How to gain financial wisdom for your personal finances – Lessons from The Richest Man in Babylon

Author: Georgiana Dogaru

Wisdom and knowledge come through many ways, but the lessons learnt from experience are the most valuable and effective, be it in life, business or personal finances. We all strive for financial independence and the best way to achieve it is by knowing the right steps to take on the path to financial success.

Is there a magic formula that will make you rich? It’s all a matter of perspective. There are patterns that have proved to be successful for many, but is there a universal truth that will work for everybody? Some would say yes, some would say no, based on their own experience. The only way to find out is to try and see what happens. Most probably you will not become the richest man on the planet if you read a book, but it might help plan your finances better and have better results in handling your money.

Find effective financial wisdom

If you are looking for traditional, effective and actionable financial wisdom, you might want to read “The Richest Man in Babylon” by George S. Clason. You will probably not dethrone Jeff Bezos and become the richest man, but you might find out that having a financial strategy pays off better than walking in the dark with no plan. “The richest man in Babylon” is a guide for financial education published in 1926 that offers financial advice through a collection of parables set 4,000 years ago in ancient Babylon. The book is a classic of personal financial advice and the author shares invaluable lessons in a simple and easy to implement manner.

Arkad, the main character, shares his secrets of becoming the richest man in Babylon, teaching others to achieve the same prosperity. His main lessons, “Seven Cures for a Lean Purse” and “The Five Laws of Gold” are worth applying to your own financial habits.

Seven Cures for a Lean Purse

1.    The First Cure: Start Thy Purse to Fattening

Arkad advises on saving 10% of your income to start building up your purse (your wealth): “I, too, carried a lean purse and cursed it because there was naught within to satisfy my desires. But when I began to take out from my purse but nine parts of ten I put in, it began to fatten. So will thine.”

2.    The Second Cure: Control Thy Expenditures

Arkad advises against luxury expenditures that ultimately become confused as necessities: “If each of you desireth to build for himself a fortune, is it not wise to start by utilizing that source of wealth which he already has established?” He also says “What each of us calls our 'necessary expenses' will always grow to equal our incomes unless we protest to the contrary.”

3.    The Third Cure: Make Thy Gold Multiply

Arkad advises to invest and to compound the investment return from the savings you already have: “A man’s wealth is not in the coin he carries in his purse; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always buiging.” He also says “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.”

4.    The Fourth Cure: Guard Thy Treasures from Loss

Arkad advises against taking a risk of loss and investing in schemes that promise you will get rich fast and also encourages seeking advice from wise and experienced people:

“Is it wise to be intrigued by larger earnings when thy principal may be lost? I say not. The penalty of risk is probable loss. Study carefully, before parting with thy treasure, each assurance that it may be safely reclaimed. Be not misled by thine own romantic desires to make wealth rapidly.”

 “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.”

5.    The Fifth Cure: Make of Thy Dwelling a Profitable Investment

Arkad advises here to buy your own residence: “Thus come many blessings to the man who owneth his own house. And greatly will it reduce his cost of living, making available more of his earnings for pleasures and the gratification of his desires. This, then, is the fifth cure for a lean purse: Own thy own home.”

6.    The Sixth Cure: Ensure a Future Income

Arkad advises on having a pension and future retirement income: “This, then, is the sixth cure for a lean purse. Provide in advance for the needs of the growing age and the protection of thy family.”

7.    The Seventh Cure: Increase Thy Ability to Earn

Arkad advises to keep developing your own skills to increase your investing wisdom and your earnings power:

“The more of wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded.”

“Therefore, I urge all men to be in the front rank of progress and not to stand still, lest they be left behind.”

The Five Laws of Gold

1.    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.”

Arkad's advice in the first law is very similar to the First Cure, which is that saving regularly is the start towards building wealth.

2.    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.”

Arkad's advice here is very similar to the Third Cure, which is that your savings can grow and compound your wealth.

3.    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.”

Arkad's advice here is similar to the Fourth Cure, which is about being patient and also seek for advice from wise, experienced people.

4.    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.”

Arkad's advice here is about investing in what you know about and understand and also, like in the previous law, to take advice from skilled people that have proved their wisdom.

5.    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.”

Arkad's advice in this law is about avoiding wealth creation strategies that promise you will get rich quickly and who also avoid taking advice from the wrong people.

If you need to plan your financial future better, then “The Richest Man in Babylon” is a must-read. As George S. Clason himself says, “where the determination is, the way can be found.” Apply a wise strategy to your finances and see what happens.