Book Review: The Richest Man in Babylon

Posted by Tim Stobbs on April 9, 2009

I have to confess until Preet posted a free version of this book I have never read it.  I’ve heard of it yet never found a copy to read.  That might be because The Richest Man in Babylon by George S. Clason was published in 1926.  It really is one of the classics and at 147 pages in PFD it’s a short read.

I liked this book because it’s all told in a series of fables.  Often with stories within stories to make a series of points about money which are entertaining to read.  Money in the end is very simple.  The advice in 1926 is completely the same as today.  The details may change like RRSP being introduced in 1957 and TFSA’s being introduced in 2009, but the basics really always apply.

The heart of the book comes down to the seven cures to fatten a purse.  The seven cures were:

1. Start thy purse to fattening.  Save 10% of you make for yourself.
2. Control thy expenditures. You can’t have everything you want.
3. Multiple thy gold. Don’t spend your profits and let it do its compounding.
4. Guard they treasures from loss. Only invest where you can get your money back and trust those wiser than you to help make your money grow. Don’t get greedy when investing.
5. Make thy dwelling a profitable investment. Own your home it will reduce your living expenses in the long run.
6. Insure a future income. Save for retirement and in case you die early (insurance).
7. Increase thy ability to earn.  Keep learning about new things, it will help you earn and in doing so you respect yourself.

Now today we could argue about the fine points of this plan, but overall I think all of the advise still applies in a general sense.  What I liked most about the book was the theme of self respect.  By looking after yourself and your money you will learn to respect yourself and have some pride in what you do.  I often seen this lacking from my self in my early days and having grown into it a bit over the years it does help. I find I’m more willing to take a risk on myself as I’ve gotten older and more confident in what I can do.

So is it worth reading?  Well given it is free, short and fairly enjoyable to read, I would say it’s worth your time.  The lessons may be somewhat on the basic side, but a remind never hurts and you might just learn something.

If you read the book, what did you think?  Please share with a comment.

Margin of Safety

Posted by Tim Stobbs on April 8, 2009

I have a theory I wanted to share with you all.  When doing retirement calculations people pick all sorts of margins of safety.  They add an extra 10% to their spending, or reduce their investment return by 1% , or choose a higher inflation number, or in some cases they do all of the above.  I’ve always wondered why people pick different margins of safety.  Some pick very lean margins and others very fat margins.  I think I know why.

I theorize that people pick margins of safety that are directly proportional to how willing they are to accept their back up plans or the concept of failure.  So those without any back up plans and who have not even thought about ‘what’s the worst that could happen’ end up picking higher margins of safety than those who have back up plans and accept them as valid options.

Now obviously there are other issues around choosing the margins.  If you are more conservative investor you will obviously choose a lower rate of return to do your calculations or if you have previously been through a period of higher inflation you are likely to pick a higher number.  Your previously experience in life will also influence your choices.

Yet in the end, I believe the margin of safety is really a measure of your fear of the situation.  So by planning out some back up plans and asking your can you live with them you remove that fear and hence chose a smaller margin of safety.

Well that’s my theory.  What do you think?  Is it crap, am I on to something, did I miss something?  Please share your thoughts with a comment.

Wander Reading #17

Posted by Tim Stobbs on April 7, 2009

Thank goodness I’m taking an extra long 5 day weekend at the end of this week.  I don’t think I could handle reading much more of the Waxman bill.

My book writing and publishing business idea must be catching.  Mr Cheap is writing about it.

ABC of Investing hosted the Carnival of Personal Finance.

Frugal Bachelor asks a great question to PF bloggers.  What’s your dream? Jacob takes up the challenge with this post.

Preet found a classic free book to download.

Trent shows how being a jack of all trades can save you $100,000.

Also check out the Canadian Money Forum by Frugal Trader and Canadian Capitalist.  500 members already and it’s growing fast.