The richest man in Babylon
he Richest Man in Babylon is a 1926 book by George S. Clason that dispenses financial advice through a collection of parables set 8,000 years ago in ancient Babylon. The book remains in print almost a century after the parables were originally published, and is regarded as a classic of personal financial advice.
The primary lesson comes from Arkad, the proclaimed richest man in Babylon. At the bequest of the King, Arkad shares his “seven cures to a lean purse” so that both individuals and society as a whole can reap the benefits of fiscal growth.
- Start thy purse to fattening. This point is actually the crux of the book: the classic principle of paying yourself first. Clason recommends saving at least 10% of all income earned. Even in his example of those who are paying off debt, he still advocates setting aside this one-tenth. If you want to save money for your future, you must begin by consistently setting aside part of your earnings today.
- Control thy expenditures. Essentially, this is learning to live within your means and avoiding lifestyle inflation. Clason deems lifestyle inflation to be an ‘unusual truth’ of humanity and states, “what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
- Make thy gold multiply. Your wealth should extend beyond your income. Put your money to work by making smart investments and taking advantage of time and compounding interest.
- Guard thy treasures from loss. Here, the book encourages the protection of principle from loss. It is easy to criticize this idea, as most of us feel that investment vehicles that have the potential to lose value, such as stocks, are essentials part of a balanced portfolio. If you take a bigger picture view, however, the lesson becomes more palatable. The penalty of risk is the potential of loss. Know your risk aversion and understand the risks in your portfolio.
- Make of thy dwelling a profitable investment. This is yet another debatable principle. Clason’s argument is that it makes more sense to make payments that will eventually become equity rather than giving money to a landlord. Rather than getting sucked into renting vs. owning debate, I will defer to a Scrooge Strategy tip and say “run the damn numbers” and see which method makes sense for you at this particular point in your life.
- Insure a future income. This boils down to retirement planning and insurance. Due to the fact that insurance didn’t exist in ancient Babylon, Clason really doesn’t dive into this point much at all.
- Increase thy ability to earn. Position yourself to make more money by improving your skills and making yourself more employable. Train yourself, go to classes, take jobs on the side; whatever you chose, set specific and measurable performance goals and start working to earn more money now.
The book’s other main lesson is the “five laws of gold” that Arkad teaches his son. The first three laws list ways to build wealth and are fairly repetitious with the above principles. Namely, the laws mandate paying yourself first, investing your money well, and making informed investment decisions.