George Clason wrote a series of pamphlets in the mid-1920’s intended for banks and insurance companies, which were eventually bound together and published under the name The Richest Man in Babylon. Since they were originally informational pamphlets, the book is a series of short stories set in ancient Babylon teaching important lessons in business and household finance.
Most notably, we learn the Seven Cures For a Lean Purse:
1. Start thy purse to fattening
Arkad instructs the men to continue working hard in their current occupations and to begin saving 10% of what they earn. “For every 10 coins in thy purse, take out for use but nine”. How can you have capitalism without capital? How can you be wealthy without securing a percentage of your income for your future? Without putting some in the till for a rainy day, you’ll end up spending all of your income on a growing list of desires.
I recommend setting up your disbursements to automatically transfer at least 10% of your income into a savings, brokerage, or retirement account – preferably in a secure, offshore bank with substantial reserves.
2. Control thy expenditures
Arkad says, “What each of us calls our necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
We are programmed to want more – more money, a bigger house, a nicer car. This can lead to unnecessary spending in exchange for short-term gratification if not controlled. 80% of Americans are in debt. How can you grow your fortune if you are spending all of it – or worse – if it is owed to someone else before it even becomes yours?
Arkad makes the point that we should not confuse our necessary expenditures with our desires, as doing so will surely dry out your well, and continuously exhausting your income will eventually put you in debt.
Set a budget and stick to it. Live within your means. Don’t buy a Ferrari until you can pay for it in cash.
3. Make thy gold multiply
“The gold we may retain from our earnings is but the start,” says Arkad. “The earnings it will make shall build our fortunes. Learn to make your treasure work for you. Make it your slave. Make its children and its children’s children work for you.”
You’ve saved 10% of your gold, but will it sit in your purse gathering dust, or will it continue to earn more for you? An interest-bearing account is a start, some common stock is usually the next step, but the best way to multiply your gold is through sound investment in a business that you fully understand. The dividends received should be reinvested to accelerate growth, and through this compounding a fortune shall be born.
4. Guard thy treasure from loss
“Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments.”
We’ve all seen the get rich quick scams. The promises of unrealistic gains and stock market wizards who turn $1,000 into $1 Million in a year. Maybe it’s possible, but the first sound principle of investment is security. What is your risk tolerance, how quickly can you recoup your loss, what is the collateral for your investment?
The reason I use offshore banks is because I see potential problems with the United States and United Kingdom’s capital requirements for large institutions, I see problems with the lending and deposit “insurance” provided for these accounts. Not only am I taking advantage of higher rates and better service in offshore areas, I’m guarding my treasure from potential loss had I kept my assets in my birth country.
5. Make of thy dwelling a profitable investment
A tenant spends $1,000 per month to rent an apartment. Over the course of a year they’ve spent $12,000 and the lease is called. The tenant finds a new apartment, and the $12,000 has been spent with nothing to show for it.
While I would advise against buying property just so that you aren’t renting, it is recommended that you purchase property when you plan to be in a place for longer periods of time, or when it appears to be a good investment. Owning a home in multiple places is a great way to diversify your assets internationally, and the property may help expedite the process of dual citizenship or residency.
But Arkad wasn’t only talking about real estate. He was talking about having pride of ownership in every aspect of your life. To buy high quality goods and items, as they bring you more enjoyment and long-term satisfaction than something that is cheap and bought purely for vanity (a fake watch, for example).
6. Ensure a future income
Plan for your retirement, teach your children how to run and operate your business(es), create a will and put money aside in life insurance policies so that your money can continue to grow even after you are gone. Make sure that your family is taken care of.
By keeping a close eye on your investments and guarding against losses, you will provide in advance for future needs.
7. Increase thy ability to earn
A man must set definite goals to work towards. These can not be exclusively material or financial, but should also encompass the spiritual and mental growth of the man. Furthermore, the intelligent man will pay his debts, take care of his family, and be generous with his fortune, helping those in need.
“Cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself. Thereby shalt thou acquire confidence in thyself to achieve thy carefully considered desires.”