Book Review #19: Richest Man in Babylon: Author: George Samuel Clason

The book 'The richest man in Babylon' written by George Samuel Clason is the original book on Financial Planning that inspired a number of books in that genre. This was the first book to come out with a set of timeless concepts including the idea of paying yourself first out of your income and the benefits of compound interest. These concepts have since been used in many books including 'The Wealthy Barber'.

Babylon was the richest city of the ancient world. The industrious people of Babylon completed some magnificent feats of engineering including 'Hanging Gardens' and a network of dams and canals that brought the waters of Euphrates to irrigate the city land. Another feat of engineering was the massive wall that protected the city from the armies of marauding invaders who coveted its wealth and splendor. From the clay tablets unearthed from the ruins of the city, we know that the people of the city knew how to earn, save and grow wealth. These principles of financial planning, identified about 8000 years ago, have stood the test of time and are relevant to this day. 

As was wont in ancient times, many of the concepts were explained in the form of parables. We have come to know of these stories from analysing the clay tablets discovered in the Babylonian ruins.  

This small book covering 72 pages packs the financial wisdom of ancient Babylon. Almost each sentence in this book is filled with pearls of personal and financial wisdom. The book covers financial concepts in eight parables, each parable explaining some aspect of financial planning. 

The first Parable, 'Richest Man in Babylon', tells the story of Arkad, considered to be the richest man in Babylon. Two of his friends, Bansir the chariot maker and Kobbi the musician, who live from hand to mouth are wondering how to become rich. To understand the process of wealth creation, they approach Arkad. Arkad advises them to save tenth of their income and spend only the remaining. He suggests that they should live within one's means. They should learn to invest the portion that they save, thereby making money work for them. On investment, he suggest that they take advice from experts who have experience in the area of investing. Another suggestion is to live upon less than you earn. To take care of contingencies, he suggest to insure their wealth. Finally they should plan now so that they can live comfortably in the old age when their earnings will come down significantly.

The second parable is titled 'Seven Cures to a Lean Purse'. This starts when King Sargon, upon returning to the city after a long fought war, finds that many people are suffering without money and resources. The chancellor explains that all the ongoing infrastructure projects are completed and that many people are without work (bit of Kaynes here...). The wealth has flown to a few who know how to make and keep it. King enlists the help of Arkad to educate the people of the city the secrets of earning and keeping wealth. This parable details the seven habits that can make a lean purse fat (fill the purse with money). The seven habits are;

1. Start thy purse to fattening: To ensure that the purse is never empty, make it a habit to save a tenth of your income. This will get you into the habit of saving. 

2. Control thy expenditures: Prioritize your expenses and spend only on what is necessary. You cannot fulfill all your wants and needs. You have to identify what can be fulfilled and what cannot be. If we do not prioritize and diligently stick to our prioritized expenditure, our 'necessary expenses' will always grow to equal our incomes. (A play on Parkinson's law: Expenditure expands to fill the income available). Always demand one hundred percent of appreciated value for each coin spent.

3. Make thy gold multiply: Invest the surplus and let the power of compound interest help you to become wealthy

4. Guard thy treasures from loss: Insure your wealth. Be loss averse. Secure the principal. Enter into investments which provide reasonable returns (Don't be greedy). Consult with people who are experts in handling money.

5. Make of thy dwelling a profitable investment (Own your home): Buy a home by taking home loan. EMI payments will ensure that your debt comes down with each installment. This will also provide 'Leveragibility' where your rentals will pay for your EMIs.  

6. Insure a future income: The focus is on retirement planning. Everyone should ensure that they are well taken care of during their retirement. Save small sums regularly. (Author is referring to SIP here).

7. Increase thy ability to earn: Cultivate your abilities, learn new skills, study and become wiser so that you can respect yourself. Set tangible goals and back it up with strong will. Desires (Goals) must be simple and definite. They defeat their own purpose should they be too many, too confusing, or beyond a man's training to accomplish. Some of the things that provide man with experience include paying back his debt, taking care of his family, preparing a will, helping people in need and doing acts of thoughtfulness to those dear to him. 

Third parable, titled 'Goddess of Good Luck' presents a lively discussion between Arkad and his audience on the question of luck. The  group addresses the question as to whether some people are plain lucky and whether there is a way to attract good luck. 'Luck' can be loosely defined as the probability of a positive outcome. Arkad points out that if one puts in honest work, the chances of a positive outcome are always on their side. However, in case of gambling, the chances of positive outcome are always on the side of the game keeper. This means that success that is the outcome of putting in honest output can be called 'Luck'. Another reason that winning from gambling is not an example of luck is that these winnings are transient and do not stick to the winner. The wealth won through gambling will always flow out of the winner's hand much like water flowing out of a sieve. Most of the time, we do not attribute 'Luck' to the success that we earn. Arkad points out that it is not a correct approach. Many a time, we do not make use of the opportunities that appear before us and call ourselves unlucky. If not benefiting from opportunities is 'Unlucky', shouldn't the reverse, of identifying from and benefiting from opportunities that come our way be called 'Lucky'. The paradox is that we attribute our successes to our hard work and our failures to us being unlucky. (This is the same concept of 'Internal' v/s 'External' Locus of Control). The parable concludes by pointing out that 'Luck' always favor those taking action.

Fourth parable, titled 'Five Laws of Gold', addresses the question, which is more valuable, a bag of gold or a clay tablet carved with words of wisdom? This question is addressed by Kalabad, who tells the story of Nomasir. Nomasir is the son of Arkad. When Nomasir came of age, Arkad gave him a bag of gold and a clay tablet written with five laws of gold and asked him to come back after ten years. If at the end of ten years, Nomasir proves himself to be worthy of handling gold, Arkad will make him heir to his estate. 

