I told a friend that I wanted to learn more about personal financing and he suggested to me the book "The Richest Man in Babylon" by George S. Clason. It is a short novel of parables meant to teach the reader wisdom in handling money. It only took me an afternoon to read and I loved it. There are a lot of things that I could be doing better. Although I wish that I had marked more quotes in the book.
Babylon was one of the richest cities in the world, known for its grandeur and wealth. Many of the parables follow the wisdom of a man named Arkad, who was the richest man in Babylon. Born into poverty, many people came to him to understand how he arrived at such wealth and he willingly gives up all of his secrets. He gives his students "7 cures for a lean purse." He well knew that some would not listen, "Some were silent because they had no imagination and could not understand, some were sarcastic because they thought that one so rich should divide with old friends not so fortunate. But some had in their eyes a new light (Pg. 20)."
Cure Number 1: Start thy purse to fattening
"For every ten coins thou placest in within thy purse take out for use but nine."
This particular lesson is taught throughout the entire book and I love this lesson. I personally put a little bit of everything I earn away into savings and little by little it has grown. Throughout many of the parables the "learner" who puts these simple rules to practice, particularly this rule find how easy it is to live off of a little less than what they were used to. Starting with Arkad's story: "I decided I would try it (speaking of this first rule). Each time I was paid I took one from each ten pieces of copper and hid it away. And strange as it may seem, I was no shorter of funds than before. I noticed little difference as I managed to get along without it. But often I was tempted, as my hoard began to grow, to spend it for some of the good things the merchants displayed, brought by camels and ships from the land of the Pheonicians. But I wisely refrained."
In another story a man named Tarkad runs away from the many debts that he owes, only to be sold into slavery latter on. When he is finally freed, he decides that he must go back and settle his debts. He acquires a job and lives off of less than 9/10 of what he earns. One tenth is to save, and two tenths of all he earns he uses to pay off his debts. He says "Great is the plan for it leadeth us out of debt and giveth us wealth which is ours to keep.Three times the moon had been full since I last carved upon this clay. Each time I paid to myself one-tenth of all I earned. Each time my wife and I have lived upon seven tenths even though at times it was difficult. Each time have I paid to my creditors two tenths...it is the plan that hath made my success...will it not aid any man to find independence? Nor am I myself, finished with it, for I am convinced that if I follow it further it will make me rich among men."
There is a great lesson to be learned in keeping a little bit of the money that we earn for ourselves. It teaches us the necessity of living within our means, or living beneath our earnings. I love the fact that Arkad hardly noticed a difference. Over time our savings grow. This leads into the second cure.
Cure number 2: Control thy expenditures
"Budget thy expenses that thou mayest have coins to pay for they necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings."
There is hardly anything worth going into debt for. This is a lesson that many could learn. There is a difference between need and want. "The purpose of a budget is to help thy purse to fatten. It is to assist thee to have thy necessities and insofar as attainable, thy other desires. It is to enable thee to realize thy most cherished desires by defending them from thy casual wishes." I feel like I do pretty well with this but I also like what Arkad says, "Study thoughtfully thy accustomed habits of living. Herein may be most often found certain accepted expenses that may be wisely reduced or eliminated. Let thy motto be one hundred per cent of appreciated value demanded for each coin spent."
At the same time it is not great to hoard your money and not partake of any of the pleasures of life. It is okay to buy things that you want, even if you do not need them as long as you have the money to do so, and you have already taken care of all your "needs."
Cure number 3: Make thy gold multiply
"Put each coin to laboring that it may reproduce its kind even as the flocks of the field and help bring to thee income, a stream of wealth that shall flow constantly into the purse."
At this point Arkad discusses the importance of investing your earnings wisely. This is definitely something that I need to learn more about. The key is to understand each investment made. One of the wisest investors in the book was the "Gold Lender of Babylon." He shares the story of the farmer who could understand animals, particularly the story of the Ox and the Ass. It is interesting because as I was reading this short story, I knew that I had read it before. This story originally comes from the book "Arabian Nights." The Gold Lender tells the story "to know that to borrowing and lending there is more than the passing of gold from the hands of one to the hands of another."
"This farmer who could understand what the animals said to each other, did linger in the farm yard each evening just to listen to their words. One evening he did hear the ox bemoaning to the ass the hardness of his lot: 'I do labor pulling the plow from morning until night. No matter how hot the day, or how tired my legs, or how the bow doth chafe my neck, still I must work. But you are a creature of leisure. You are trapped with a colorful blanket and do nothing more than carry our master about where he wishes to go. When he goes nowhere you do rest and eat the green grass all the day.'
