What can possibly be learned about modern finance from a book first published in 1926, you ask? What is so worthwhile about The Richest Man in Babylon that causes it to still be in print today? This week, we'll look closer at this personal finance classic to see what hidden gems are within.
Another story central to The Richest Man in Babylon is the tale of the five laws of gold, a five-point philosophy handed down to later generations by Arkad, the titular richest man in Babylon. Here are the five laws, with discussion of what they mean in a modern context.
1. 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. In other words, a person should put away 10% of his or her income for the future as a bare minimum. This rule is so incredibly fundamental, yet only a small minority even bother to follow it.
2. Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field. If you invest your money well, your money will simply make more money. Again, a very simple and obvious rule, but one that many people never get to because they didn't follow the first rule.
3. Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling. This rule encourages cautious investing, or at least encourages the investor to at least be informed. In today's era, one can turn to the internet for plenty of investing information.
4. 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 who are skilled in its keep. This goes hand in hand with the third rule: if you invest in stuff you don't understand, you're likely to lose money. Don't buy the latest hot stock from your stockbroker; investigate and invest where you want.
5. 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. The worst option is to invest in anything that promises absurdly good returns, or anything that you're heavily pressured into buying. These investments are scams and won't stand up to serious research.
The five rules really are all you need to know: save some money, do some research, and only invest in the fruits of that research. Anything else is a sure way to fall behind.
Tomorrow, we'll look at the other stories included in The Richest Man in Babylon.
The Richest Man in Babylon is the seventh of fifty-two books in The Simple Dollar's series 52 Personal Finance Books in 52 Weeks.