Learning from the Babylonians

If someone asks me to recommend a book on personal finance I choose George S. Clason’s, ‘Richest man in Babylon.’ 

I’ve given copies to my kids (I’m not sure if they ever got round to reading it) and to several other friends and acquaintances over the years.

Clason was born in 1874 and started writing this book as a series of pamphlets in the 1920s. The pamphlets were circulated by banks and insurance companies and became very popular. Eventually they were compiled into the famous book.

The book is a series of stories which purport to draw on the wisdom of the Babylonians, some 6,000 years ago. They built a prosperous and successful city and dynasty that survived for centuries, founded on principles of trade and sound financial management.

The principles are timeless and if followed, with application and some luck, over a period of time should make anyone wealthier.

Here is a brief summary of the 7 rules for acquiring and retaining wealth as described in the book:

1. Start thy purse to fattening.

Simply put, save 10% of what you earn. Easy if you have a decent income, less so if you don’t. Very true, but Clason argues that whatever your income, regular saving is key. 

2. Control thy expenditures

Self explanatory this one - having a budget and sticking to it. Save the 10% and make sure you spend no more than the remaining 90% each month

3. Make thy gold multiply

As the 10% builds up into a reasonably-sized pot you need to make this work for you and generate an income. In today’s world Clason would say speak to an Independent Financial Advisor or propose investing wisely based on knowledge of likely risks and returns. He guards against. 'Get rich quick' schemes.

4. Guard thy treasures from loss

Clason’s view was that you should ‘protect your principal, ie if investing £1,000 make sure this is protected and is your minimum return. So under this rule the stock market or property investment would be ruled out. I suspect he might modify this rule in today’s world but the principle of being cautious about losses still holds true.

5. Make of thy dwelling a profitable investment

Again, self-explanatory but easier said than done for youngsters in the current housing market. House price inflation has outstripped wage growth for many years making it harder to get a foot on the housing ladder. My personal view is that it is still worth making the stretch to buy if at all possible. Government-backed incentive schemes can help and once on the ladder things should improve over time if household wages continue to grow.

6. Insure a future income

In other words, make sure you have some income for when you no longer work. For many of us this is an employment pension, supplemented by State pension. For the self-employed pensions often get neglected, especially in the start up years. Thinking ahead and providing for this well in advance is sound financial planning

7. Increase thy ability to earn

Learn a new skill, get a new qualification, keep learning. We know that pays off and increases earning potential in the longer run

That’s essentially it. The stories bring the rules to life and keep them in the memory.

By a mixture of luck, a fortunate upbringing and some mistakes made along the way I’ve kind of fallen into doing these things consistently over a period of time.

They’ve worked for me and I think can work for others too

Babylon may be no more but the Babylonians certainly knew a thing or two about the acquisition and retention of wealth.

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