Some time back, my friend Tyler told me that he picked up The Richest Man in Babylon to read. The original is a very old book, but it’s supposed to contain all sorts of timeless wisdom about the accrual of wealth. A fool and his money are soon parted, as they say, so it’s far more valuable not only to know how to build up your bags of gold, but also how to keep them. And then, you’ll want more bags of gold too.
I’m about halfway now and one of the more substantial sections of the book thus far is when the Arkad, the titular “richest man in Babylon,” describes his seven remedies for a lean purse. With many eager students before him, he lays out the seven rules by which he was able to get so rich in the first place. I was hoping for some eye-opening insights, but the seven remedies are mostly concepts that we’ve all heard before.
1. Pay Yourself First
For every ten coins you place in your purse, take out but nine to use.
We’re always told that we should spend less than we earn and this first “remedy” says that you should save at least 10% of every paycheck. If you stick to this rule, you’ll necessarily build up some savings.
2. Live Below Your Means
Do not confuse your necessary expenses with your desires.
If you’re already struggling to make ends meet, trying to make ends meet on just 90% of your income is going to be even more challenging. The thing is, when we have more money in our wallets, we tend to buy more things. Eliminate the unnecessary and stretch your earnings to fulfill the barest of necessities first.
3. Make Your Money Work for You
Put each coin to laboring so that it can reproduce itself and help bring you income.
It’s not enough to hole your money away in a savings account and forget about it if you want to become wealthy. Babylon may or may not have had the concept of inflation, but this is all the more reason why this remedy is so important today. Your money should be earning you more money. In the book, Arkad talks about lending money to lenders, which is effectively how many investments work today with the major banks.
4. Invest Your Money Wisely
Guard your treasure from loss by investing only where your principal is safe.
While it is important to “make your money your slave” and get it to earn you even more money, you shouldn’t invest foolishly. There is certainly the psychology of risk at play here. You may be tempted to gamble for a big win now and then, but it’s in your best interest to invest your money somewhere reasonably safe.
5. Own, Don’t Rent Your Home
Many blessings come to the man who owns his own house. His wife will be happier and it will greatly reduce his cost of living.
In a city with such high real estate prices like Vancouver, it’s really debatable whether this is such a valid idea anymore. For some people, it may make more sense to rent than to own their homes, but the advantages of owning your own home fall in line with traditional financial schools of thought. Why pay someone else’s mortgage, right?
6. Provide for Your Future
I recommend to all men, that they, by wise and well thought-out methods, provide against a lean purse in their mature years.
Presumably, you’ll be earning less money when you get older. You may or may not be less able, but you probably want to work less. As such, it’s important to invest in your future. On a smaller scale, coming from the perspective of a freelancer with the possibility of inconsistent income, saving for the future and for the “just in case” is an absolute necessary to survive the feast and famine cycle too.
7. Improve Your Earning Ability
The man who seeks to learn more of his craft will be richly rewarded .
If you just keep doing what you’re doing, you’re going to limit your earning potential. You don’t necessarily have to work harder, but you should work smarter. What skills can you learn and what talents can you nurture that can in turn help you earn more money? If you’re going to a goat herder, don’t you want to be the best darn goat herder there is?
The Simplest Solution Is Best
As I was reading my way through the seven remedies for a lean purse, as described by The Richest Man in Babylon, I thought they were all pretty obvious. Then again, although we may engulf ourselves in increasing levels of complexity, it may be in our best interest to keep it simple instead. If you focus on and stick to these core principles, can you be the richest man in your city?