The Richest Man in Babylon – Part 2
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The Richest Many in Babylon by George S. Clason
This is by far my favorite book on money. I love how the author writes in Shakespearian English and tells stories to illustrate his points. There have been many reviews of this book since it was first printed back in 1926! I do want to share my different take and perspective on it and include it in my book series.
This book is for those seeking to better their financial position. It won’t provide the reader any specific ideas on what companies to invest in or what budgeting software to use. The author does give easy-to-handle rules and guidelines to follow in a general sense that still hold true almost 100 years later!
This is the second post in the review series of the book where I will go over the simple rules and guidelines that the “Richest Man” describes for us. Before you read this review, I highly recommend you start with the first post in this book review series.
A Very Smart Ruler
I love how this book gives such great lessons through story-telling in ways that are subtle but can be very powerful if noticed. For example, the 3rd chapter, which is supposed to be about 7 different ways to grow your wealth, actually starts with the king being frustrated with a growing wealth gap in his people.
After he built a great city through funding construction projects, many people were employed and received lots of money. Now that the city’s construction is complete, the construction workers are broke and unemployed.
The king asks where the money went if not to the people that built the city. He found out that the money had flowed right through their fingers and into the pockets of the rich, thus making them richer.
And here is the most important question and answer that this very smart ruler asks and gets:
“Why should so few men be able to acquire all the gold?”
His assistant responds very simply but profoundly:
“Because they know how.”
When I thought about making a lot of money and dreaming about riches, I didn’t just dream. I taught myself how to play the game: how to acquire gold, how to keep it, and how to make it multiply.
Seven Cures for a Lean Purse
- “Start thy purse to fattening” – Start making money and save 1/10th of your take-home pay
- “Control thy expenditures” – Don’t spend too much. (I highly recommend making a budget and use Personal Capital to help)
- “Make thy gold multiply” – Invest and use the power of compounding
- “… a man’s wealth is not in the coins he carries in his purse; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging” – Passive income
- “Guard thy treasures from loss” – Security, safety nets, and appropriate insurance
- “Make of thy dwelling a profitable investment” – Own your home and keep it nice so it can be sold at a greater price
- “Insure a future income” – Save for retirement through savings accounts and investments.
- “Increase thy ability to earn” – Make more money and increase the amount you have to invest
These 7 simple guidelines are so powerful because anyone can follow them and set their path on the road to riches. If I were to sum up these guidelines, I would say that it is important to: first, build a safety net and cut down on spending, then protect yourself from major expenses through insurance, save and invest for the future, then increase the gap between income and expenses to free up more money to invest.
Luck
Some believe people are just lucky while they are not. I believe that you can make your own luck. People seem to be lucky but we are not aware of what they have been doing behind the scenes to put themselves in a position to capitalize on the opportunity to be lucky.
There are complex and simple equations for luck that try to encapsulate what one has to do to be lucky. In my personal opinion, luck comes to those 10-15 year “overnight” success stories. They, all-of-a-sudden, make it big and that’s all we hear about. We don’t hear about all of the long days and nights they’ve been working and preparing for their opportunity.
Arkad, “the richest man in Babylon”, has some things to say about luck.
“Is it not natural if we conclude a profitable transaction to consider it not good luck but a just reward for our efforts?”
Arkad then asks a group of people,
“Who among you have had good luck within your grasp only to see it escape?”
Two wonderful thought experiments that really make me think about how we have always been lucky and just never realized it. Or how we should always be prepared for our big break and opportunity.
“Men of action are favored by the goddess of good luck”
Those that work hard will see great opportunities in front of them and then become lucky through that hard work. If I were to convert it to my engineering brain’s thought processes: Preparation + opportunity = luck.
Five Laws of Gold
“Gold is reserved for those who know its laws and abide by them.”
- “Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.”
- “Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.”
- “Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.”
- “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.”
- “Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.”
The book goes through an interesting story that illustrates how valuable these laws are and how to enact them. In my experiences, I have seen all 5 of these laws happen in one way or another.
1) I started saving when I got my first paycheck in my first job after college. 2) Since then, I have grown an amount I never thought I could because of the power of time and compounding. 3) With that savings, I have invested it in ways that a financial advisor I trust told me to. 4) I did try my hand at active real estate investing and management but did not make as much as I thought I would. 5) I have a friend who bought a Chinese stock that was supposed to “go to the moon”, but ended up going bankrupt.
These guidelines and laws are simple to understand but not as easy to follow as we might expect. For a while we can keep ourselves disciplined in these ways, but if we don’t make them into habits, their benefits will not be realized. Time is a powerful mechanism that allows all of us to be rich in our own way.
In the third post of the series, I will share the very inspiring stories that the author shares with us about how hard work always pays off.
