The Seven Cure For a Lean Purse, Lessons Learnt From The Richest Man in Babylon
Simple financial wisdoms that are often ignored
“The Richest Man in Babylon” is a book by George S. Clason which consists of parables mainly about a man named Arkad who, as you guest, the richest man in Babylon. The parables taught me about personal finance which at first feels simple and obvious, but often ignored. I found the lessons are important for someone like me who did not know how to manage my own finances after several years of having a daily job. I will share the lessons in this article, combined with my own experience in applying it, hoping that someone out there will find this useful. But of course, spoiler alert for those who wanted to read on their own; I suggest you stop reading at this point so that you can enjoy the book better.
As the book cycles between several stories, the main point of the book can be found repeatedly in each individual story. The strongest one being ‘the seven cure for a lean purse’ taught by Arkad in his public lecture and here it is:
1. Start thy purse to fattening
“This, my students, was the first cure I did discover for my lean purse: ‘For each ten coins I put in, to spend but nine.’ Debate this among yourselves. If any man proves it untrue, tell me upon the morrow when we shall meet again.”
-Arkad, The richest man in Babylon
This simply means that you should put some of your earning into your saving account (or your wallet, I don’t judge). As simple as it means, there are still some of us who hesitate to do it. Try thinking of it this way: when you spend your money on food, you pay others in exchange for food. It also applies for your hobbies, and any other purchases. The only way to pay yourself is to save your money, and only by doing it this way you can start building your treasury coin by coin. By having your own treasury, you can measure what you have achieved on your journey so far and you will have pride in having it.
Arkad told his students to save 10 percent of their earning each time they earn it. Having done this since young, I have no difficulty in doing it. As time goes by, my saving percentage increases bit by bit and now I save more 70% of my earning monthly.
My suggestion is that when you are starting, just focus on the habit first, the amount can be adjusted after the habit is matured. As a commitment device, have a different bank account for this purpose. On your payday, try setting aside an amount that you feel comfortable and immediately put it into that separate account, then don’t touch it. Ever.
To sum it up, pay yourself first. Then you can pay others.
2. Control thy expenditures
“This, then, is the second cure for a lean purse. 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 thy earnings.”
-Arkad, The richest man in Babylon
Some of us may complain on why they don’t have enough money on their wallet, or even wonder why they have mountains of debt that is enslaving them. The answer is that they do not control their expenditures (or think that they do not have the control of it). They have this illusion that their ‘necessary expenses’ is robbing them of their earning, less did they know that whatever they deem ‘necessary’ does not live to its reputation. This situation can occur when their lifestyle is inflating with a direct proportion to their salary, matter of fact, it should not.
Whatever you spend can be controlled, as you have free will and you have the full grasp on it. You can still live with your past lifestyle and still be happy with it. Try asking some questions and reflect on it, such as:
Can I still live on without buying this?
Am I purchasing this because I really want it?
or the famous quote
Am I buying this with money that I don’t have to please people that I don’t like?
I am sure by reflecting on this and being true to yourself, your expenditures will be under your control, not under the control of the indirect influence of someone you want to amuse.
Honestly the first time I wanted to control my expenditure, It’s quite hard. The problem is that I don’t know how my money are getting spent. Using a tracker app in my mobile phone helps me a lot. At first, I don’t set budgets, I just try spending like usual and track it with the app. After a while I get a report on what I spent frequently, I reflect on those decisions, and then I put a budget on every sector that I spent on. With that budget, every month I get a report on what I overspent or what is actually varies, I reflect on this report again and adjust it over time. By having a budget, when my income increases, the ‘necessary’ cost is still fixed, while the saving percentage can be increased. This way, my lifestyle does not inflate outrageously.
One of the students of Arkad said something like this: “Why can’t I have full freedom on my own money, am I a slave?” and Arkad replied “When you go through a desert, would you burden your donkey with unnecessary stuff or just the things that suits your survival?”. We should not see budgeting as something that constricts our lives, instead we should use it as a tool for our survival.
3. Make thy gold multiply
“This, then, is the third cure for a lean purse: to put each coin to laboring that it may reproduce its kind even as the flocks of the field and help bring to thee income, a stream of wealth that shall flow constantly into thy purse.”
-Arkad, The richest man in Babylon
let your gold bear children and have them work for you until you have generations of gold.
Having reached this point, you should have no problem in saving and have started building wealth in your saving account (or your wallet, not that I judged). You should be proud of yourself that you have made yourself disciplined toward wealth building. Now then another problem arises, a first world problem that is, how to make the gold multiply. Simply said, how to invest your money that you have saved.
In the book, it is explained that the basic thing that you can do is to lend your money on an interest. There are several ways to do this in our current time and they have varying risk:
- Peer to peer lending
- Saving account
- Time deposit
- Bonds
- Stock Market
- Other derivatives
I would love to explain each item in the list, but it would take a whole article. But to sum it up, wherever you want to put your money, please study them and make sure you understand how they work. Understand the risk and the underlying mechanics of the investment. Without all of that, you would be speculating, not investing.
