Common Cents # 8 The Richest Man in Babylon

Warren Buffett is one of the richest people in the world. He is free with advice about finances to anyone who asks. A reporter recently asked him why more people don’t follow his advice. He answered, “Most people don’t want to get rich slow.”

There is no shortage of information about accumulating wealth from well-known books like, “The Millionaire Next Door,” “Rich Dad, Poor Dad,” and maybe the most famous, written 100 years ago by George Clason, “The Richest Man in Babylon.” The basic point of “The Richest Man in Babylon is “Part of everything we make is ours to keep.”

Let me be a little more specific. Those of us who strive to be people of faith know that the Bible asks us to give the “First Fruits” of our labor to God. This is generally understood to be 10% of our income, off the top, to things that glorify God. If you are not a believer, you can still give generously to organizations who are doing the things you want done: schools, arts organizations, health research, animal rights, and so forth.

The next 10% is ours to keep. The best way to do this is to put 10% of our income away where it can grow protected from inflation. One obvious vehicle is the stock market through mutual funds. Having our employer take money out of our paycheck and put it in a 401(k) or retirement fund is the least painful way to do this. If we do not take advantage of 100% of any matching funds, we are leaving money on the table. Putting money in an individual IRA every month is another great way to pay ourselves first. Investing 10% of our income over a fifty-year career will make a huge difference in our available choices when we decide to stop working.

The next 30% or so of our income goes into shared funds to pay for things like schools, parks, streets and highways, police and fire protection, and national defense. We call these payments taxes. The taxes are in several forms such as Federal Income Tax, State and City Income Tax, property tax, and finally, sales tax on the things we buy. The money goes to benefit everyone.

That leaves 50% of our income to create a Spending Plan for ourselves and our families. For most people the biggest chunk is housing in the form of rent or a mortgage, utilities, and maintenance. Food is a big item as well as transportation. 

If we pay attention and spend our resources on what we truly need for our housing and transportation, and we are disciplined with shopping for groceries and eating out, there will likely be some money remaining for clothes, entertainment, and travel.

I listed these expenditures in this order for a reason. By priority the list is: giving, saving, taxes, housing, food, transportation, everything else. The government won’t let us forget about taxes, and I have found that giving and saving are too often set aside, particularly saving. To have a great financial future, always remember that part of what we make is ours to keep.