;
The deed develops into habit;
And habit hardens into character.

Start with the first part:  Your thoughts.  You can exercise a great deal of control over your thoughts.  One way is by controlling what you put into your mind.  Read books about personal finance, money management, saving, and investing and your thoughts will turn to those subjects.  Read blogs about the same topics.  Listen to radio programs about saving and investing.  Be inspired.

The book I always recommend is The Richest Man in Babylon.

An Amazon Review

A review on Amazon:

Timeless Financial Advice for Everyone.
By Mark Hiatton
January 18, 2001

Twenty-five years ago, I sold radio advertising and had a client who seemed to have it all. Owned two of the town’s best restaurants, drove a Porsche and a BMW, the hot cars then, was always taking a week or two off to go skiing or something and was only one year older than me. I’d spent a lot of time with the guy–he wasn’t a great brain, terribly clever or witty. But he knew how to handle money.
After calling on him for a couple of years, I figured I knew him well enough to ask him how he did it. I expected to hear he was deeply into commodities trading, or had an uncle who worked on Wall Street, a wealthy family or something like that, but he said it was really very simple. Once a year, he read The Richest Man in Babylon, and the rest of the year, he tried to apply it in his daily life.
Well, you know how it is with people who Get Relgion. I wasn’t in a place where I could accept that something so simple as reading a hundred and fifty pages of Ye Olde Storey could actually turn my financial life around, but I bought a copy. And about a year later on a rainy Saturday, I started reading it and couldn’t put down. I know that’s a phrase you see repeated in countless Amazon.com reviews, but it was true. The characters from the book reached out across thousands of years and grabbed me by the lapels and shook some sense into me.
I have tried to re-read the book at least once per year, every year since then. Something else: I’ve tried to give away two copies per year, to people I know and love who I feel can benefit from not making the same mistakes I made in my mispent youth.
There aren’t any magic formulas in this book. There is nothing about options or day trading or investing new whatever the latest new technology is. It’s almost math-free. Kind of ironic, when you turn the pages of the average business best seller and try to figure out the charts and graphs and algebra.
This is a book that ought to be used in our schools. It’s written in a wonderful old-world style and the characters are real heroes, grapling with many of the same issues we struggle with today–they’re just doing it without cable-TV and the internet. You want a new Lexus? These folks talk about how hard it is to survive without one of the newest-model chariots. It’s the same thing, really.
Do yourself, your spouse, your children, your neighbors a favor. Buy a few copies of this one. Keep one for yourself, and give away the rest. Mark yours up. Underline it. Make notes in the margins. Try to re-read it whenever you feel yourself being tempted to pop for ADSL or new cellular phone or a ski trip or the latest and greatest widget.
Read a single financial book, and you get a few good ideas. Read two and you get a few more. Read several and you start to get very little new information. I’ve read dozens of titles, from Andrew Tobias to Martin Zweig. But I’d recommend you start right here. If you never read another book on money, you will have a very sound basis for a very good life, after spending a day in ancient Babylon and watching how they learned to handle money thousands of years ago. This is the money book to buy if you’re only buying one.

I agree with Mr Hiatton 100%.  Do yourself a favor.  Read, or re-read The Richest Man in Babylon.

Einstein, Algamish, and Compound Interest

compound_interest
“Burritt’s Universal Multipliers for Computing Interest, Simple and Compound” by Elijah Hinsdale Burritt

Albert Einstein probably never said,

  • “Compound interest … one of man’s greatest inventions.”
  • “The most powerful force in the universe is compound interest.”
  • “Compound interest … the greatest mathematical discovery of all time”
  • “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

At least, despite all of the appearances of these and similar quotes attributed to the great physicist in modern personal finance literature (and all I’ve seen were published long after Einstein’s departure from this sphere), I’ve never seen any that had a proper citation.

The formula used to calculate the future value of an investment with compound interest is pretty cool.  Maybe that’s what Einstein was talking about.  But I digress.

