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Monday, July 1, 2013

Lessons from "The Richest Man in Babylon"

The Richest Man in Babylon is a remarkable book by George Samuel Clason. Please read it at least once improve your understanding of personal finance and investing. The following points appear in the book under the section "Seven Cures For a Lean Purse"

a) Start thy purse to fattening

Try to make your purse by whatever means possible. Accumulate some money.

b) Control thy expenditures

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.

Controlling expenditure is very necessary for building wealth. Always remember that it is the poor who live beyond means. A good portion of your income has to be saved.

c) Make thy gold multiply

This aspect explains the principle of compounding. No matter, what you do ensure that your money works for you. 

d) Guard thy treasures 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.

This principle explains the principle of capital protection. 

e) Make of thy dwelling a profitable investment (Own thy own home)

Owning a home is seen as a good investment.

f) Insure a future income 

Provide in advance for the needs of thy growing age and the protection of thy family.

This explains the importance of insurance for financial stability.

g) Increase thy ability to earn

Invest in yourself, your education, your craft and keep moving ahead. Increasing your earning power over a period of time is very important. 

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