As was outlined in part one of my book review, I am frequently asked about my recommendations for inspirational books for business success and personal finance. My first recommendation is often for a book that was first published over 85 years ago – The Richest Man in Babylon by George S. Clason. You can read part one of my book review here.
Clason utilizes the background of the Kingdom of Babylon as the setting for the story to introduce several fictional characters (from both ancient and modern times) to explain the principals of money, responsibility, and personal finance. One of these characters is Arkad. Arkad’s journey is a “rags to riches” story where he begins life as a slave. Over time, he is able to buy his freedom, and eventually becomes the richest man in Babylon. The king of Babylon requests that Arkad teach what he has learned to a group of citizens. In a group of lectures Arkad introduces Seven Cures for a Lean Purse.
The Seven Cures for a Lean Purse
- “Start thy purse to fattening”
The first cure, Start thy purse to fattening, demonstrates the need to recognize that no matter the amount of income you receive, a portion should be set aside for saving. The Richest Man in Babylon emphasizes that everyone should save a least ten percent of their income every month. The act of saving allows you to view money from a different perspective – money is not just for instant gratification or to be used to react to one alleged crisis or another. Instead, money becomes a long term instrument for your benefit.
“Control thy expenditures.”
Under the principle, Control thy expenditures, one learns that the amount of income earned is not important to long-term wealth. Instead, the importance is to concentrate on how that money is actually spent. A proactive plan and budget for expenses will have the greatest long-term impact on your financial success. We often see examples of this concept on the news in the stories of individuals who win millions of dollars in a lottery, only to have it spent within a few years. Compare this to the story of the person with a low yearly income who lives frugally and is able to retire comfortably and provide a multimillion dollar endowment to a charity. The primary difference between these two examples is the perspectives on how the individuals to spend the money they have—not the amount of money that is available at any one time.
“Make thy gold multiply.”
Saving money does not mean to hide it in a mattress, in mason jars in the back yard, or inside the covers of books in your personal library. Instead, make your savings work for you by developing a reasonable financial plan to allow your money earn a return on investment. Creating an investment plan that can provide a consistent return over time is essential to make thy gold multiply.
- “Guard thy treasures from loss.”
Cure number four – Guard thy treasures from loss, works in conjunction with the third cure. Success comes from the consistent application of an investment plan over time. It does not come from attempting to chase the newest financial trends or from a salesperson with claims of high rate returns with no risk. Financial success also does not come from following someone who promises a new money-making scheme that no one has ever thought of before. Instead, these are more often than not ways to lose your treasures (often on a large scale). Concentrating on a consistent well-proven approach will help one avoid these salespeople and truly guard your money.
“Make thy dwelling a profitable investment.”
Looking at the home you live in as an investment is the concept that purchasing a home can assist in long-term wealth accumulation. There are financial advisors that teach quite the opposite view of real estate, and the financial crisis of the last few years dampened the enthusiasm of purchasing a home. However, the fact remains that once a mortgage is paid, the largest monthly expenditure for a family is usually eliminated and can then be utilized for other purposes. A renter will never be able to achieve this level of monetary freedom.
“Insure a future income.”
An individual needs to look beyond saving and accumulating wealth in the present to the possibility that the ability to accumulate wealth may diminish or end at some point in the future. A retirement plan is essential to prepare for that future date. In addition to a basic retirement plan, contingency plans need to be in place to help insure an income if an unexpected event happens. These future plans should include addressing health, disability, life, and long-term care insurance needs.
“Increase thy ability to earn.”
Frequently, when one reads books or articles written about successful individuals a common thread emerges. No matter the amount of wealth, prestige, or power obtained, successful individuals never lose their desire to learn and better themselves. The desire to better ones self and to accumulate knowledge prevents stagnation, allows an individual to understand new concepts, and become both a better earner and a better investor.
Although The Richest Man in Babylon is approaching 90 years in publication, the principles it teaches are just as important today as they were before the Great Depression. The longevity of Clason’s book demonstrates that the principles outlined are timeless and have brought financial success to the generations of people who have applied them. In addition, if these principles had been more widely applied by individuals and businesses at the time of first publication, it would have lessened the impact of the Great Depression. Their further utilization would have made the most recent spate of financial troubles less catastrophic as well.
Also, I often think of my paternal grandparents’ philosophy of personal finance. As a young married couple, they lived in and faced the brunt of the Great Depression. Despite personal and financial setbacks, they developed a similar set of financial principles to the “cures for a lean purse.” That fiscal mind set led them to financial security that they were able to maintain throughout their lives.
To read Part One of the book review for The Richest Man in Babylon click here.
© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.