Initially Nomasir spends all the gold without ever caring to read the wisdom in the tablets. When he finds himself in penury, he opens the clay tablets and reads the words of wisdom. Following these words, Nomasir recoups all his losses and more and finally at the end of 10 years, comes back to Arkad with three bags of gold, one bag which Arkad had originally given to him and two bags as a compensation for the words of wisdom written in the Clay Tablets. Nomasir thus proves that wise words are more valuable than a bag of gold. 

The five laws of gold are: 

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

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

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

IV. 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. 

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

Fifth parable, titled 'Gold Lender of Babylon' tells the story of Rodan, the spear-maker to the King. This parable explains the process and the principles of lending money. The king bestows on Rodan 50 pieces of gold as a token of appreciation for a good job done. Once they come to know of this, many people, including his sister, approach him to lend them money. While he is able to say no to others, he doesn't know how to handle the request from his sister. He approaches Mathon for advice on how to handle this situation. Through the story of Ass and the Ox, Mathon advises Rodan that while it is appreciable to want to help his friends, he should do so in a way that will not bring his friend's burdens upon himself. Mathon teaches him that loans can be secured by three ways. One is to secure loan by property. The value of the property should be more than the loan amount. Second security for a loan is the capacity of the borrower to earn. Loans secured with these two securities will be repaid. A loan made to a person with no security or earnings capacity will end up in default. 

The sixth parable titled 'The walls of Babylon' discusses Wealth Protection. The ancient city of Babylon was surrounded by tall impenetrable walls. Many an enemy tried to attack Babylon and was unable to do so since the walls remained strong and enduring. Just as walls protected Babylon from enemy attacks, we have to protect our wealth by insurance and other means.

Seventh parable, titled 'The camel trader of Babylon' focuses on Debt repayment. It is very important not to take any debts and if debt is taken, to repay the same on priority. It tells the story of Dabasir who took too much debt upon himself. Unable to pay off the creditors, he ran away from Babylon and got into bad ways. He was caught and sold as a slave. With the help of his owner's wife, he managed to escape and come back to Babylon. Once there, by dint of hard work paid off all his debtors. The 5 tablets of Dabasir explain the process he followed. 

Out of the money that he earned, tenth was kept for himself. He kept two tenths to pay off his debtors and the remaining seven tenths was used for his personal needs. He paid off his creditors regularly every month with the two tenths of his income. He also negotiated with his lenders to restructure his debts. Over time he paid off all his debtors.. 

Eighth Parable, titled 'Luckiest man in Babylon' tells the story of Sharu Nada who went through extreme adversity and overcame them through the dint of sheer hard work. The story explains the importance of hard work and how one should use hard work to distinguish themselves from others. Through his hard work Sharu Nada turned himself from a Slave to a very rich merchant. The key point is that hard work does good to the man who does it. Work make him a better man.  

The book is sprinkled with Pearls of wisdom in its pages. Each of them is a gem. Sample a few.

1. "Learning is of two kinds: the one kind being the things we learned and knew, and the other being the training that taught us how to find out what we did not know."
2. "He who takes advice about his savings from one who is inexperienced in such matters, shall pay with his savings for proving the falsity of their opinions. if you would have advice about jewels, go to the jewel merchant."
3. "You first learned to live upon less than you could earn. Next you learned to seek advice from those who were competent through their own experiences to give it. And, lastly, you have learned to make gold work for you.You have taught yourself how to acquire money, how to keep it, and how to use it."
4. "With all men, that first step (of investing their earnings), which changes them from men who earn from their own labour to men who draw dividends from the earnings of their gold, is important"
5. "When bargain is good, then dost thou need protection against thy own weakness (of procrastination) as much as any other men"
6. "Men of action are favoured by goddess of good luck"
7. "There is no chain of disasters that will not come to an end"
8. "Wealth that comes quickly goeth the same way."
9. "Wealth that stayeth to give enjoyment and satisfaction to its owner comes gradually, because it is a child born of knowledge and persistent purpose."
10. "To earn wealth is but a slight burden upon the thoughtful man. Bearing the burden consistently from year to year accomplishes the final purpose."
11. "To the man who hath gold, yet is not skilled in its handling, many uses for it appear most profitable. Too often these are fraught with danger of loss, and if properly analyzed by wise men, show small possibility of profit."
12. 'I have traveled much and learned much and labored much and earned much, yet alas, of gold I have little.", This is the story of my life as I have described in this blog post.
13. "Many men come to me for gold to pay for their follies, but as for advice, they want it not. Yet who is more able to advise than the lender of gold to whom many men come in trouble?" Mathon the money lender
14. "Being young and without experience I did not know that he who spends more than he earns is sowing the winds of needless self-indulgence from which he is sure to reap the whirlwinds of trouble and humiliation."
15. "Ill fortune pursues every man who thinks more of borrowing than of repaying."
16. "If a man has in himself the soul of a slave will he not become one no matter what his birth, even as water seeks its level? If a man has within him the soul of a free man, will he not become respected and honored in his own city in spite of his misfortune?"
17. "Thy debts are thy enemies."
18. "The soul of a free man looks at life as a series of problems to be solved and solves them, while the soul of a slave whines, 'What can I do who am but a slave?' "
19. "Usurious rates of return are deceitful sirens that sing but to lure the unwary upon the rocks of loss and remorse."
20. "Life is good and life is rich with things worthwhile and things to enjoy."
21. About  hard work: "Some men hate it. They make it their enemy. Better to treat it like a friend, make thyself like it. Don't mind because it is hard. If thou thinkest about what a good house thou build, then who cares if the beams are heavy and it is far from the well to carry the water for the plaster."

This is a great book, highly recommended for young and old alike who want to learn about Financial Planning and about life in general. 

My rating? 5 Stars