THE RICHEST MAN IN BABYLON – Conclusion
“It’s good to have money and the things money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.”
We wrap our series of posts based on the lessons from the iconic book, ‘The Richest Man in Babylon’ with this post. While I write about financial literacy and wisdom a lot, always remember to put financial issues in the overall context of the “Wheel of Life.”
Money is important so far as it adds value and happiness to your life but it’s craving and mindless pursuit will surely result in misery. We recently had the tragic event of a young and promising Bollywood actor committing suicide. It was definitely not done due to any lack of money. This actor had so much money that not only on planet earth, he had even purchased land on the moon. This piece of lunar land was located in a region of the moon called the Mare Muscovience or the “Sea of Muscovy.” Incidentally, another famous Bollywood star, Shahrukh Khan also owns the land on the moon.
But on the other side, we also had the pathetic sight of a TV actor indulging in virtual begging on Facebook. His requirements were for a paltry sum of three or four hundred rupees, surely we would never like to be in that ignominious situation. So, the idea is to use your hard-earned money conscientiously striking a healthy balance between enjoying your today and saving for the future – a future where you will be old and without an income stream from your job and with your medical-related expenditure high.
Here is the Wheel of Life once again for you to introspect – are you devoting sufficient time on the hub and the spokes? Are you happy in all these seven spheres? Do your goals straddle all these spheres? Are you too focused on any one of these seven at the detriment of the others? Ask these questions to yourself regularly – it is germane to a happy and balanced life.
Before we get on with the final set of lessons, let’s revisit the ones we have learnt so far.
- Pay Yourself First.
- Put the saved money to work.
- Go for prudent financial advice which includes your own financial education.
- Protection of, your capital and your life, family and assets.
- Balance your Wants and Needs.
- Build Assets; Eschew Liabilities.
A good point was added to the last lesson by one of my friends who is extremely wise on financial issues. I am quoting him verbatim – “If you are piling up assets that don’t produce a cash flow then you are doing it wrong. No point being asset rich and cash-flow poor.” Though I had covered this point in the form of acquiring “Income-producing assets”, here my friend has truly nailed it. Let it be a clarion call for those who still live in the Jurassic Age and consider buying Real Estate and Gold as investing. This issue is elaborated in the following lesson.
7. Build your Home.
“Therefore, do I recommend that every man own the roof that sheltereth him and his family. Nor is it beyond the ability of any well-intentioned man to own his home.”
Clason recommends that a person should endeavour to build his home, even if he has to take a loan for the same. However, I have reservations about the validity of this concept today and shall cover the reasons in detail in a subsequent post.
Taking a large home loan for a house in which one may stay after two to three decades and keep paying for its upkeep, maintenance and mortgage for all these years may not be the most prudent financial decision. Yes, one may get rental income out of it but finding a good tenant is rather difficult nowadays.
However, if one is sure to stay in the same house, then the investment is well worth it. It saves rental income, gives tax benefits and provides psychological protection. There is, however, an upper limit of mortgage for the house as it is with other loans keeping one’s take-home income in mind. This important aspect of personal finance has been dilated upon in both my books – you may want to read the books, the links are at the end of this post, but a few quick pointers.
- Don’t take a mortgage for longer than 15 years duration.
- You must save to pay at least 20% of the cost of the house. If you don’t have 20% to be paid as down payment, you are not ready to buy a house.
- The mortgage amount must come out of the 50% or Needs bucket- we have discussed this issue at length in previous posts.
8. Wealth is acquired slowly.
“Wealth that comes quickly goeth the same way. The wealth that stayeth to give enjoyment and satisfaction to its owner comes gradually because it is a child born of knowledge and persistent purpose.”
The quick fix of buying stocks which will ostensibly grow ten-fold in the next few months, a plot of land where massive development is due to begin – all insider information is invariably wrong – don’t fall for these. Wealth building is a marathon and not a sprint. The magic of compounding discussed in the previous post takes time to work.
Select your investments wisely and watch them grow. Don’t uproot them when they are mere saplings, allow them to grow to large trees for they will provide you with both fruits and shade. Be patient with your wealth growth. Remember the tenet of protection – invest in financial instruments which you understand and where your capital is not jeopardized chasing higher returns. The art of Asset Allocation is the alchemy of financial freedom – more about it later.
9. Incur Debts Wisely
“Youth, never having had an experience, cannot realize that hopeless debt is like a deep pit into which one may descend quickly and where one may struggle vainly for many days. It is a pit of sorrow and regrets where the brightness of the sun is overcast and night is made unhappy by restless sleeping.”
There are good debts and there are bad debts – wise is he who knows the difference between the two. I will cover the issue of debt management subsequently on the blog but suffice to say here is that any debt taken to acquire assets is a good debt while a debt to buy liabilities is bad debt.
In short, a home loan or a loan for a start-up is a good debt while a personal loan or a credit card debt is bad. More about this important issue later.
10. Develop Financial Wisdom.
“Cultivate thy own powers, to study and become wiser, to become more skilful, to so act as to respect thyself.”
This nugget of wisdom is very close to my heart and the raison d’être for my blog. You must develop financial muscles along with physical ones. Like one devotes a few minutes every day for physical fitness; devote a few minutes towards financial fitness too.
A few minutes of reading/listening about financial matters will incrementally build our financial muscle. Please don’t watch financial news channels though. They are there to entice you to trade in the stock market – the more you trade, the more profit you generate for others.
Clason says that if you offer either gold or wisdom to a fool, he will ignore wisdom and take gold, which he will soon lose due to his foolishness. So, he is left with neither wisdom nor gold.
“Without wisdom, gold is quickly lost by those who have it, but with wisdom, gold can be secured by those who have it not.”
Start your reading and learning with good books – the current one is as good as any to begin. Very modestly, I will also add my books to the list of recommended books. What this wisdom will do to you is to make you alive to the financial opportunities as they arise around you.
From the next week, we will start an interesting series on finding our raison détre or reason for being or meaning of our life or Ikigai.
Read more from Anand here: