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What are the “7 Cures for a Lean Purse”? How did Arkad—the richest man in Babylon—come up with his wealth principles?
The 7 Cures of a Lean Purse are the financial principles of Arkad, a fictional character in the Babylonian parables titled The Richest Man in Babylon. Arkad, who began his wealth journey as a poor scribe, came up with these principles when his friends approached him for advice on how to grow wealth.
Here is a quick synopsis of Arkad’s wealth principles.
The Story Behind the 7 Cures for a Lean Purse
Arkad, a fictional character in the Babylonian parables, is described as “the richest man in Babylon.” Two friends, Bansir and Kobbi, a chariot builder and a musician, get tired of working hard to get by without ever improving their status. So, they gather some additional friends and approach Arkad for advice on how to become wealthy. Arkad, who began his working life as a poor scribe, obliges by recommending “7 Cures for a Lean Purse.”
1) Pay Yourself First
Save 10 percent of everything you earn, even if you’re in debt, to start building wealth. You’ll find that you get along just fine on 90% of what you earn and in ten years, you’ll have saved a year’s earnings. To visualize this, think of collecting ten eggs every day. Each evening, take nine from the basket to sell and keep one for yourself. Eventually, your basket will overflow because you’re putting in more eggs than you’re taking out.
Only the money you consciously set aside is truly yours. You may think all of your earnings belong to you, but when you don’t save a portion, you give them to everyone but yourself. For instance, they go to your grocer, your landlord, your shoemaker, etc.
Although you’ll be tempted to spend your savings at times, remember that spending brings only temporary gratification, while saving builds long-term wealth and security. And the person who saves part of his earnings will find it easier to acquire more money.
2) Control Your Spending
After you save a tenth of your earnings, determine your necessities and create a budget to cover them, plus a few worthwhile things you enjoy, not exceeding the remaining nine-tenths of your income. Don’t confuse wants with needs. If a pack animal got to choose his burden for a long trip, he’d choose to carry grain, hay and water—necessities—rather than gold and jewels.
Live within your means or, better yet, live below your means. Should your earnings increase, beware of lifestyle inflation, which is the tendency to increase your spending as your income increases. What you define as necessary will always expand to keep pace with your income unless you resist.
Remember that the purpose of a budget is to grow your wealth while ensuring that you have the necessities and a few things you enjoy—without exceeding nine-tenths of your income. A budget shows you the potential “leaks” in your wallet, so you can stop them by maintaining control of your spending.
3) Put Your Money to Work
The money you accumulate from your earnings is just a starting point. You need to put it to work in ways that earn more money by investing it or multiplying it by taking advantage of compounding interest over time. (Shortform note: Here’s how compounding works: when you invest or loan out your money, you receive interest on your deposit. The next year, you earn interest on both the original deposit and on the interest you earned on it in the first year. Each year, your money multiplies as you earn interest on your interest.)
Just be sure you invest wisely, with people of honor and experience. When he was starting out, Arkad made a good investment. He loaned money to Aggar, a shield maker, whom he knew to be a man who knew his business and paid his debts. The loan enabled Aggar to order a large supply of bronze at a good price. When Aggar successfully sold all the shields he had made with the bronze, Arkad got back the loaned money plus interest. As Arkad’s capital increased, he made more loans and investments, thereby continually increasing his wealth.
By investing your money, you create a continuing income stream—your money is working for you whether you are working, traveling, or retired.
4) Protect Your Principal from Loss
The first thing to do with money you’ve saved is to protect it. Invest it only where your principal is safe and you can get it back if you want to and where you’ll get a fair interest rate.
There are many ways to lose money you’ve saved:
- You might spend it on wants rather than needs.
- Family and friends will ask for loans and may not repay them.
- You might be tempted into making an investment that you haven’t researched and that fails to pay off.
- You might be attracted by a bogus get-rich-quick scheme.
For example, Arkad made a poor investment by loaning money to a brickmaker named Azur, who was traveling and planned to buy jewels while he was away and resell them at a profit when he got home. He would split the proceeds with Arkad. However, the jewels he bought turned out to be fakes, and Arkad lost the money he’d invested to buy them.
The lesson he learned is to invest only if the person you’re partnering with is experienced in that type of investment. Don’t trust a brickmaker to buy jewels. Or, invest only with people who are experts in investing money for profit.
(Shortform note: Many people in finance today believe that investments with risk (like stocks) make sense as part of a balanced investment portfolio that includes both safer and higher-risk investments. Assuming a certain level of risk is necessary to make money, but it should be a calculated risk.)
5) Own Your Home
Make your home a profitable investment. By investing your money into buying a home and paying it off over time, you’re turning an expense into an asset. Once you own it, you’ll reduce your cost of living and you can sell it at a profit if you choose.
(Shortform note: In 1926 when this book was published, home ownership was seen as fostering strong families, promoting “moral rectitude” and civic virtue, and contributing to the well-being of the nation. “Own your own home,” a magazine article urged, “and protect it with your life and you will be a good citizen and patriot.” Another writer said he couldn’t imagine a nation being great “if all its people are renters.”
Today, the value of home ownership is debatable. Clason contends that it’s smarter to make payments that will eventually become equity than to pay a landlord. But depending on factors such as home prices, interest rates, appreciation, and your income/job stability, it may not make sense for you. In an economic downtown like that of 2008, you could end up under water—owing more on your home than it is worth.)
6) Plan for Retirement
Invest for the future for two reasons: 1) if you die prematurely, your family will be provided for and 2) when you’re no longer able to work, you’ll have an income.
Ways to do this include:
- Buying real estate and land that will increase in value and can be sold later, or make other investments.
- Making small regular deposits with a money lender (bank) over time so you keep getting more interest as it grows.
- Buying insurance.
(Shortform note: Further ways to provide for your future today include investment in stocks and bonds, and pensions/social security.)
7) Increase Your Earning Ability
Increasing your income doesn’t mean asking for a raise. That makes you dependent on a boss. Instead, take control by investing in yourself. Improve your skills or learn new skills through classes and training. The more you know, the more valuable you are and the more you might make.
Also, set goals and work to improve your performance—people who do more and better quality work get paid more. Arkad learned this by noticing that scribes who produced more work received more pay. With practice and effort, he increased his speed and received more money himself.
When you manage your finances well, you demonstrate self-respect. This includes:
- Paying your debts promptly.
- Taking care of your family.
- Making a will.
- Helping others where feasible.
- Learning as much as you can.
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Here's what you'll find in our full The Richest Man in Babylon summary:
- A compilation of financial advice pamphlets distributed by banks and insurance companies in the 1920s
- Timeless principles for managing your money
- An entertaining story written in the form of three parables