The Richest Man in Babylon
Managing your money is not new, the Richest Man in Babylon is a book featuring a series of short stories about how the citizens of Babylon acquired their wealth. It was published 100 years ago – and Babylon itself existed thousands of years BC, becoming the largest city in the world up to 320 years BC.
However, the book’s core messages are just as true today as they were 100 years or even thousands of years ago.
The first key message is that if you spend all you earn, you will remain poor – even if you don’t get into debt. Those who prospered had the habit of saving one-tenth of their income – not to spend on luxuries, but to accumulate actual wealth.
And always pay yourself first – or you’ll find that money has quietly disappeared!
The interesting thing is that people barely notice the difference between 100% of their income being available and only 90% of it. Nobody struggles to survive if that 10% is not available.
The second message is to invest wisely, with people who are trustworthy and know what they are doing. If you want to invest in jewels, ask a jeweller – not a ship’s captain.
Thirdly, if you have debts, take 20% of your income and systematically pay them off (after you’ve taken your 10%). If necessary, reduce your lifestyle until all your debts are paid.
The overall core message is to develop good financial habits and your wealth will grow.
What has the Richest Man in Babylon got to do with business?
It’s the beginning of the new financial year and you’ve now got a year before the next instalment of Corporation Tax is due. So what is your plan to ensure you don’t arrive at April 2027 and have to scrape together the next instalment?
If you’re VAT registered you’ll also have a quarterly VAT return to pay, but do you put away that 20% of the invoices that your customers pay you? Do you ring fence a percentage of your income each month to cover Corporation Tax?
Some businesses do this as a matter of course, others don’t and, if they have a very healthy bank balance all the year round, probably don’t think it’s necessary.
Some argue that you never end up paying the total of the VAT you charge your customers, as your own payments to suppliers are offset against it. Similarly, while Corporation Tax may be between 19-25%, it’s not on income, but on profits, so you don’t need to save the full amount.
Imagine, though, if you did put away the whole VAT on your income each month, plus, perhaps 10% of your total business income to cover Corporation Tax in a high interest savings account. A number of things would happen:
- You’d never worry about a VAT bill again – knowing the money was already available.
- You’ve got Corporation Tax covered annually and know that it just needs to be drawn down in time to meet the payment deadline.
- You’ll earn interest on the funds you’re saving, adding to the balance of the account.
- Next April – if there is money left after paying all the tax bills, you’ve got a capital sum to invest in business development.
Will your business apply the lessons from the Richest Man in Babylon and make your financial life easier next year?
If you have any questions about this new tax year, then feel free to get in touch with the Cook & Partners team today and we’ll be more than happy to help!
