THE INVESTOR LOOP

Hello, Arkadians!

I want to walk you through two crucial concepts that will help us on our journey toward financial freedom. These are the Rat Race Loop and the Investor Loop, illustrated in two flowcharts. By understanding these loops and applying the timeless lessons from The Richest Man in Babylon, we can escape the trap of living paycheck to paycheck and move toward building wealth that works for us. Let’s break down these two loops in layman’s terms.

The Rat Race Loop is where most of us start—relying on our full-time job for income and struggling to get ahead. Here’s how the flow works:

1. Assets (A): These are your investments—money you put into savings, stocks, or other vehicles that generate income. But at the start, most people have very little invested.
2. Liabilities (B): Liabilities are debts or obligations. To get ahead, it’s crucial to keep this as close to zero as possible.
3. Equity (C): This is calculated as your assets (A) minus liabilities (B). In simple terms, it’s your net worth. Ideally, this should be positive.
4. Income from Assets (D): This is the income generated by your investments (A). When you first start, this may be small or even non-existent.
5. Full-Time Job Income (E): This is your primary income source—your paycheck. In the Rat Race Loop, this is mandatory, as it’s the main driver of your finances.
6. Side Hustle Income (F): Optional, but recommended. Any extra income from side gigs can help you build wealth faster.
7. Total Income (G): This is the sum of your investment income (D), job income (E), and side hustle income (F).
8. Total Expenses (H): This includes all your living expenses, like rent, food, insurance, vacations, and even emergency funds. Keep this number as low as possible without sacrificing the essentials.
9. Net Income (I): The money left after you subtract your total expenses (H) from your total income (G). According to the flowchart, you must save at least 10% of this net income.
10. Add to Assets (J): After saving at least 10% of your income, this amount is added to your investments (A). Over time, this builds your assets and increases the income generated by them.

The key question in the Rat Race Loop is: Is the income generated by your assets (D) at least 1.2 times your expenses (H)? If the answer is yes, congratulations—you can exit the Rat Race and move to the Investor Loop! If no, continue building your assets and reducing your expenses until you can reach that milestone.

Once you escape the Rat Race, you enter the Investor Loop, where your focus shifts from working for money to making your money work for you. Let’s break it down:

1. Assets (A): Your investments, which are now growing at a faster rate.
2. Liabilities (B): Still aiming to keep this at zero, as debt can quickly eat into your investment gains.
3. Equity (C): The difference between your assets and liabilities, which should be increasing steadily.
4. Income from Assets (D): Now that you’re an investor, the income from your assets takes center stage. This income continues to grow as your assets compound.
5. Job and Side Hustle (E & F): In the Investor Loop, these become optional. You might still have a full-time job or side hustle, but your growing assets are now the primary source of income.
6. Total Income (G): The sum of your investment income (D) and any other optional income sources.
7. Expenses (H): You’ll still have expenses, but the goal is to keep them in check while maintaining a comfortable lifestyle.
8. Net Income (I): This is the difference between your total income (G) and total expenses (H). Just like in the Rat Race Loop, save at least 10% of your income and invest it.
9. Add to Assets (J): Continue adding to your assets with the net income, allowing your investments to compound further.

The Rat Race and Investor Loops directly relate to the lessons from The Richest Man in Babylon. By saving 10% of your income, as described in the 1st cure for a lean purse and the 1st Law of Gold, you are taking the first crucial step toward financial independence. As you save and invest, you’re putting the 3rd Law of Gold into practice: Gold clingeth to the cautious owner who invests it wisely.

• 1st Cure: Start thy purse to fattening. Save 10% of your income as shown in both loops.
• 3rd Cure: Make thy gold multiply. The Investor Loop shows how you reinvest your money so it compounds and grows over time.
• 5th Law: Gold flees the man who forces it to impossible earnings. Stick to realistic, wise investments, rather than taking excessive risks.

Arkadians, I encourage you to start by mastering the Rat Race Loop. Save at least 10% of your income, keep your expenses in check, and invest the rest wisely. Over time, you’ll accumulate enough wealth to exit the Rat Race and enter the Investor Loop, where your money begins working for you.

The journey is long, but with discipline and patience, you’ll build the financial freedom you deserve. If you’d like a PDF copy of these flowcharts, feel free to download below. Start applying the 7 cures for a lean purse and the 5 laws of gold today—and don’t forget to enjoy the process!

Yours in financial freedom,
Arkad