Now the ass, in spite of his vicious heels was a goodly fellow, and sympathized with the ox. 'My good friend,' he replied, 'you do work very hard and I would help ease your lot. Therefore, will I tell you how you may have a day of rest. In the morning when the slave comes to fetch you to the plow, lie upon the ground and bellow much that he may say you are sick and cannot work.'
So the ox took the advice of the ass and the next morning the slave returned to the farmer and told him the ox was sick and could not pull the plow. 'Then,' said the farmer, 'hitch the ass to the plow for the plowing must go on.' All that day the ass, who had only intended to help his friend, found himself compelled to do the ox's task. When night came and he was released from the plow his heart was bitter and his legs were weary and his neck was sore where the bow chaffed it.
The farmer lingered in the barnyard to listen. The ox began first, 'You are my good friend. Because of your advice I have enjoyed a day of rest.' 'And I,' retorted the ass, 'am like many another simple-hearted one who starts to help a friend and ends up doing his task for him."
I think that there are a lot of lessons to be learned from this tale. The Gold Lender at this point is trying to teach a friend how he knows whether or not to loan out money. He does not loan out money unless that person has possessions valuing more than what they desire, or if the person has a means of earning income. The same principles can be applied to investing. Be safe, do your research before an investment, consult those that are more knowledgeable than you are and that are trustworthy. But you should invest your money. This leads me into the next cure.
Cure number 4: Guard thy treasures from loss
"Invest only where thy principle is safe, where it may be reclaimed if desirable, and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments."
I won't go into much more detail on this cure. Needless to say, don't be stupid with your money.
Cure number 5: Make thy dwelling a profitable investment
"Own your own home."
I one hundred percent agree with this. Renting an apartment or home is a money pit. "All too many of our men of Babylon do raise their families in unseemly quarters. They do pay to exacting landlords liberal rentals" for homes/rooms not suitable to their families needs. Arkad goes on to say, that owning you own home is not only beneficial financially, but there is a certain pride and sense of accomplishment for you and your family when you own your own space and have something of value to your name.
I have had a few friends recently look into and buying homes. After the initial down payment, their monthly payment on a home that is bigger and nicer than the apartment that I live in is considerably less than what I pay. If I knew that I was going to be staying in Idaho I would probably look into buying a home as well.
Cure number 6: Insure a future income
"Provide in advance for the needs of thy growing age and the protection of thy family."
Basically, plan for retirement. Interestingly enough Arkad says, "In my mind rests a belief that some day wise-thinking men will devise a plan to insure against death whereby many men pay in but a trifling sum regularly, the aggregate making a handsome sum for the family of each member who passeth to the beyond." We have social security, but frankly it has become a joke. Wise men no longer lead these programs, and therefore we must plan for ourselves and our own families. My generation who is now supporting the "baby boomer" generation will not be supported by the next generation. There are simply not enough children being born.
Therefore we need to make our own plan and provide for our own future. Wise investing and saving of our earnings can help this.
Cure number 7: Increase thy ability to earn
"Cultivate thy own powers, study and become wiser, become more skillful, and so act as to respect thyself."
Education and work are the most important principles in my opinion. Before any of these "cures" can be put into practice you need to have a job or a trade. The book tells of a story about a man named Sharru Nada, who was sold into slavery because of another's sin. In slavery he meets a man named Meggido, another slave, who teaches him the value of work. They both decide that no matter what job they are given, they will work hard at it, and become the best in that job. At some point they will be able to buy their freedom. He gets sold to baker who teaches him how to cook and bake. He works hard so his master doesn't have to and makes extra cakes to sell in the market. He splits his winnings with his master. "As the months went by I continued to add pennies to my purse...work was proving to be my best friend. I was happy."
Yet he still did not buy his freedom before he was sold to the king to work on the canal. This was hard work. He often wondered if all of his efforts had been fruitless. "Then I remembered my last sight of Megiddo. His hands were deeply calloused from hard work, but his heart was light and there was happiness on his face. His was the best plan." He worked hard, he learned a trade, and Arad Gula, a wealthy slave turned merchant sought him out because he knew of his work ethic and skill. Sharru Nada became his business partner and a wealthy man in Babylon.
Those are the seven cures. The keys to financial success. Whether you work at McDonalds flipping burgers or are the CEO of a major corporation, these principles can be used with your budgeting.
I have work to do.
