Graduate Gold

My nephew just graduated from High School. I think back to when I graduated from High School and how little I truly understood about money. If I could go back in time and give myself advice, I would give myself the same gifts that I gave my nephew. I gave him two gifts. I gave him a $50 bill and a new copy of my favorite book, The Richest Man in Babylon. Inside the cover, I wrote the following inscription.

“Remember that a part of all you earn is yours to keep and you will become wealthy among men.”
My guess is that the $50 gift will soon be gone, but my hope is that he reads the book to discover the golden wisdom inside it. If he does, he can truly become wealthy by the time he decides to retire.

My Favorite Book

I own three copies of The Richest Man in Babylon. I am not sure when I received the first copy, but it has a price on the cover of $4.99. The second copy was given to Dr. SoS when she graduated. It has a price of $6.99. The third copy is an audio version, by Recorded Books, that I purchased when I worked for Borders Books. It has a price of $13.99.

When I told Dr. SoS that I wanted to give my nephew this book for his graduation I glanced at my oldest copy and said, “How much could it cost? This one is only $4.99.” It surprised me to see that it is now $9.99 for a book of under 150 pages. This is a perfect example of inflation. The same book nearly doubled in price in the last 20 years. Remember this fact when you decide how much you need to save to retire, especially if you plan to retire early. The same amount of money will definitely be worth less in the future than it is worth today.

After giving our gift, I decided to listen to the audio book again. I always find it incredibly inspirational. After reading or listening to it, I always want to spend less and save more. I remember the first time I listened to it, I did not care for the narrator, Richard Ferrone. As I began to listen to the book again, I felt reunited with an old friend. I now believe his voice is perfect to narrate the book. I just checked Audible and you can find it narrated by many people. When you borrow a copy from your local library, your audio version may have another narrator. That’s okay. You should still listen to it or read it if that is your preference.

The Time Value of Money

My father was in town for my nephew’s graduation and he mentioned to me that when my nephew was born he put some money in a 529 College Savings account. He hoped that my sister would put regular amounts in the account and grow the account to a sizeable sum. This did not happen, but over the past 18 years the original $1,000 grew to $1,533 by just being invested.

As you may or may not know, I manage our family finances. When I mentioned to Dr. SoS that my father told me he had started a 529 for my nephew and told her the amount, she asked how much money we saved thus far for Baby SoS. I told her that the account balance is $4,636.35. She could not believe that we saved so much in such a short time. When Baby SoS was born, I decided we would put money in her account each month and on each birthday, we would raise that amount by $50. Our total contribution, thus far, is $4,000. This shows you how frequent, small deposits can turn into larger and larger balances. Not only that, but in 29 months our investment is up 15.91%. Not only has the market increased our investment by $636.35, but we also took advantage of monthly deposits. This is the power of small deposits made over time otherwise known as the Time Value of Money.

If you recently graduated or will graduate soon, I would like to share something with you that I did not realize until I read another great book on personal finance called The Automatic Millionaire by David Bach. Chapter two, The Latte Factor: Becoming an Automatic Millionaire on Just a Few Dollars a Day, explains how time is on your side when you begin investing at a younger age. Take a look at the following graphic from the book that shows three people saving at different times in their lives and the impact it makes saving earlier than later.

Time VAlue of Money

Billy began saving at the age of 15. He saved $3,000 per year for five years until he was 19. Susan did not begin saving until she was 19. She saved eight years until she was 26 to make a result that was not as good as Billy’s. Kim did not begin investing until she was 27. She had to invest the rest of her working life until the age of 65 and did not end up with as much as Billy or Kim. This is the power of starting as early as you can. Graduates, I am speaking directly to you. Start now and you will set yourself up for life.

A Lesson for the Future

What about the rest of us? What do we do if we have debts and have not saved for the future? Chapter 9 of  The Richest Man in Babylon, The Clay Tablets from Babylon, is a short story about a professor of archeology and his wife in Great Britain. They did the same as I, which is let time pass them by before setting aside money for the future. They also amassed debt from their creditors. This put strain on their relationships and on their life in general. This continued until the professor received some clay tablets excavated from the ruins of the great ancient city of Babylon.

In some dusty old clay tablets from Babylon, Professor Alfred H. Shrewsbury discovers a plan that will get him out of debt and allow gold to jingle in his pocket. The lesson is this:

  • Reduce your expenses until you can live on less than 70% of your income
  • Use 20% to pay on all your outstanding debts
  • Save the last 10% so that you will have gold to jingle in your pockets
  • Once you have all your debts paid, continue living on the 70% and save the remaining 30%

This incredible book was originally written in 1926, yet these words still ring true today. The best thing is that the younger you are the truer they are for you because you have more time to save. No matter how much debt you have or how little you have saved, there is no better time than deciding to begin now. Work your finances so that you spend no more than 70% of your income on living expenses. Live on even less if you are able. If you have debt, use 20% to pay down your debt. If you do not have debt, add that 20% to your 10% savings. If you do all this, given time, you are certain to become wealthy.

Regardless of if you are graduating in the future, are a recent graduate, or graduated a long time ago there is a great deal to learn from this bit of Graduate Gold wisdom. Babylon was the wealthiest city of the ancient world. The people were so wealthy because they observed that saving some of your income before paying anything else was wisdom worth even more than gold. You now have a choice to continue without saving and work the rest of your life or heed this golden wisdom and begin saving for your future so that you, too, can someday become wealthy among both men and women.

Keep Saving and keep Swimming!

Mr. SoS

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