The Timeless Principles of Wealth Creation

9789562914109Some personal financial advice is timeless, which explains why George S. Clason’s book The Richest Man in Babylon (originally published in 1926) is is still in print today.

The book is a collection of parable like narratives set in ancient Babylon, renowned as the wealthiest city of the ancient world. In the book, Arkad shares with his friends the secrets of wealth (below) and tells of how he went from having no money to his name to being the richest man in Babylon.

Despite the antiqueness nature of the narrative, the basic principles of wealth are just as relevant today as they were when the book was written (and indeed in ancient times) albeit that we may need to  consider modern investment strategies.

The Richest man in Babylon offers the basic underlying principles of wealth creation, and is a good introduction into the world of personal finance before moving on to more specific and detailed information about modern investment strategies. The principles are basic, the effort lies in the execution of the details.

The Seven Cures for a Lean Purse

1. Start thy purse to fattening

Arkad recommends that for everything that you earn, save at least 10% of your income for investment/savings. In other words, pay yourself first. To make this easier, set up an automatic transfer to a high interest savings account every pay day that way you don’t miss what you don’t see.

“For every ten coins thou placest within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.”

I did some quick calculations, and found we save about 2% of our gross income for investment/savings. We need to do some work. To save more we need to:

2. Control thy expenditure

Controlling your expenditure boils down to one principle: spending less than you earn. Use a budget to control your finances. Consider what necessary and discretionary expenses you have and cut down or prioritise your discretionary expenses. Our discretionary expenses often rise in proportion to our earnings. Controlling your expenses gives you more money to invest with.

“Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings."

3. Make thy gold multiply

Once you start your purse to fattening, invest your money. Investing may include putting your money in a savings account to accrue interest, or investing in the stock or property market, or investing in your own business, or a combination,  depending on your personal circumstances.

Wealth multiplies at a greater rate when we take advantage of compounding. Adding to your savings account for instance, and reinvesting the interest every month accelerates wealth building.

“Then, make your treasure work for you. Make it your slave. Make its children and its children’s children work for you.”

4. Guard thy treasures from loss

Investing today can be complex and there are plenty of shysters wanting to take your money. It’s important to get sound advice from qualified experts when choosing an investment strategy.

"The first sound principle of investment is security for thy principal. 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 desires to make wealth rapidly…Counsel with wise men. Seek the advice of men whose daily work is handling money."

Investment diversification, appropriate structuring (family trusts etc) and adequately insuring your assets can also protect your wealth against loss. Talk to a qualified financial planner to work out the best investment strategy for you.

5. Make thy dwelling a profitable investment

"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."

Of course, this is once the mortgages is paid off.

6. Insure a future income

There are several things that you can do to insure a future income:

  • Build your superannuation.
  • Create a retirement plan
  • Write a will
  • Invest in long term assets
  • Consider life and income protection insurance. Talk to a professional about the right options for you.

“…it behooves a man to make preparation for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.”

7. Increase thy ability to earn.

Continual education and self improvement is a key to improving your employment or business.

“Cultivate thy own powers, study and become wiser, become more skilful, and act as to respect thyself."

None of this is rocket science, the devil, as they say, is in the detail. By just doing the basics: spending less than you earn, investing some money each week in a savings account or other investment vehicle, you will significantly reduce financial stress and enjoy wealth, no matter what your income is.

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  1. [...] isn’t revolutionary, it’s similar to the one described in the classic personal finance book ‘The Richest Man in Babylon.’ My version has a contemporary update – using online banking to automate your finances, as [...]



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