After you get the interest of your investment, reinvest it so you can have interest from your past interests. This is called compounding, and this is how you can let your money has grandchildren and still work from you while bearing more children.
I put so much effort into understanding this one, I think that investing should be taught in school as it is a part of understanding how our world works. I read several books (I’ll put the links below) and join a short stock market course in order to comprehend financial instruments. Currently my portfolio consists of 40% in cash equivalent, 35% in government bonds, 20% in stocks, and 5% commodities (e.g gold). I have to point out that my portfolio will vary under different circumstances, but it mainly varies in the proportion between the bonds and stocks.
4. Guard thy treasure from loss
“This, then, is the fourth cure for a lean purse, and of great importance if it prevent thy purse from being emptied once it has become well filled. 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.”
-Arkad, The richest man in Babylon
I would also like to quote a passage from a book that I read about investing.
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return
- Benjamin Graham, The Intelligent Investor
This principle should apply in every single thing that you consider an ‘investment’. You should understand it so that you know the risk, consequently you are prepared when you lost it. When someone wants to borrow your money. Thoroughly analyze whether that person can pay you back (with or without interest). If he can’t, then consider it gone, you should’ve told them that it’s a gift, not something that you lent. You can also apply it when your family wants to trick you into an ‘investment’ scheme, when you want to build a business partnership with another party, or even when you want to have a long lasting relationship with your soon to be wife.
In the story, when Arkad first attempted to make his money multiply, he put his money where he does not understand; Arkad’s friend, a brick maker, asks to fund his journey to trade rare jewels, promising that the profit be split. In the end Arkad loses his money because his friend is tricked into buying glass shards which looks like jewels. This is the cost of not understanding what you are doing.
Later on, when your friends invites you to chip in an ‘investment’ scheme, ask them how does they make the money multiply and what are the risks? If they can’t answer it, that’s a red flag.
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. This, then, is the fifth cure for a lean purse: Own thy own home.
-Arkad, The richest man in Babylon
I doubt whether this is relevant for the current generation knowing the housing prices are not the same compared with the time this book is first published. But the point is that it is better to allocate your rent money into mortgage payment, therefore you will be owning a house on your own, and you will step on a land that you own. This will give you more pride and authority upon you and your family.
I’m waiting for the next recession to hit so that the housing prices will be lower as the buying power weakens.
6. Insure a future income
This, then, is the sixth cure for a lean purse. Provide in advance for the needs of thy growing age and the protection of thy family.
-Arkad, The richest man in Babylon
There will be time when you will become old and fragile, at that moment you don’t want to depend on your children (given that you have one). If that’s the case, you should have played a long game, insuring you still have your wealth to guide you through your olden days. This also applies to bad days that would come, such as sickness or accident. It would be nice if you have an insurance to cover those situations.
Currently, there are so many insurance products, so many that we often does not understand what they do, how they price it as such, and what they cover. If you remember the fourth cure, always try to understand it, even if you need someone to consult with.
Put insurance into your budget, just as I do, but also think whether that insurance product is really a necessity, or just another baggage of bad investments.
7. Increase thy ability to earn
Thus the seventh and last remedy for a lean purse is to cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself.
-Arkad, The richest man in Babylon
The best investment that would know no loss is to invest in thyself (yes I am copying Arkad’s manner of speech). To put add more skill (Generalize) or to deepen your current skill (Specialize) will always bring you more opportunities and bigger responsibilities which in turn can be harvested in gold. This applies in every general aspect of life, especially at work. Try being an expert at what you are doing at your day job right now, or try tackling new responsibility just for curiosity. The only thing that would get between you and your raise is a bad performance review system (or your attitude for that matter). Hell, if your workplace does not recognize your new skills, try finding another stream of gold with that particular skill.
Learn more, do more, and show that you are a better person that deserves a higher responsibility. Don’t ever reverse that mindset. Nobody would want to give a higher responsibility to a person who does not seem capable.
Try investing in a book of your own choice which piques your interest, just do it slowly, once a month would be great. I started with a book that I am highly interested in and tried to read it in my commute. It has now become a habit and makes me run out of books to read every month. Power of habit is a dangerous thing.
Extra: El psy congroo
If you get this, you know that it has no meaning, so you can ignore it (or you if you want to understand what it is, you can watch this). I want to use this extra section to add some cures that I personally get from experience.
- Always pay your debt, like a lannister.
- Never buy something you can’t afford.
- Be kind to your family, while holding on to your budget.
Try to comprehend each cure and try to apply it one by one, slowly, and I’m sure that you will not have a lean purse.
Hi, I am reading books regularly and tried to share what I learned. If you like this kind of article and wanted me to do more, give a clap!
Thank you for your time, and may your wallet not be lean anymore!
