The Richest Man in Babylon by George Clason is the best book on personal finance I have ever read. You can hear a sample of it here. It is a collection of short stories which teach simple lessons about finance covering most aspects about humans and money.
I will analyse a short extract from one of the most important parts of the book, and compare it to the current economic crisis:Commentary on The 5 Laws of Gold:
1. Gold comes gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
This basically means that you should always be saving money, for a rainy day or for investments. The big banks of today didn't do this, instead they lent all their money out, despite making billions in profits in previous years, and borrowed money from other banks. Times have changed a little since the book was written, so when saving money you should aim to save above 10%, and I usually aim to save well over 50% of my income. You have to start somewhere, so if you can only save 1%, start saving that now, and in future you will find ways of saving more.
2. Gold works diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
If the banks had saved and invested money more wisely, they would not have run out of money.
3. Gold clings to the protection of the cautious owner who invests it under the advice of men wise in its handling.
The banks chased phantom profits and did not invest money wisely. Home loans were made to Ninjas (No Income No Job no Assets). Money was therefore invested with people who had little or no way of paying it back, so this economic crisis was inevitable. Don't do the same with your finances.
4. Gold slips away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keeping.
Diligent skilled financial analysts at banks were replaced with salesmen who wanted to bring in apparent profit at the expense of all else. Banks ended up losing lots of money.
5. Gold flees the man who would force it to impossible earnings or who follows the advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.
Chasing consistent extraordinarily high profits is ultimately the road to financial ruin. BFund manager Bernard Madoff claimed to be bringing in 12% profits every year at his fund. Greed went to investors heads when they heard this and they invested their money with him without thinking too much about it. The whole thing turned out to be a big fraud, and a lot of rich people lost a lot of money. Madoff was extremely educated, experienced, and skilled in finance and yet even he could not bring in 12% consistently without resorting to criminal activity.
Some people laugh at bringing in low returns consistently, but a little caution is better than a big regret. It is a crazy romantic idea to think that you can make above 5% return on your investment without real risk. I'm not saying you shouldn't do it, I'm saying if a good investment comes along, do all the research you can and don't blindly trust others. Its better to drive a slow Mini Cooper safely to your destination, than to drive a speeding Ferrari off a cliff.
The Richest Man in Babylon is a great book and is worthy of an immediate purchase. It is the best financial book I have ever read, and is consistently reccomended by rich and successful people all over the world.
This basically means that you should always be saving money, for a rainy day or for investments. The big banks of today didn't do this, instead they lent all their money out, despite making billions in profits in previous years, and borrowed money from other banks. Times have changed a little since the book was written, so when saving money you should aim to save above 10%, and I usually aim to save well over 50% of my income. You have to start somewhere, so if you can only save 1%, start saving that now, and in future you will find ways of saving more.
2. Gold works diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
If the banks had saved and invested money more wisely, they would not have run out of money.
3. Gold clings to the protection of the cautious owner who invests it under the advice of men wise in its handling.
The banks chased phantom profits and did not invest money wisely. Home loans were made to Ninjas (No Income No Job no Assets). Money was therefore invested with people who had little or no way of paying it back, so this economic crisis was inevitable. Don't do the same with your finances.
4. Gold slips away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keeping.
Diligent skilled financial analysts at banks were replaced with salesmen who wanted to bring in apparent profit at the expense of all else. Banks ended up losing lots of money.
5. Gold flees the man who would force it to impossible earnings or who follows the advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.
Chasing consistent extraordinarily high profits is ultimately the road to financial ruin. BFund manager Bernard Madoff claimed to be bringing in 12% profits every year at his fund. Greed went to investors heads when they heard this and they invested their money with him without thinking too much about it. The whole thing turned out to be a big fraud, and a lot of rich people lost a lot of money. Madoff was extremely educated, experienced, and skilled in finance and yet even he could not bring in 12% consistently without resorting to criminal activity.
Some people laugh at bringing in low returns consistently, but a little caution is better than a big regret. It is a crazy romantic idea to think that you can make above 5% return on your investment without real risk. I'm not saying you shouldn't do it, I'm saying if a good investment comes along, do all the research you can and don't blindly trust others. Its better to drive a slow Mini Cooper safely to your destination, than to drive a speeding Ferrari off a cliff.
The Richest Man in Babylon is a great book and is worthy of an immediate purchase. It is the best financial book I have ever read, and is consistently reccomended by rich and successful people all over the world.
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