Musing 8:The Richest Man in Babylon 1

THE RICHEST MAN IN BABYLON 1

Let me change tack for a few weeks- and write about all the wonderful books that I have read, and their messages, as I have understood it. Readers are most welcome to modify the messages as per their understanding and world view.

If I have to recommend only one book on personal finance to you, it will be “the richest man in Babylon”, a classic written by George S. Clason in 1926. The simple messages in the book, derived from parables from ancient Babylon, are still mint fresh. I will lay out ten important ones with my interpretation of these pearls of wisdom over next two blogs.

1.      Pay yourself First.     

“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford. Pay yourself first.”

I have devoted an entire blog on this concept which I will request you to read through. Clason recommends a figure of 10% towards this, which I too feel is adequate for your own retired life. Yes, only for your retired life and not for children’s education, marriage etc. For other life goals, another 10% must be saved (read invested). The total thus works out to 20%, a minimum inescapable figure. The details of how to go about saving this amount have been covered in an earlier post.

2.      Put the Money to Work.     

“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow.”

          Please read the post “Don’t ever save” to get a gist of this concept. The money you save is to be invested wisely to give inflation beating returns.  Also read the post “the eighth wonder of the world”, to understand the power of compound interest.

3.      Prudent Financial Advice.

“Advice is one thing that is freely given away, but watch that you take only what is worth having. 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.”

          “Go for XXX share, it’s going to give you 200% returns in two months.”

          “Buy this money back insurance policy, my uncle has bought it and he vouches by it.”

          You may find the above mentioned statements to be familiar. We have unsolicited financial advice coming from all sources- friends, relatives, financial news channels, magazines and so on. Please remember, it is your money and you alone are responsible to manage it. Develop financial wisdom- it’s not difficult. It takes just few minutes of reading every day. I know you are short of time and it’s important to analyze the strategic outcome of Modi-Xi meet, but honestly, there is more important reading to be done which concerns your financial health.

4.      Protection.

“Insure an income for thy future. Look thou at the aged and forget not that in the days to come thou also will be numbered among them. Therefore invest thy treasure with greatest caution that it be not lost.”

“Provide also that thy family may not want should the Gods call thee to their realms. For such protection it is always possible to make provision with small payments at regular intervals”.

There are two profound concepts which Clason gives here. First, protect your savings from capital loss i.e. losing even your principal amount while chasing high returns. Typical “Water cooler conversations” may hasten this process- avoid investing based on rough and ready advice.

The second concept is to buy insurance- for the life of the breadwinner, health of the family and for the valuables that you have so painstakingly accumulated over many years. The sooner you buy insurance the cheaper will it be.

5.      Balance your Wants and Needs.

“What each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary. Confuse not the necessary expenses with thy desires.”

“Hazaaron khwahishen aisee ki har khwaahish pe dam nikle; bahut nikle mere armaan mager phir bhi kam nikle”.

          Please go through my blog on “spending investing balance” to revisit the 50:30:20 model. Understanding and getting rid of “present bias”- I need it now, will go a long way to balance our wants and needs. Remember, it’s not important how much we make but how much of it we keep.

          Please mull over these five concepts for this week and provide your interpretation and understanding of the same through your feedback. I will be back next week with balance five.

          Enjoy your Sunday- you have earned it.