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I have recently finished reading a fictional tale that is widely revered in the personal finance community. It is called The Richest Man in Babylon and it offers a myriad of lessons when it comes to managing, saving, and investing one's money. This book was written more than three centuries ago. In fact, most Americans cannot read and understand what is being taught in this story, but they are interested and fascinated because it provides tangible advice about how to live in an advanced society during the middle ages.
As you will soon find out, many of these stories have been adapted into movies and television series, which has made them even more popular. What began as entertainment and teaching a few simple principles have now become extremely lucrative books, both for the avid reader and those who simply want to learn something new. This particular work by author Ben Kaufman, titled "The Richest Man In Babylon," is no exception.
The core message of the book is simply summarized by the term "manage your financial future." If you do nothing else, make sure you take some time today to read this wonderful book and reflect on all the insights it can provide you with.
The first lesson outlined in the book is to invest wisely so as to build a healthy portfolio. Most successful investors are among those who use their knowledge of stocks and bonds to create portfolios that fit their risk tolerance and goals. They invest directly into securities without taking any sort of ownership position, and only after doing extensive research and getting recommendations from people whom they trust.
Kaufman goes on to outline the importance of diversification and understanding how different investments work together and how they complement each other. He also outlines the value of having money invested in real estate, which is one of the fastest-growing investment platforms to date. Real estate allows individuals to rent or buy real estate at a higher rate than stocks and bonds (at least in terms of growth), and because real estate tends to be a long-term asset, there is potential to accumulate wealth over a longer period of time.
One thing that stands out the most from the book is his firm belief in using technology to support human decision-making. While not necessarily the primary purpose of many of the stories contained therein, he says that technological progress is good, if done properly, but can also lead humans to making poor decisions about certain things. For instance, a person may decide to put up a fence in order to keep animals away from their property, but instead of building the fence, she runs across in someone's yard. She then must move back two hundred yards before she can get another fence installed, and for every one yard she takes on her own, there is an opportunity cost of fifty miles or less to drive over some distance in the direction of where she had intended to go. Technology should help facilitate human interactions, but it can also hinder our ability to achieve proper relationships with other people.
The last part of the book that stood out to me was his idea of creating a universal currency that would replace silver coins into a digital form. Even though gold is still a valuable metal and worth quite a bit of money, everyone would prefer to carry around a plastic coin rather than store it under their mattress. Many cryptocurrencies exist, but most rely on fiat currencies. Fiat currencies are backed by governments, whereas cryptocurrencies are based on blockchain technology. Blockchain technology requires no third party to validate transactions, nor does it require permission by anyone to access funds from outside sources. As such, it could potentially provide safer and more streamlined ways for investors to send money without worrying about its safety for government agencies, while simultaneously providing investors with better control and security. Although it would certainly reduce the amount of paper required to manage your finances, I feel like it would also increase accessibility to cryptocurrency products and services.
In conclusion, the book can seem overwhelming at first glance, but once you begin to digest the information and absorb the practical principles, it becomes much easier to implement. You can do so more effectively if you know what to look for and what factors to consider as you develop your investment plan for the next generation. All in all, the book offers some invaluable insight into what money looks like, how we spend it, and why we need to pay taxes to support the world we live in.