Personal Finance Classics Book Review: The Richest Man In Babylon
(Continuing the series of the top five books in personal finance, I am reviewing my #1 pick. For the complete list, please check here.)
The Richest Man in Babylon should be required reading for everyone. If you’re going to handle money for yourself or your family at any point in your life, you need to read this book. Some people get great money lessons from their parents or family members. Others are lucky to learn from a mentor or teacher about the basic principles. Still others are sharp enough to pick up these basic ideas on their own, and have made long-range thinking and action part of their daily lives. But the majority of people will spend the majority of their lives quite clueless about money. They may be distinguished and accomplished in their careers. They may have sat through plenty of 401(k) presentations and understand the math behind compound interest perfectly. But their financial decisions will not reflect this knowledge. That’s where the Richest Man in Babylon comes in.
The Richest Man in Babylon (1926) was originally written as a series of pamphlets that were handed out in banks and insurance companies and later put together and completed as a book. This fact alone is enlightening about the role and message of banks in previous generations. When I walk into a Bank of America or any other big bank, all I see is marketing for a lot of “financial products” like home equity lines of credit, credit cards, or auto loans. The home equity line of credit advertisements invariably mention home repairs or a much-deserved vacation, as if home equity is some sort of free money you need to throw at something right away. It wasn’t always like this, and banks once advocated for controlled spending and budgeting and not borrowing for basic living expenses. Come back, Bailey Building and Loan Association!
Since we’re on our own these days to figure out how we should handle our money, start with this book. The full version is here (with a few typos). I like anything written as a parable. The main lessons of the book are repeated throughout and you will soon have ingrained your mind the ideas of 1) keeping a part of what you earn, 2) controlling expenditures and 3) allowing your money to work for you. Keep at least 10% of what you earn, use 20% to pay your debts (if any) and live on the other 70%.
The Richest Man in Babylon is my number one pick for personal finance because it explains all of the basic principles of money so well. If you can get these basics down, a few calculations on your next investment won’t seem nearly so complicated.