Finding time to read: George Clason - "The Richest Man in Babylon"

Inspired by a recent podcast by Dapper Dividend (give Russ a listen - great guy!) and with finally a little time to read again, I purchased the book mentioned in the title.

Written by George Samuel Clason in 1926 - so just a few years before the Great Depression - this book contains parables set in ancient Babylon on how to handle your personal finances. As it says in the foreword, its purpose is "to offer those who are ambitious for financial success an insight which will aid them to acquire money, to keep money and to make their surpluses earn more money."

The book, in fact, become so successful at its time that banks and insurance companies began to distribute the parables and Clason, whose own company (The Clason Map Company) was the first to publish a road atlas of the United States and Canada and which ironically did not survive the Great Depression, is credited with having formed the now often thrown around phrase in the financial bubble of "paying yourself first." 

Written in a charmingly antiquated language (with lots of "doth", "hath" and "thee" thrown in there), this book, which is now almost 100 years old, already lays out (albeit in different terms) what is now considered to be common knowledge in the dividend world.

In one parable, for example, two hard-working but down on their luck men gloomily contemplate their fate: "About us is much display of wealth, but of it we ourselves have naught. After half a lifetime of hard labor, thou, my best of friends, hast an empty purse and sayst to me: 'May I borrow such as trifle as to shekels?' [...] Then, what do I reply? No, I admit that my purse is as empty as thine. What is the matter? Why cannot we acquire silver and gold --more than enough for food and robes?"

And thinking of their former and (to them) surprisingly rich friend, they say what they want: "Income, that is the thing," ejaculated Bansir. "I wish an income that will keep flowing into my purse whether I sit upon the wall or travel to far lands."

This, I feel, will deeply resonate with all those who invest for dividends / income. Talking to this friend, they listen to the lesson he imparts, which are as valid then as they are today. He calls them rather charmingly the "7 cures for a lean purse": There is, for example, the rule that "a part of all you earn is yours to keep", which translates to today's pay yourself first. In the book, he recommends that for "each coin ten coins I put in, to spend but nine". The effect of it on our well-being is not even noticeable: "When I ceased to pay out more than nine-tenths of my earnings, I managed to get along just as well." And why are we to do this? Cure six tells us to "provide in advance for the needs of thy growing age and the protection of thy family." Adapted to today's terminology, he is talking about the savings rate, the dangers of lifestyle inflation and private pension plans. Other cures include budgeting one's expenses or increasing one's ability to earn. 

Of particular interest for investors are a few other cures. The third cure, for instance, say that one is "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"(isn't that everyone dividend investor's dream?). But at the same time, the fourth cure warns us to "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 handing of gold."

Reading these folksy tales, you become shockingly aware that already 100 years ago, the key fundamentals of personal finances, income investing and risk analysis are distilled here in simple and relatable stories.

Clason himself died in 1957, but in an interview in 1952 he reiterated his most important point: “The secret to personal financial success is believing and practicing this axiom: Part of all you earn is yours to keep. Learn to live on less than you make and save the balance for yourself.”

It is a truth which has lost none of its relevance today.