Simple Financial Advice by Visiting the Richest Man in Babylon by George S. ClasonSubmitted by WWA Planning & Investments on May 3rd, 2017
Stories, both fictional and true, are often great ways to learn lessons. Throughout history people have used storytelling to teach people important lessons about life. Some of the most famous examples are some of Aesop’s fables such as the Tortoise and the Hare. In personal finance, one of my favorite books is The Richest Man in Babylon by George S. Clason. Some of the plot will be ruined so if you would like to be surprised by reading the book, please stop reading the blog and buy the book! The book is very affordable.
The book published in 1926, reveals financial wisdom through parables from ancient Babylon. One of the best aspects of the book is that we can look at the 90 years since it was published and see if its principles still apply.
The King of Babylon asks the Royal Chancellor why so few men have managed to acquire most of the gold in Babylon. His answer was that the people knew how to acquire riches and that you cannot punish a man for being successful. The king then summons the Richest Man in Babylon (Akkad) and asks him to deliver a lecture to 100 men to teach them to be wealthy. Akkad teaches them the 7 cures for a lean purse.
1 -Start Thy Purse Fattening
Have you ever heard “ save 10% of everything you earn” before? The first lesson Akkad taught was to save 1 coin for every 10 earned. It sounds so simple, if you save, your savings increase. There is even a quote in the book “Deride not what I say because of its simplicity, Truth is always simple”
2- Control Thy Expenditures
The group complains that they do not have enough money to save anything. Akkad then asked “Don’t some of you make more money than others?” Of course some of the people made more than other s and yet they all spent everything they made. Quite simply, one man’s “needs” was another man’s desires. In my own life, as I started to make more money, desires became needs. It will continue to happen unless we make a conscious decision not to let it happen. If you keep saving 10% of what you make, you will have more to spend while still saving money.
3- Make Thy Gold Multiply
This cure is relatively simple, put your savings to work. Invest the money for a return.
4 -Guard Thy Treasure From Loss
Akkad here talks about how friends and family will have business ideas that just need a little of your capital to succeed. Akkad here discusses his first loss. He trusted a brick maker to buy jewels in a city far away that they would then sell for a profit. The brick maker was not an expert in jewels so they were swindled and lost their investment. The lesson here is to be wise in whom you select to help you invest and with whom you invest. Look for those that are experts in their field.
5- Make Thy Dwelling a Profitable Investment
Akkad in this book argues that you should own your home versus renting. I have slightly different opinions of owning a home (outside of the scope of this article, I encourage it but its more for “fixing” your living costs as a hedge against cost of living increases) but again this is good advice in general.
6 –Insure a Future Income
This cure discusses saving for retirement and the need for life insurance to protect against income loss.
7 – Increase Thy Ability to Earn
Akkad here instructs that people should set goals and work to achieve them. By becoming better at what you do, you will increase your ability to earn which will increase your savings.
So in review, if we look at the book and the lessons it taught, they seem very simple and yet hold up to the test of time. The biggest complaint of I have heard about the principles of the book is that its “common sense”. However, if it was common sense and easy, we would have more people prepared for their retirement goals. If we look at a lot of the financial planning we do, these simple “cures for a lean purse” can help put on the right path. So “Guard Thy Treasure From Loss” and seek the help of expert NAPFA financial advisors like Warren Ward CFP®.
Stephen Reh CFA, MBA, CFP® is a financial planner in Southern California. Steve founded www.investwithsteve.com and Reh Wealth Advisors LLC in 2010 to provide fee only asset management and financial planning.