The wisdom in The Richest Man in Babylon is timeless and lays a solid foundation for learning to save and invest for the future.
Considering the myriad subjects one studies in school, it is ironic that one of the most important subjects of all – money – is hardly ever covered. While a well-rounded education in history, mathematics, art, athletics, science, and other subjects certainly is important, money arguably has a more direct application to our lives than any of these other subjects. It touches virtually every aspect of our lives, yet few of us have been educated in its management and multiplication. The Richest Man in Babylon is a great primer on the subject of money and I highly encourage everybody to grab a copy and read it. Though originally published in the 1920s, it’s wisdom is timeless and it is written in a fun and easy-to-understand style.
The book revolves around Arkad, an extremely wealthy man living in the days of ancient Babylon. In chapter two, some old friends from Arkad’s younger days come to him and lament that they had the same education and worked just as hard as he did, yet they had nothing and he had more wealth than they could imagine. Why should fate favor Arkad over themselves, they ask? Arkad’s response is that their relative poverty has less to do with fate than it does their failure to learn and observe the laws of building wealth. Like any other pursuit in life, building wealth requires knowledge and application. One cannot expect to become a successful doctor or teacher without an education, right? The same is true for building wealth.
The following are some points covered in the book:
A part of everything you earn is yours to keep. Spend only 90% of what you earn and save the other 10%. Pay yourself first; in other words save 10% of your income before you even pay your bills. Too often what is saved is just what’s left at the end of the month.
Control your expenditures and don’t spend or invest your money recklessly. Put your savings to work creating a permanent stream of income, but take care to choose prudent investments where your principal will be safe. Don’t invest your money in businesses or for purposes of which you are unfamiliar. And don’t invest for unreasonable rates of return (remember Bernie Madoff?).
Own your own home. Owning your own home is a no-brainer when it comes to building wealth. I’m sure there are a more than a few people who will read this statement with cynicism considering the carnage in the housing markets right now. Obviously, you must exercise prudence in purchasing a home like you would with any large investment or commitment. If you’ve purchased a home for a good price and it is affordable for you, it is a great way to build wealth over time because every payment you make is building equity. Additionally, Uncle Sam subsidizes your mortgage payments with the mortgage interest tax deduction. You don’t get either of these benefits by paying rent.
Plan ahead for your retirement years. With the federal government’s finances increasingly shaky, there is no guarantee there will actually be any money for Social Security. Americans need to take their retirement into their own hands.
Increase your ability to earn. I read somewhere that a side effect of the terrible job market is that people are starting their own businesses in droves. Even if you have a good job, I would encourage you to never rely on it to the extent that you would be financially ruined if you lost it. Get something going on the side that can generate some income in the event you lose your job. There are great books at your local Barnes & Noble or Borders that describe a myriad of business opportunities out there, including eBay businesses, article marketing, vending machines, etc. If you really work at it, you may find you no longer need your regular job and have more time to spend with your family.
People of action are favored by good luck. Ever wonder why some people just seem to get all the breaks? Wouldn’t it be great if you could figure out where to get some of that luck yourself? You can! The luckiest people I know are the ones that created their own opportunities by putting in the hard work to learn and hone their business. Be a person of action, and you just might end up being the luckiest person any of your friends or family know.
Bottom line? Great book. I encourage you to grab a copy and read it this weekend.
-CH
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Tags: Good Books
