Money in the Media #9

The Richest Man in Babylon

For this Money in the Media Monday, I wanted to take a different approach than the normal article review. This week, I want to discuss a book written back in 1926 called “The Richest Man in Babylon” by George S Clason. You might be thinking that so much has changed between 1926 and now, what could even possibly be relevant for today? A whole lot, that’s what.

This book is written in the form of short parables to teach various money lessons in a more interesting format than the normal drone of personal finance. All that method does is put my wife to sleep. In this book, Clason uses the character, Arkad, a man who fell into slavery due to his debts and then works his way back into good standing to become the richest man in Babylon, to explain how money influenced his life and the lessons he learned along the way. It makes for a quick read that is packed with useful information.

While there are many concepts that could be discussed in this book at a deeper level, I will just touch on the highlights for now.

Warning: Clason adds ‘-eth’ quite often to the ends of his verbs.

Seven Cures for a Lean Purse

The seven cures for a lean purse chapter contains short stories describing how Arkad worked his way out of debt while slowly building up his net worth. The lessons he learned along the way are summarized into these “cures.”

The First Cure: Start thy purse to fattening

Clason preaches that you must save at least 10% of your money for yourself. This does not include paying debts or any living expenses. That 10% (or more) is to be set aside for your future; able to be used to create opportunities and the freedom of choice.

The Second Cure: Control thy expenditures

It is imperative to watch your expenses. There are those who make well into six figures, but are still living paycheck to paycheck. This is all due to the difference between each person’s individual definition of a want vs a need. Set your own limits with the intent to at least maintain your 10% savings.

The Third Cure: Make thy gold to multiply

Once you have savings, put your money to work for you. Having money isn’t useful if all you do with it is stick it under the mattress. Investing your money in a business, stock, bond, rental property etc. will help to create wealth and give your money the opportunity to further build your wealth for you.

The Fourth Cure: Guard thy treasures from loss

Guarding your treasure can relate to two different ideas. The first is to make sound investment choices that are simple to understand and have a reliable history.

The second is to protect the assets currently in your possession through purchasing insurance, keeping some assets in liquid accounts (emergency funds) and keeping your expenses low in order to not spend away everything for which you have worked so diligently.

The Fifth Cure: Make of thy dwelling a profitable investment.

This is one of the concepts in this book with which I do not fully align. The thought that buying a home is always a profitable investment is antiquated as discussed in last week’s article and does not apply as a blanket statement in today’s markets.

The best path forward on this is to take on the task of evaluating your circumstances versus the local market to determine if the costs of buying versus renting will be beneficial in the long run. A thorough example of this comparison can be found here.

The Sixth Cure: Insure a future income.

It’s interesting that in 1926 Clason was talking about insuring an income for retirement when by the 1920s most American industries had begun pensions and ensure an income for most in their old age. Prior to this, retirement wasn’t an option and folks would literally worked until they passed. This puts Clason ahead of his time, but he’s absolutely right.

Retirement savings are essential in today’s financial climate with pensions being eliminated from most industries and Social Security at risk. The responsibility for ensuring a comfortable retirement rests more and more firmly on the shoulders of the individual as time goes on so saving for this is essential.

The Seventh Cure: Increase thy ability to earn.

The ability to grow your income is key to increasing a savings rate and creating more opportunities for yourself and family in the future. Increasing your ability to earn can be done in many ways. Here are a few:

  • Adding a side hustle or part time position.
  • Ask for a raise.
  • Change positions, companies or careers.

Once you unlock your income potential, you’ll need to know what to do with all of that new income. Here is where the Clason’s five laws of gold come into play.

Five Laws of Gold

The five laws of gold are based on further anecdotes from Arkad’s life that are used to build and maintain his wealth. These laws are in effect both while he is paying off his many debts and after.

The First Law

Gold cometh gladly and in increasing quantity to any man who put by not less than one-tenth of his earnings to create an estate for his future and that of his family.

This is similar to the first cure and is important to note that putting money aside for yourself is necessary even when paying off debts and then is to be continued once those debts are paid off to accumulate greater wealth. Ideally, once debts are paid off, a larger percentage can be saved.

