The Five Minute Read: The Richest Man In Babylon

In Rubicoin’s latest Five Minute Read, we review George S. Clason’s The Richest Man In Babylon – taking financial advice all the way back to ancient times. 

George Samuel Clason was an American businessman and writer who founded The Clason Map Company – the first company to publish road maps of the United States and Canada.

Clason’s business did not survive the Great Depression however. Instead, he found more success as a financial writer, publishing pamphlets on how to live thrifty that were widely distributed by banks and insurance companies.

The best of those pamphlets were compiled into a book, which led to the publication of The Richest Man in Babylon.

Almost 100 years later, this book is still widely read and considered a great tool for financial education.

The Richest Man In Babylon

The lessons in The Richest Man in Babylon are all told through a number of simple parables that are set in the ancient city of Babylon.

The book begins with the story of two friends bemoaning the fact that despite all their hard work, neither has any money and cannot afford to go to a nobleman’s feast. They decide to go and speak to Arkad – a man who was once a poor scribe but is now the richest man in Babylon.

One of the men says that should he meet Arkad on a dark night, he might be tempted to steal his wallet. The other replies, “A man’s wealth is not in the purse he carries. A fat purse quickly empties if there is no golden stream to refill it.”

They visit Arkad, who explains that he discovered the key to wealth when he decided that “a part of all I earned was mine to keep”.

One of the men replies, “but all that I earn is mine to keep”, at which Arkad laughs and explains how wrong he is.

Arkad tells the men that no man can live without spending. But without keeping some of that money he earns for himself, he may as well be a slave who works for food and clothing rather than a free man who works for coins.

And it’s this idea that forms the central theme of the book, and all other lessons stem from this opening story – you will never become wealthy unless you learn how to save. Arkad says you must save at least ten percent of everything you earn, and learn to live on whatever is left over.

Some of the men in Babylon complain that they already struggle with what they have and that they can not afford to save one-tenth. Arkad responds that people tend to let their necessary expenses grow with their incomes. In other words – the more you make, the more you tend to spend.

Everyone, regardless of income, should learn to adjust their way of life so that they can live on nine-tenths of their earnings.

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The Five Laws of Gold

The book goes into extensive detail about what you should do with this money that you have saved.

The primary lesson here is that your savings should make you more money. So in order for that to happen, they have to be invested in some business that will generate returns.

Some key things to remember when it comes to what you should do with this money are summarized in Arkad’s Five Laws of Gold:

Law 1: Save 10% of your income.

Law 2: Money that is put to profitable use has the ability to multiply many times over, so you should invest your money in a way that will generate more money.

Law 3: People who are cautious with their money and only take advice from knowledgeable and trustworthy individuals tend to keep hold of their money. You should only take advice from trustworthy people who know what they are talking about.

Law 4: If you invest in things you don’t understand, you will end up losing your money. So if you want to invest in something, you should spend some time learning about it first. This is a key lesson of another of Rubicoin’s favorite investing books, One Up on Wall Street by Peter Lynch.

Law 5: If you try to force impossible earnings out of your investments, you will end up losing everything. Basically, if it sounds too good to be true, it probably is.

Other Lessons

There are many important lessons in the book regarding personal finance and investing. Rather than summarize each of the fables, here are some select lessons that appear throughout.

  • Constantly spending money on rent will lead to nothing. Spending money on a mortgage will leave you with property.
  • Pay your debts promptly.
  • Provide a future for your family and make a will.
  • Luck exists, but it does not just come to anyone. Luck has a habit of being attracted to those who work hard and set up the right opportunities for luck to strike.
  • When it comes to borrowing or lending money, “Better a little caution than a great regret.”

Should You Buy This Book?

If you have an interest in history, then some the fables in this book are a good read. However, at times they can be quite repetitive and the lessons contained within could be explained quicker.

What it teaches us about investing is pretty straightforward. Save 10% of your money. Invest in what you know or in people you trust. And don’t expect to get rich quick.

For some people, the presentation of these financial lessons in parable might be helpful in order to remember or better understand the underlying principles. For others, I would suggest you first try out our Learn app, which contains most of the fundamental lessons in a more digestible format.

 

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