While there’s a lot wisdom in those (probably) spurious “Einstein quotes”, and I especially like the last one, here’s another saying about compound interest that I like even more (and I don’t know who said it):

Compound interest can either work for you or against you.  You decide.

Borrow money and you’re in debt.  If things go as planned, you pay all of the interest and part of the principal in a given month.  (Of course, you should pay more than just whatever part of the principal is required by the lender.  You should pay more so you can get out of debt as quickly as possible)  But if don’t manage to pay all of the interest you owe in a given month, then that interest is added to the principal.  Let that happen and you owe more than you initially borrowed.  Then you owe interest on the interest!  That’s compound interest working against you, whether it’s a loan against your car or just your signature.  Another reason to avoid debt.

But:

Put your dollars into a good investment.  They earn more dollars.  Then put those dollars you earned into the same investment.  They will earn even more dollars along with the dollars that were invested first.  It goes on forever.  That’s what’s so powerful about it.

In The Richest Man in Babylon, Algamish says it this way:

Every gold piece thou keepeth is a slave to work for thee.

Every copper it earns is its child that also can work for thee.

If thou wouldst become wealthy, then thou must keep and save.

And every coin thou keepest must work and earn, and their children must also work and earn, that all may help to give thee the abundance thou dost crave.

 

 

Which Movie to See?

On Father’s Day, I thought it would be the thing to do to eat hamburgers and see a movie with the kids and wife. There’s one place I like to go for burgers, so that was the easy choice to make. The movie, however, was another matter. So many choices. Which to see? It so happened that two movies that I was interested in seeing were in theaters that weekend. One was a new release, in theaters for only a short time. The other had been in theaters a couple months and had found its way to the second-run discount theaters (which used to be called “dollar theaters”).  Which to see?

I thought of “The Richest Man in Babylon“, in which wealthy Arkad speaks about the many things that we won’t be able to do:

“… consider them but a part of that great multitude of desires that must go unsatisfied and regret them not.”

Arkad is making the point that there are an infinite number of things we might like to do, but we will never have the time, the appetite, the stamina, and (not to mention) the money to do them all.  We need to make choices.  The smart thing to do is find things that are equally enjoyable.  Things that provide equal amounts of utility as economists say.  Then choose the one that’s least expensive — especially if it’s free.

jungle_bookIt’s fun to see the just-premiered movie. But when you think about it, a movie that’s been in theaters for a few months is just as new to you if you haven’t seen it yet.  I spend a lot of time watching movies that are new to me but were made before I was born.  That recent Father’s Day, it seemed that both movies were likely equally enjoyable.  Pay more than $10 per person to see a movie just because it’s new?  Not me.  Why not see the movie at the discount theater and save over $6 per ticket?  And that’s what we did.  (And we enjoyed “The Jungle Book” very much.  Maybe we’ll see “Finding Dori” when it’s at the second-run theater.)

Pay Yourself First

The first post in my blog is about THE personal finance book that I would recommend to everyone. The basic lesson of that book is:

Pay yourself first; A part of all you earn is yours to keep.

What does that mean?  How do I “pay myself”?  Isn’t all I earn “mine to keep”?

It’s simple.  But it’s not obvious.  It wasn’t obvious to me until my Uncle told me to be sure to “pay myself first” when I was a fresh-out-of-college graduate starting my first “real” job.  (Now that I’ve read “The Richest Man in Babylon” (read and re-read, because it’s good to go back to the well of inspiration), I wonder if my Uncle read it when he was young or if perhaps heard the advice to “pay yourself first” from one of his elders.)

to_do_list

The trick is to think of saving and investing as just as much of an obligation as paying for all the other things you regularly purchase.  Each month you pay for a place to live, you pay for food to eat, you pay for water, electricity, and heating or cooling.  You pay for transportation, clothes, and dozens of other things.  The taxes you pay are your share of the cost of public schools, parks, roads, police, courts, and prisons.

