Review of the Best Personal Finance Book Ever Written
Why The Richest Man in Babylon is still relevant 100 years later
The Lindy Effect is a theoretical concept suggesting that the future life expectancy of non-perishable items—such as technologies, books, or ideas—increases with their current age. The term originated from the observations of a group of comedians at Lindy's Delicatessen in New York City, who noted that the longer a Broadway show had been running, the longer it was likely to continue running.
Based on the Lindy Effect, it is no surprise that The Richest Man in Babylon, published by George S. Clason in 1926, continues to be among the most consumed personal finance books. Babylon fell into ruins and largely disappeared 1,300 years ago, yet the lessons of building and maintaining wealth remain as timeless and relevant as ever. With endless content and personal finance gurus trying to convince people to forget everything they know about budgeting, investing, etc., it can be easy to overlook enduring basic first principles. Let this review serve as that reminder.
The book begins around the year 2000 BCE, when Babylon was at its peak of civilization. A bunch of broke Babylonians sit around whining about their lack of wealth, until they decide to simply ask the richest person in Babylon, Arkad, how he became so rich. They were roughly the same age and started off with equal footing, so why were they constantly cash insecure while Arkad was swimming in it? Arkad, being generous with his wisdom and time, told them exactly what he had learned from another wealthy man, Algamish.
“I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you!”
This sounds complex but what this really means is save your money. There it is, why bother with the remaining 100 pages of the books? But wait, there’s more!
Algamish specifically suggested starting by simply saving 10% of Arkad’s earnings each month for the next year. Arkad did this, then promptly invested it poorly. The brickmaker offered to take his savings to buy some precious stones from the Phoenicians, then sell these back in Babylon at a much higher profit. What could go wrong? Well, those sneaky Phoenicians sold the brickmaker some useless glass, which of course the brickmaker could not identify, resulting in Arkad losing his entire investment. He repeated the process the next year, this time investing it more wisely. However, instead of letting his winner ride, he took the profits and spent it all on wine (to drink) and fancy clothes.
Algamish pointed out to Arkad that he was sacrificing long-term wealth for short-term splurges. It was not until the next time they saw each other two years later that Arkad put it all together. He was saving, investing, and reinvesting and watching his wealth climb. Algamish, not impressed with his son’s abilities to follow these lessons, decided to bequeath part of his empire to Arkad.
The poor Babylonians listening to these lessons then simply dismissed Arkad’s accomplishments, saying that he only really developed his wealth because he cozied up to Algamish or because he had more willpower than the rest of them. Arkad, like any other personal finance guru would, disagreed with these claims. Effectively saying, he put himself in the position to be successful because he truly wanted it to happen. If any person really wanted to be wealthy, they could easily follow those same steps and accomplish similar results.
“Wealth grows wherever men exert energy”
Those poor whiny Babylonians, were not the only people trying to solicit advice from Arkad. The King of Babylon, realizing that if Babylon were to remain competitive for years to come, they needed more wealthy citizens. If they did not have a new generation of investors willing to participate in pre-seed funding rounds in pre-revenue & pre-product startups launching Crypto AI wrappers, Babylon would be downgraded to a tier 3 city. He too called on Arkad to share his knowledge. Arkad assembled a classroom of students for him to teach
The 7 Cures for a Lean Purse:
Start thy purse for fattening - Save 10% of your income
Control thy expenditures - Scrutinize your budget and ensure every dollar spent is either 100% necessary or 100% valued until you arrive at a 10% savings rate
Make thy gold multiply - Invest your savings, keep it invested (compound your interest)
Guard thy treasure from losses - Avoid get rich schemes, only take investment advice from relevant experts
Make of thy dwelling a profitable investment - Own your home
Insure a future income - Factor in growing future expenses, plan accordingly
Increase thy ability to earn - Become so skilled at your profession, you will increasingly grow your wages
The rest of the book is largely redundant repeating many of the lessons Arkad shared above. The remaining pages provide endless examples of people wasting their money, missing out on potential big investment opportunities or putting themselves in a position to benefit from good fortune when it comes. These lessons are stunningly obvious, yet followed by so few.
Arkad became the richest man in Babylon by adhering to very simple but uncomfortable advice. It takes discipline and consciousness, to avoid splurging money on fancy things and ensuring that 10% each month gets set aside for investment. Some personal finance guru’s push for higher savings but Arkad acknowledged, that he still wanted to enjoy his life while his wealth grew. Wealth building does not need to be especially painful or complex. By following the simple lessons from The Richest Man in Babylon, I have no doubt that you could one day achieve similar wealth. If you choose to ignore these lessons and fall short of your goal, don’t blame it on ignorance.
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