Book Review of “The Richest Man in Babylon” — (23/52)
George S. Clason’s seminal book provides a framework for acquiring wealth
Does the name “Clason” ring any bells? If you’re a maphead and have come across your fair share of physical maps, then the name “Clason” should be faintly familiar.
Clason is the name of a well-known publishing company that specializes in the production of maps and books. The company’s founder, George S. Clason, combined his budding knowledge of both maps and books to produce the book I read this past week. The Richest Man in Babylon, written by Clason in 1926, draws upon a series of parables to illustrate how the ancient Babylonians amassed their great wealth. Essentially, it is a book that maps out how one can navigate the tricky, but valuable waters of financial success.
On a personal level, reading this book provided some key insights into acquiring wealth that I had not encountered before. The book lists seven overarching principles that can be deployed by anyone wishing to create wealth.
1. Fatten your wallet.
If you want to acquire wealth, then your first essential step must be to protect what you already have. So, if you are earning $200 per month at your job, then it is your responsibility to set aside a tenth of that monthly paycheck and not spend it. Learning to save more than you spend is a key component of wealth acquisition, as both mathematics and conventional wisdom have proven.
2. Control your expenditures.
“That what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
— George S. Clason, The Richest Man in Babylon, (Kindle locations 596 and 603)
My parents have always reiterated to me the value of learning how to save. And, a key component of saving money involves understanding where you spend the money. By tracking where your hard-earned dollars go, you can begin to tighten your outflow of money. We are all burdened with the fact that we want to buy things that we simply cannot pay for with our current wealth. Yet, in an age of zero-interest rates and “no down payments,” we quickly splurge into impulse buys that are highly unnecessary.
By tracking where you spend the most money, you will assuredly place yourself on a proven path to financial success.
3. Make your wealth multiply.
In reflecting on this book, this was probably the most important of the seven rules that Clason illustrated. In order to properly follow this rule, we must ensure that the tenth that we save out of our every paycheck (given we are following rule #1 above already) begins to “work for us.” This means we must make smart investments with that ten percent we save such that the risk is close to zero and that ten percent eventually returns to us even larger than when we first invested it.
By following rule #3, we ensure that our money is multiplying even while we sleep.
4. Guard your hard-earned savings from loss or risky investments.
It is all to easy to start saving a tenth of every paycheck and invest that money into a promising investment venture. However, that investment can easily falter and we can be left with close to nothing. An investment, by definition, involves some measurable amount of risk (even if we can’t readily notice it).
While watching the hit TV show, Shark Tank, I noticed how one of the “sharks” (investors), Kevin O’Leary, always made investments (or tried to) that ensured that his principle investment would be returned to him no matter what happened. So, while the other “sharks” would offer investment deals that benefitted the start-up founders the most, O’Leary’s offers would consistently benefit him and protect him from loss.
Example of a Kevin O’Leary investment offer:
“I will invest $100,000 for a 30% stake in your company. You pay me $20 for each sale you make (the product would retail at $200) up to the point that my investment is covered. If you successfully pay back the initial investment I’ve made (of a $100,000) within a year, then I will reduce my stake in the company to 20%.”
5. Create proper housing.
If you are tenacious and persistent enough to acquire some wealth after following rules one to four, then you should be primed to buy a house for yourself and your family. A proper housing doesn’t necessarily mean a $500,000 house (or the best you can afford). Clason is simply urging individuals to own property and houses according to their means.
“Thus come many blessings to the man who owneth his own house. And greatly will it reduce his cost of living, making available more of his earnings for pleasures and the gratification of his desires. This, then, is the fifth cure for a lean purse: Own thy own home”
— George S. Clason, The Richest Man in Babylon, (Kindle Locations 741–743)
6. Ensure a future income.
“The man who, because of his understanding of the laws of wealth, acquireth a growing surplus, should give thought to those future days. He should plan certain investments or provision that may endure safely for many years, yet will be available when the time arrives which he has so wisely anticipated.”
— George S. Clason, The Richest Man in Babylon, (Kindle Locations 761–763)
Now that you’re on your way to acquiring riches, it’s a great opportunity to start planning for when you become old and can’t work (hence, can’t produce an income). The saving and investing you do when you are in your twenties, thirties, and forties is what will come to your aid (financially) when you are no longer able to work in your late fifties and sixties (and beyond).
Additionally, if you have a family, then saving money right now and investing it in proper places is a must since costs-of-living will continue to rise in the coming years. This means that the college education fees that cost upwards of $60,000 per year right now will cost $100,000 or more in the distant future. And, this is just the tip of the iceberg since almost everything else will also suffer through inflation.
7. Increase your ability to earn.
I said earlier that rule three (multiply your wealth) was the most important of the seven, but rule seven is the one that makes rule three even possible. How do you “increase your ability to earn”?
By reading. By acquiring vast knowledge. By doing great work. By understanding the true-and-tested principles of a life well-lived. By realizing and accepting that you know close to nothing still and that each day offers yet another opportunity to close the gap between what you do know and what you don’t know.
Rule seven is the backbone of the financial wealth acquisition process. If you want to earn more money, then increase your knowledge base. This means making some sacrifices like not watching that third straight hour of Netflix or TV and, instead, picking up a great book or two and capturing its wisdom. This means saying “no” to the litany of distractions and enticing activities that our world offers and saying “yes” to more knowledge.
Sources
Clason, George S. The Richest Man in Babylon. N.p.: Kindle Edition.
Notes
This is the TWENTY-THIRD book review (out of 52 in total eventually) that is a part of my 2015 Book Reading Challenge.
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