The Second Law

Gold laboreth diligently and contentedly for the wise owner who finds it profitable employment, multiplying even as the flocks of the field.

This is similar to the third cure, which states that your money should work for you. The only caveat that I will add to this law is that an emergency fund or any money that will be needed in the short term should not be invested

The Third Law

Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.

This aligns with the fourth cure to protect your investments. If you do not want to learn about investing yourself, seek the advice of someone trained in how to do so. My personal caveat is to make certain that this person has a fiduciary responsibility to you. Meaning, a financial adviser would have a legal obligation to act in your best interest. One red flag to show that they do not have a fiduciary responsibility to you is if they are planning on placing you in high fee funds as high fees can cut hundreds of thousands of dollars off of your retirement accounts in the long run.

The Fourth Law

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.

Warren Buffet has said that he never invests in anything that he does not completely understand. He and George Clason are on exactly the right page here. If you can’t understand the business model, are you sure that you want to put your hard earned dollars into it?

The Fifth Law

Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers who trust it to his own inexperience and romantic desires in investment.

Simply put, if it sounds too good to be true, it probably is.

Meet the Goddess of Good Luck

The concept of creating your own luck is one of my favorites that Clason touches on as I don’t think that it’s discussed enough. Opportunities do not just pop out from around the corner when least expected. Skills and connections are built up over time in order to ensure that not only will you recognize an opportunity when it presents itself, but you will be ready to spring into action.

Put another way, odds are far better that “the goddess of good luck” will find you if you are out at a networking event than sitting on your couch in your pajamas, right?

Men of action are favored by the goddess of good luck.

The Walls of Babylon

This story relates to an attack upon the walls of Babylon. Try as they might, the enemy could not penetrate the walls of Babylon as they were too tall and too thick to break through.

We cannot afford to be without adequate protection.

In today’s day and age, this means to use insurance, savings accounts and remaining free of debts to guard against the unexpected as we move forward and build wealth.

The Luckiest Man in Babylon

Unfortunately, most Americans do not love their jobs. This is just reality, but that does not mean that joy cannot be found in work. Work provides a purpose. That work may not even have anything to do with the job itself. It may just be related to the fact that performing that work allows you to feed and clothe yourself and your family.

Whatever your inspiration is to perform your job to the utmost, tap into that reason. You will not only be more satisfied in the work being done, but also see more opportunities to learn, change jobs or companies appear in front of you.

Remember, work, well-done does good to the man who does it. It makes him a better man.

The Bootstrap Fallacy

Origins of Bootstrapping are vastly different than how they are used today

While Clason sheds light on numerous tenets of personal finance, there is one issue not addressed. The popular “bootstrap” narrative is touted over and over in the book. Bootstrapping is the act of pulling oneself up from their current status to achieve success without any outside help from others. However, the origins of bootstrapping is the phrase “to pull oneself over the fence by one’s bootstraps” and was meant to signify an absurdly impossible feat. So, while bootstrapping can, and does, happen there is no addressing the system that makes these feats so Herculean.

Many of the slaves in the book were depicted in such a way that their slavery was the result of their own doing. Most of the time, this is not the case at all. There are large systemic issues that leave many disadvantaged and without the knowledge to begin to better their situation.

I do not claim to have the answers to fix such an overarching issue. However, I felt strongly that I could not bring up a book so largely based on the concept of bootstrapping without mentioning that there are so very few who are able to achieve it through no direct fault of their own.

Wrap It Up!

This is one of my favorite personal finance books that I have read so far that covers everything from paying off debts to investments and risk tolerance. The format makes it a very easy read that can be completed in just a couple of hours. Additionally, Clason only plants the seeds of these ideas to spark interest, any further work is up to the reader to dig further. This helps move the stories along and opens the topics up to larger discussions.

I’ll finish this off with one of my favorite quotes from this book:

Wealth that comes quickly goeth the same way. Wealth that stayeth to give the enjoyment and satisfaction to its owner comes gradually because it is a child born of knowledge and persistent purpose.

Have you read “The Richest Man in Babylon”? What did you think? Let me know in the comments below!

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