Those things are necessary.  But you should also consider your future well-being.  Your future security.  Your future comfort.  Your future peace of mind.  Aren’t those things also necessary?  Set money aside for yourself, or we could say, for your future self.  It’s up to you to make your future self as comfortable and secure as possible, don’t you think?  So, pay yourself.  Just as you pay the landlord or mortgage lender for a place to live, just as you pay the grocer, just as you pay everyone else, you also need to pay for the good things your future self should have.  In a manner of speaking, just as you pay everyone else, you also pay yourself by taking some amount, say, 10%, right off the top, setting it aside, and investing it reasonably.  Every time you get paid, before you pay your ordinary living expenses, before you pay anyone else for anything, take some percentage of your earnings and set them aside for your future self.

But why you pay yourself first?

It’s important to set this money aside first, before you spend money on anything else.

If you decide instead to wait until the end of the month and then set aside whatever is left after you’ve paid for all your living expenses and whatever else you need and want, then you’re very likely to find there’s nothing left.  Let that happen month after month, and you future self won’t be get anything.  As long as you have money in the form of cash in your hand or a large sum in your checking account, there will always be temptation to spend it.  If that’s what you’re used to, you might think it’s impossible to set aside 10% or more.

However, if you set aside money before you have a chance to spend it, you will find that you will automatically adjust your spending such that you won’t even miss the money you’ve set aside.  Once that 10% is safely tucked away in an investment account, it’s not as much of a temptation.  Out of sight, out of mind.  You can continue to spend what’s left in your checking account.  It’s almost guaranteed that you’ll get along just as well saving 10% and spending 90% as you did when you were saving 0% and spending 100%.  You adjust.  You acclimate.  You get used to a new way of doing things.  That’s the magic of paying yourself first.

Remember this rule:

“Do not save what is left after spending, but spend what is left after saving.”
— Warren Buffet.

Don’t think of this as depriving yourself of anything.  Don’t think of that money you used to pay yourself as something you no longer have.  Rather, think of it as a payment, or better yet, a “gift” — a gift that you’re giving to yourself.

Remember the other part of the lesson: a part of all you earn is yours to keep.  If you don’t set aside part of your earnings, if you just spend, spend and spend until it’s all gone, then you’re not keeping any of what you’ve earned.  It’s all going to the landlord, the banker, the grocer, the butcher, the baker, … maybe even the candlestick maker.  Should everyone else have a claim to your earnings while you have no claim to even some part of it?  Keep some percentage of your earnings for yourself.  For your future self.  A part of all you earn is yours to keep, so Pay Yourself First.

a_part_of_all_you_earn_is_yours_to_keep

Read This Book: “The Richest Man in Babylon” by George Samuel Clason (free PDF)

man_who_desired_goldPay yourself first.

Have you ever heard that old saying?

As far as I know, that saying was popularized by George Samuel Clason in a parable* he wrote titled “The Richest Man in Babylon” (click the link to download a PDF file).  That story has long been available in a book of the same name, where it appears along with other similar works by Clason.

My first recommendation to anyone whose finances aren’t what they should be is to read this book.  It’s a very simple book.  It’s nearly 100 years old and about 100 pages long.  You won’t find anything technical or complicated in “The Richest Man in Babylon“.  Nothing about any specific investment product, no references to some obscure section of the tax code.  Nothing mathematical beyond the concept of 10 percent.  A 12 year old could read and understand it — and 12-year-olds should read it.

You should get two things from this book: (1) some basic principles of personal finance, like “Pay yourself first”, and (2) the inspiration that makes you want to put those principles into practice.

Did you notice that I said it’s a parable?  Yes, “The Richest Man in Babylon” is a book of parables, written in a slightly silly though still quite agreeable style that is something of a mix of the Arabian Nights and the Bible.  There’s a moral in each of these tales, about “Bansir, the chariot builder” or “Arkad, the richest man in all Babylon” — lessons everyone should learn.

This

Pay yourself first; A part of all you earn is yours to keep.

is the first and most important lesson.  (continued …)


* By the way, it’s a parable and not a fable.  According to Wikipedia, both parables and fables are stories that are designed to teach you the “moral of the story”, but fables feature animals or other non-human characters, while parables are typically about ordinary humans.