Richest Man in Babylon Book Review | Balance Junkie

Our prosperity as a nation depends upon the personal financial prosperity of each of us as individuals.

~ George S. Clason

If you?re at all interested in personal finance, you?ve likely heard of a book entitled The Richest Man in Babylon. I?ve known about it for years now. I bought it almost 2 years ago. I think it cost about $7.50. I didn?t get around to reading it until this past December.

For those who aren?t familiar with the book, it?s certainly not a hot new manual on modern personal finance. On the contrary: the book was written by George S. Clason in the 1920s. It?s basically a series of parables about money management set in ancient Babylon.

Timeless Wisdom

What could a series of short stories about personal finance in ancient Babylon possibly have to teach us in the age of high frequency trading, credit default swaps and instant access to just about everything? As I read the book, I couldn?t help but feel like we?ve become a little too sophisticated for our own good. The simple lessons it contains and the basic, almost biblical language that convey them had a sort of calming, clarifying effect on me. (Note: in spite of the writing style, there?s no religious angle in this book ? for those who might see that as a turn-off.)

In the wake of our rather sudden decision to change cities last year and the subsequent upheaval that went with it, I felt like I had lost control of our finances. Everything was on hold until the dust settled. Once it did, I was more than ready to get back to basics, and this book (along with Gail Vaz-Oxlade?s Never Too Late) helped me do it. I had a new plan in place by the beginning of 2012 and even entitled our 2012 budget spreadsheet The Babylon Budget because it incorporated all of the principles Clason espoused in this classic book.

7 Simple Rules of Money

There are plenty of simple ideas for acquiring enough wealth to live on in The Richest Man in Babylon, but Clason starts with 7 basic principles:

1. Start thy purse to fattening: save at least 10% of what you earn ? no matter what.
2. Control thy expenditures: saving more means spending less ? and it won?t hurt as much as you think.
3. Make thy gold multiply: invest your savings.
4. Guard thy treasure from loss: invest wisely and manage your risk.
5. Make of thy dwelling a profitable investment: own your home, but purchase wisely.
6. Insure a future income: make sure you save enough for retirement and to care for your family when your life comes to an end.
7. Increase thy ability to earn: improve your knowledge and skills consistently to increase your earning power.

How to Handle Debt

Of course, if you?re following the 7 Simple Rules, you probably won?t have much ? if any ? debt. But what if you?re a little late internalizing the 7 rules? Suppose you already have a significant amount of debt. Is there any way out?

According to the sages of Babylon, you still need to save 10% of your earnings for yourself. Another 20% of your income should go to pay down your debt. You will need to find a way to live on the remaining 70% of your earnings.

Over and over again, the 10% marker comes up as the standard for savings. Now for those of us who are getting a late start on saving for retirement, this may not be enough. But it?s a start.

Simple Gets You Started

If you?ve gotten off track financially, or maybe never quite got around to starting down the track, this book can help. There are no secrets of investing success, no trading rules, and no get rich quick schemes. You don?t have to be any good at math beyond a simple percentage calculation. If you can figure out how much 10% of your income amounts to, you?re good to go.

Of course, making sure you set that 10% aside may be easier said than done. What got me back on track was the utter simplicity of the idea. After all, if we couldn?t figure out a way to save at least 10% of our income, it seemed like we had much bigger problems.

When I sat down to craft our new Babylon Budget, I was ready to cut to the bone if necessary.?It turned out it wasn?t. I?was prepared for pain, but just shuffling some priorities around allowed us to hit (and even exceed) our target. More than that, the exercise of cleaning up our spending habits was cathartic. It felt like spring cleaning in December.

Now we?re focused on Rule #7: increasing our earning power. We?re not there yet, but we?re determined to reach our goal by keeping things simple rather than fretting over the potential complexities of personal finance.

Have you read The Richest Man in Babylon? What did you think?

Source: http://balancejunkie.com/2012/02/27/the-richest-man-in-babylon-book-review/

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