Somewhere in your local bookstore’s personal finance section, hidden quietly between the glamorous Suze Orman and Dave Ramsey hardcover books, you will find a slim, unassuming little volume called The Richest Man in Babylon.
It is frequently cited by personal finance bloggers and individual investors as a “must-read” for beginners, so last week I decided to finally check it out for myself.
It really is a slim book — I read the whole thing in only a couple of hours. The book is composed of a series of loosely connected fictional parables involving various characters in the ancient wealthy city of Babylon — the birthplace of currency, promissory notes and formal business contracts, according to the book.
Although it was written in the 1920s, and presumably had some value for those weathering the Depression in the decade that followed, it’s still quite relevant. Sure, some parts are a bit cheesy (the letters from a fictional British archaeologist toward the end are absurd), but for the most part the stories are engaging and easy to digest.Reading it certainly can’t hurt — and it may just turn you into a more disciplined investor. The book relates the wealth-building secrets of Arkad, a character known as “the richest man in Babylon.” From humble beginnings, Arkad eventually grasps the power of compound interest combined with taking on prudent investment risks. Over time, he accumulates much gold, eventually becoming the city-state’s wealthiest citizen — so wealthy, in fact, that the king summons him in hard times for advice on how to teach other citizens the same wealth-building strategies.
Arkad is a believer in putting away at least 10% of everything you earn. “A part of all I earn is mine to keep,” as Arkad puts it. Get a paycheck for $100, and $10 should immediately go into a 401(k) or high-yield savings account — the modern equivalents of Babylon’s interest-paying “gold lenders.”