Introduction
Get the book on Amazon, Kindle or Audible
This book has come as a highly recommended book on personal finance.
Written in 1926 (almost a hundred years ago) and based in ancient Babylonian times (4000 years ago), George S Clason narrates key advice through a series of short stories. The main points of the book are the 7 Cures for a Lean Purse and the Five Laws of Gold.
We have also create the blog post with an Interpretation to the Best quotes from The Richest Man in Babylon
The 7 Cures for a Lean Purse
The King invited Arkad, the richest man in Babylon to teach the people of Babylon how to acquire riches. Arkad was not born into wealth he was himself a labourer just like most of the people of Babylon in the Audience. Arkad taught the “seven cures to fatten your purses” over the next seven days.
1. Start thy purse to fattening
“For each ten coins I put in, to spend but nine”
Arkad explained that every labourer has the opportunity to build a fortune. The first cure is simple, for every ten coins you earn, save one coin and spend only from the remaining nine coins. Learn to live off 90% of your income, move that 10% away first, this is the money you will later invest. Surprisingly Arkad said he got on just as well as before, he did not notice he was any shorter on money than before.
2. Control thy Expenditures
“Budget thy expenses…without spending more than nine-tenths of thy earnings”
The second cures was to control your expenses, he tells the audience that everyone here earns different amounts, but why does everyone here have an empty purse. This is because of what we call our “necessary expenses”, these will always grow as our income increases.
People always want more than they can afford, some of what we call “necessary expenses” can be reduced or even eliminated. Budget your expenses and do not touch that 10% that you have taken out.
3. Make thy gold multiply
“Put each coin into labouring that it may reproduce…and help bring to thee income, a stream of wealth that shall flow constantly into thy purse”
Now we put our money to work and increase in value. Invest your money wisely and you will continually be paid an income.
Arkad talked about a farmer who invested 10 pieces of silver with a money lender at an interest rate of one quarter of its value every four years. He asked him to also invest the interest, when his son turned 20, the original investment of 10 silver was now worth over 30 pieces.
His son did not need the money, so he kept reinvesting the silver, when the farmers son had turned 50, this investment was worth 176 pieces of silver. A return of more than 17 times the original investment. This is the power of compound interest.
Imagine your money as a hoard of slaves, each labouring and earning you more money all day every day without taking a break, this is compound interest.
Let look at a few real-life examples of Compound Interest
At the age of 25 you invest £10,000 at a rate of 6% which can be done quite easily even in today’s economic climate.
At Age 35 your investment is worth £10,000 x 1.06^10 = £17908
Age 45 its worth £32,071
Age 55 its worth £57,435
Age 65 its worth £102,857
Age 75 its worth £184,202
Let now make the same investment of £10,000 at the age of 25 but this time with an interest rate of 10%
At age 35 your investment is worth £10,000 x 1.10^10 = £25,937
Age 45 its worth £67,275 (its already more than double the six percent investment)
Age 55 its worth £174,494
Age 65 its worth £452,592
Age 75 its worth £1,173,909 (this is now worth almost £1million more than the six percent investment)
All of these examples start with a one-off investment of £10,000 and no further money is added to the investment.
4. Guard thy treasures from loss
“Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments”
Do not invest in something you don’t understand, take advise from people who understand more about the investment. Arkads first investment tragedy was when he trusted a bricklayer called Azmur who was travelling to the East to buy rare jewels and they would divide the profits. Azmur had been scammed and sold bits of worthless glass. Do not trust a brick layer to buy jewels, always go to the professional.
Ensure security of your principle investment.
5. Make of thy dwelling a profitable investment
“Own thy own home”
The fifth cure talks about owning a home instead of renting a home as the value of the house will increase over time. Instead of paying rent, pay a mortgage and as time goes on, the payments will reduce and eventually you will own your own valuable property.
6. Insure a future income
“Provide in advance for the needs of thy growing age and the protection of thy family”
Plan for your retirement when you may no longer be able to work due to old age or health. Think about protecting your family from your life accident.
7. Increase thy ability to earn
“Cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself”
Invest in yourself and learn more about your work which will help you to progress and become more skillful and increase your earning power.
If you know nothing about renovating houses, then do not invest immediately in a house to renovate and resell. Study and learn the skills required first, invest in courses. Once you are ready, then make your purchase.
The FIVE Laws of Gold
Arkad create the Five Laws of Gold which he passed down to his son Nomasir on a clay tablet.
The First Law of Gold
“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.”
Save at least 10% of your income and invest this wisely to prepare for your own and your family’s future. Very similar to his first cure.
The Second Law of Gold
“Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.”
Invest your savings wisely so they can grow and multiply with compound interest. Similar to Arkads third law.
The Third Law of Gold
“Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.”
Be wise with your investments and seek the advice of wise people when making investments. This is similar to Arkad’s fourth cure.
The Fourth Law of Gold
“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.”
Only invest in things you fully understand, if you do not fully understand, either learn before investing money or invest your money elsewhere.
The Fifth Law of Gold
“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.”
Be weary of people looking to scam you for a profit. Avoid get rich quick schemes, if it was true, wouldn’t everyone do it. If it seems too good to be true, it probably is.
If you are anything like me you probably get over a hundred scam emails from people trying to take your money.
Conclusion
This is the third time in five years that I have read this book and each time I read it, I find something I did not see the last time I read it. Even though this book was written almost a hundred years ago, the principles are still relevant today as they were previously.
One of the most important life skills that is not currently taught in schools in the UK is Money. How to make it, how to look after it, how to invest it. This book teaches you all of these.
The one thing that stops this book from being used by children is the language used will put them off.
I usually do a combination of reading the physical book and listening to the audiobook on Audible. The audio version makes it easier to digest this book and can be read to you in four and a half hours.
Buy the book
If you want to get yourself a copy of the book, you can find it on Amazon
What is Audible?
Audible is one of the world leading platforms for audio books. They offer most books available on Amazon. Each month you get to select one free audiobook (she books would cost over £30 each when bought individually) and when you cancel your subscription, you still get to keep your audiobooks.
Its normally £7.99 per month but they currently have a special offer for this until the end of the month where you get 3 months for a total of 99p (33p our month). Click the image below to find out more.
