Saving

Pay yourself first – the oldest saving advice that still holds

Hundred-year-old advice on saving, debt and putting money to work, told as parables from Babylon. A walk through the seven cures in The Richest Man in Babylon – and which of them still hold.

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What this covers

  1. Paying yourself first, and why the order is the whole point
  2. The seven cures for a lean purse
  3. Separating necessary spending from wants that feel necessary
  4. Putting money to work – compounding explained in 1926
  5. Guarding against loss before chasing returns
  6. The advice that has not survived a hundred years as well

Pay yourself first

The best-known piece of advice is also the simplest: set aside a tenth of everything you earn, before you pay anything else.

The same pay, two orders

The way most people do it

Save what is left

  • The pay comes in
  • Bills, food, rent, everything else
  • Whatever remains on the 30th gets saved
  • Result: rarely anything, and never the same two months running

Clason's advice

Save first

  • The pay comes in
  • A tenth goes straight aside, the same day
  • Everything else is paid out of the nine tenths that remain
  • Result: spending adjusts to what is actually there
The amount is the same in both columns. The only thing swapped is which step comes first – and that is enough for one to work and the other not to. It is the same thought behind automatic saving today: willpower is a poor plan.

The seven cures

The book sums itself up in seven points, given here in modern language:

Cure number three: make your money work

Today 10 years 20 years 30 years Value with returns Only what you put in
The gap between the two lines is return that has been put back to work and then earned a return itself. It is almost invisible in the early years, which is why the advice is hard to follow. The worked example assumes a fixed amount saved every month for thirty years and a five per cent annual return reinvested – it illustrates the mechanism, not an estimate of what anything will yield.

On debt

The debt advice, as the book sets it out

  1. Split the income in threeOne part to live on, one to repayment, one to saving. The saving continues even while you owe money.
  2. Spread the repaymentEveryone you owe gets something each month, in proportion to what they are owed. Nobody is passed over.
  3. Tell them what the plan isThe book puts weight on laying the plan out openly rather than hiding from it.
  4. Keep at it until it is doneThe same amount, every month, until the debt is gone. That is the whole method.
There is no quick fix here, and that is the point. What makes this different from simply paying as much as possible is that the saving is allowed to live on alongside – so that you have something to show for it when the debt is cleared, rather than standing at zero again.

What has not survived a hundred years

Why it is still read

Because the advice is simple enough to remember, and because the hard part is not understanding it. The hard part is actually doing it, every month, for many years. That has not changed in a hundred years.

Key points

  • Save a tenth of everything you earn, before anything else is paid.
  • Separate what you need from what you have come to count as necessary.
  • Money sitting still does nothing – it has to be put to work.
  • Protect the principal first. Returns without risk do not exist.

Key points (cont.)

  • The advice is simple on purpose. The difficulty is in following it.

Questions this answers

  • What does it mean to pay yourself first?
  • How much of your income should you save?
  • What are the seven cures in The Richest Man in Babylon?
  • How do you get out of debt according to the book?
  • Why does spending always grow to meet income?
  • What in the book still holds, and what is dated?

Sources

  • George S. Clason – The Richest Man in Babylon (1926)

Spørretimen

Read the whole thing at

www.sporretimen.no/en/episodes/richest-man-in-babylon/