The Richest Man in Babylon was first published in 1926, almost one hundred years ago. We might think about it as the father of all modern personal finance advice books.
Especially if we consider that it’s based on a collection of parables that were written 4,000 years ago in the ancient city of Babylon, the richest city in that world.
They understood some basic correlations that many still get wrong. Now, let’s see some of the main ideas.
If you are dedicated you can read the book in one afternoon, it’s only about 120 pages. Due to obvious reasons, I’m only going to highlight 2 sets of rules and a story.
Seven cures for a lean purse
When Sargon, the King of Babylon returned from war, he saw that his people couldn’t support themselves.
As a cure, he ordered the richest man in Babylon, Arkad, to teach people how to acquire money.
Arkad gladly accepted the order - I guess it was better than losing his head - and he shared the 7 following rules:
Start thy purse fattening
No matter how small money you earn, always pay yourself first in the sense that you save 10%.
Control thy expenditures
It really comes from the previous point that you should not spend more than what you have. In fact, you should not spend more than 90% of your income. This is so easy, but if you just think about all the consumer credits, so many people don’t get it right.
And there is another thought that is worth pondering:
“Confuse not the necessary expenses with thy desires.”
Yes, we want many things, but that’s not our necessity. It’s not necessary to have the latest smartphone, to have takeaway lunches or even to live in a relatively spacious apartment. It’s good if you can afford that, but don’t spend more than you have…
Make thy gold multiply
Saving 10% of what you earn is great, but it will only take you so far. You also have to invest the money, so that it will also earn and start to grow your savings with the help of compound interest.
Let’s say that for 10 years you save $10 a month. By the end of the 120 months, you will have $1,200.
With a 3% interest that money would become $1,400, but with a 6% almost $1,650.
Maybe that’s not very impressive. The power of compound interests manifests more with a longer timescale; after 20 years, the above numbers would be: $2,400 (2%), $3,200 (3%) and $4,640 (6%).
Start saving money as early as possible to benefit more from compound interests.
Guard thy treasures against loss
Look for safe investments where you will not lose your principal. Also, you should not invest all your eggs, in the same basket, diversify your portfolio.
Make of thy dwelling a profitable investment
Professionals still debate on this point 4,000 years later. It’s about owning your own home. This book suggest to own your home, to decrease your expenditures, so that you can save, you can invest more.
I think it depends on how good investments you can find and what’s the price of a good rental, how frequently do you want to change neighbourhood, city, country, etc.
Nevertheless, owning your own home is the fifth cure of a lean purse.
Insure a future income
Make some investments that will ensure that you and/or your family will not lack resources once you’ll not be able to earn money or when you’re gone.
Nowadays this would either mean that you set up a retirement portfolio or a set of passive income flows.
Increase thy ability to earn
If you feel that you cannot earn enough money, go on and invest first in yourself. Learn some skills, increase your value so that you can earn more money, enough money that can support your desired lifestyle.
We, developers, are in a quite good position both in terms of knowledge and resources to improve us. Yet, we should not forget that learning is a lifelong activity, especially in our field.
Let’s go and learn something that will increase our value and we can earn more.
The five laws of gold
The five laws of gold are mostly about general rules of building wealth. I don’t quote them, because of the old language used in the book.
First, make sure that you save at least 10% of what you make. The more you can save, the faster your wealth builds up. Less than 10% will unlikely be enough.
Second, you have to look for a profitable investment, so that you can benefit from compounding.
Third, don’t be careless with your money, seek out for advice of wise, experienced people.
Fourth, don’t invest in businesses that you don’t understand that you’re unfamiliar with. You’ll lose money. Invest in something you understand and with the help, with the guidance of other experienced people.
Fifth, don’t chase butterflies, don’t get into tricksters, schemes, just with the hope of a romantic return of investment. Be realistic. The slow and steady wins the race.
Having strong work ethic is the most important
What had the biggest impression on me, was the last story The Luckiest Man In Babylon. The merchant prince, Sharru Nada was riding at the head of his caravan. On his side, there was Hadan Gula riding, the grandson of his ancient partner Arad Gula.
Sharra Nada always felt he owed a debt of gratitude to Arad Gula, such gratitude that he would never be able to repay.
His grandson was not the type he liked. He wore expensive jewels, fancy clothes and he didn’t like to work. He thought that work was for slaves and he was not a slave.
In fact, he didn’t even get the point, why this guy at the head of the caravan was working so hard. Why did his grandfather work so hard?
I will not share the whole story here, you can check out the book. The point is that both Sharru Nada and Arad Gula used to be slaves at a certain point in their lives. With the right attitude, diligence and perseverance they became free. They became free because they had the right mindset and busted their asses off.
By the end of the story, by the end of their ride, Hadan Gula understood the point of work and it doesn’t belittle anyone, on the contrary working hard towards a goal is a noble act.
This is why I keep saying that the most important thing that you can get from your parents is not wealth, but the right attitude. It’s possible to change attitude, but much more difficult than amassing enough money that is enough for you. (And I clearly don’t speak about billions of dollars here.)
The Richest Man in Babylon is clearly a book that I recommend reading. Maybe the money advice will bring you only so far, maybe you already know all that and you put aside at least 10% of your money and invest it wisely. I’m more than happy for you.
Maybe you already have sources of passive income, maybe you don’t even need to work (full-time) anymore.
But with all the parables, with all the stories, this book is a nice reminder of important concepts of wealth-building and values that will bring you forward in your life.
Read it if you haven’t!
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