Timeless Lessons on Wealth Building From 91 Years Ago!

The holidays are always a wonderful time of the year – one that goes by so quickly for those of us who are blessed to be surrounded by family and friends.

It was our little guy’s first Christmas, which made it even more special for us.  It seems like there are way more gadgets for kids now than ever before, and he already has a wardrobe that is probably larger than mine!

My wife and I constantly have these dilemma’s about parenting and how to raise children who are well provided for, but not spoilt.

You see, we live in an age where we are able to provide everything to our children, probably much more easily than some of our immigrant parents were. Most of us live fairly settled and comfortable lives, where our children see more of the ‘have’s’ than the ‘have nots’.

The other day we had some friends over, and when asked about the baby’s sleeping arrangements – my wife mentioned that the baby had an essential oils diffuser, a white noise machine and a mini heater in his room. Essentially we call it the baby spa! One of our friends joked about how pampered this little one is going to be! It really made us think for a second (yes he is just a little baby now, but soon he won’t be).

During the holidays, I picked up one of my all time favourite reads, the Richest Man in Babylon. For those of you who haven’t read this one, I highly recommend it. It was written in 1926 by George Samuel Clason and continues to be regarded as one of the most impactful books on financial literacy.

Every time I read it, I am blown away by the simplicity of the stories, yet profound lessons that are conveyed. I am determined that it will be one of the first stories I read to my son as he grows – as the basis of the book is that wealth creation can be taught through a few simple lessons to live by.

You see, the same problem existed in ancient Babylon that existed in 1926 (when this was written) and still exists today: most people are broke. Clason refers to this “broke” condition as having a “lean purse.” To cure this problem, Clason tells a story of Arkad and teaches us the following lessons:

1. Start thy purse to fattening
Arkad, the richest man in Babylon, asks a very simple math question to his students: What would happen if, every day, you added 10 coins to your purse but only spent 9? The obvious answer, of course, is that you would save 1 coin a day.

This is a great analogy to the start of building great wealth. Specifically, Arkad instructs his students to set aside 10 percent of their earned income, which is an attainable goal.

2. Control thy expenditures
I know what many critics will say when they read #1 above – I can’t save money because I don’t make enough to cover all my bills!

In response, Clason conveys that the second step in building great wealth is learning to spend less than you make. Many people are guilty of having to put gas or groceries on a credit card because they have run out of cash.  I even know people who put fancy vacations on their credit cards (happens more than most would like to admit)

If you want to start building wealth, get on a budget, start spending less than you make and set aside that one coin each day.

Clason writes, “That what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”

3. Make thy gold multiply.
Now we get to the fun stuff (at least I think so!) The third lesson is putting your savings to work to earn more money. This can be done in a variety of investments, from stocks to real estate investing to business.

You probably know that I’m going to say that real estate is the best vehicle to grow your wealth.

4. Guard thy treasures from loss.
You can build up a lot of wealth through the careful investment of your money, but it’s far easier to lose money than to gain it.

The fourth lesson has to do with vetting your investments – there are so many ‘schemes’ out there on how to get rich quick.  My response to that is that there is no such thing.

In the words of Arkad, “Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments.”

Sounds like a good real estate investment to me!!!

5. Make of thy dwelling a profitable investment.
Quit throwing money away on rent! This is a lesson from 91 years ago!!

So call me biased (we know I’m a real estate guy) but I couldn’t agree more.  But remember that real estate is only a good investment if you are smart about what you are doing with it. Simply buying property with no real understanding of your market or the strategy you are using isn’t a smart move.

There is no doubt that historically the real estate markets are cyclical with ups and downs.  And yes, people can lose money in real estate.

But historically, real estate has always climbed higher and higher with inflation. In fact, while most people fear inflation, as a real estate owner I look forward to it. Let inflation drive the cost of living, because my mortgage payments are fixed for the next 30 years. Try asking your landlord for that!

6. Insure a future income
As you age, your ability to earn income will drop (most people dream of retirement – but few people have actually through it through and planned for it).

Even at this time, Clason realized that planning for the days which you are no longer able to work is imperative. Part of your investments should be long term in nature, so you can live a comfortable life in old age and reduce the burden on your family.

Furthermore, in the sad event that you pass away prematurely, be sure to have good life insurance, especially if you have dependents that rely on your earning power.

7. Increase thy ability to earn
No matter what business you are in, you have the ability to increase your ability to earn. This is the final lesson Arkad, the richest man in Babylon, shared with his students. It is also one of the most important lessons.

If you are employed at a day job, why do other employees make more money than you? If you are a full-time entrepreneur, why do other business owner’s make more money? Is it because they were born with some special skill? Clason would argue not! (and I would have to agree)

A study showed that only 5% of Americans have written down their goals for their lives.  Successful people set their direction and go for it.

So develop a plan to reach your goals in 2017.  How will you take control of wealth creation?

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA