Tower of Babel (Brueghel)Today, it is time to wrap up my review of “The Richest Man in Babylon” (Amazon affiliate link to the revised edition). Previously, I talked about getting started on the path to wealth, and seven wealth building strategies which will help you out on that path. The lessons taught in these posts are expounded in much greater detail in “The Richest Man in Babylon”, as well as other finance books which have come since. Beyond the lessons which I covered in those two posts, there are many additional lessons which the book has to teach, such as the role of luck in building wealth and in life, and it offers a philosophy of living your life in a way that will help you achieve your dreams. As always, the chapter summaries can be read for free on Wikipedia.


As the author sees it, luck is really about grabbing opportunity whenever you see it. You shouldn’t make the mistake that the “gods” dash some people with a measure of good luck and others with misfortune. This concept of luck comes up a lot for those who play poker. Here is an example: in Texas Hold’em, a pair of aces comes around only once every couple hundred of hands, on average. If you happen to pick up a pair of aces, then you have a very strong hand; the best hand relative to everyone else at the table. However, a common mistake made with aces is to “slowplay” with them; this means that you play them in a way that suggests that you have a weak hand when you really have a strong hand. Sometimes, it is good to be deceptive, but the rest of the time, the right play is the straightforward one.

The danger in being deceptive is that once your opponent sees the three cards on the flop, the money is often going in only when you no longer have a strong advantage. Many players in this situation often get angry and tell others how unlucky they are to have their aces cracked, yet again. The truth is, they didn’t take advantage of the opportunity to make the most value out of their hand while it still had value. If they had pushed their advantage preflop, then one possibility is that everyone would fold and they win a small pot, but another possibility is that someone with a second-best hand, such as two kings or two queens, would follow them into the pot. When that happens, they have a 4 out of 5 chance to win the entire pot, so it is a guaranteed money maker.

The main lesson to take away from this is that in life, as in poker, opportunity needs to be taken advantage of when it’s there. There are always risks (even aces can lose preflop against the worst hand in Texas Hold’Em, 7-2 offsuit), but the rewards can more than compensate for the risk. You can get unlucky a few times in a row, but statistically speaking, if the odds are in your favor, then you will win over the long run.

That said, this is also a lesson to never make a habit of gambling at a casino. For most games, the odds are stacked in favor of the house, and it is impossible to win at them over the long run!

Building wealth

My previous post on seven wealth building strategies goes into this in more detail, but again, here are the most important points:

  • Wealth can only be built if you spend less than you earn. It is recommended to invest at least 10% of your earnings. For help in preparing your budget, there are many different tools you can use, such as Gazelle budget.
  • Your investments should be well-diversified in order to reduce risk, and they should be in efficient and liquid investments such as a broad market-index fund that tracks the TSX or S&P 500.
  • To further elaborate on the point above, invest in what you know. If you are going to buy real-estate or stock in a single company, then do your homework, analyze the reports, and ensure that you know what you are doing.
  • If you don’t know, then take advice from those whom are qualified to give it. Don’t take advice from people not qualified or from people who try to sell you promises but don’t deliver results. If something is so good, then why would they need to try so hard to sell it to you?
  • To further elaborate on the above point, read Andrew Hallam’s post about a Bernie Madoff style investment which seemed too good to be true, but delivered for the first few years; in the end, however, it imploded just as Bernie Madoff’s funds did.

Helping family and friends

It is tough to watch a family member or friend struggle financially, but often, the best way to help them is through non-financial means. If they are having trouble paying for groceries, then offer to bring them some food. If they are having difficulty finding a job, then help them to find leads and contacts.

If in the end, you do decide to lend them money, then to avoid trouble and loss, ensure that they have the ability to repay the money. Look at their spending habits and what kind of work they have; i.e. do they have a stable income? Are they blowing lots of their money on cigarettes and beer? Take a look at these factors before lending money to family and friends, and again, that should be a last resort should other means of help not be sufficient.

The importance of insurance

If you are already filthy rich, then maybe insurance is not so important, but if you are not… then think of it as protection against the slim, but real chance that something bad can happen. It might not be likely that your house burns down in a fire, but think about what you would lose if it did? You probably aren’t expecting to total your car this year, but think how much it would set you back financially if you did, and you didn’t have proper insurance. You probably don’t go traveling somewhere expecting to get very sick or die, but imagine how much it will cost for you to pay for medical expenses out of pocket if you don’t have travel insurance.

Insurance is our modern form of protection against bad things happening. The chances of these things happening is slim, but if they happen and you don’t have protection, then the results can be devastating.

The value of motivation and perseverance

In the end, a lot of what we achieve out of life is in part a product of what we put into it. As engineers like to say, “garbage in, garbage out”. Well, the same applies to life.

Depression is an emotion that can hold many of us back from getting to where we want to be. It places us into a catatonic state, where we live just to get through the day, without much hope for the future. This is an emotion that may have had an evolutionary advantage back in our hunter & gatherer days, when a conservation of energy until things got better might have been what we needed to survive. However, in today’s world with an abundance of both food and opportunity, depression often just holds us back.

If you are not happy with your job or where your life is going, there are so many ways to make a difference. You can start being more physically active, which is one way to help yourself get more motivated, or you can even take more drastic change and move to a different city or country, or change your career path completely. You can even go help build houses in Cambodia; imagine how small your troubles will seem when you see what real poverty is like and when you know you’ve made a real difference to help improve someone else’s life!

The last part of this point is that part of how we feel is linked to how much we feel other people value us. If you only treat your work as a way to make money and don’t actualize any part of it into your own life, then chances are you aren’t making yourself valuable to your colleagues and to the company. There are also other ways to self-actualize, such as starting your own company, whether on the side or full-time, and becoming really good at something. Don’t strive to just be “average” at something, try to become good enough that people actually respect your opinion and count on you for advice. Probably easier said than done, but it will feel really good when you get there.

The Richest Man in Babylon

Again, I recommend reading this book; it is a valuable read and contains a lot of interesting parables which go into much more detail than what I described here; consider it the first step of a financial education.

So, have you read this book yet? If so, what did you think?

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Kevin has left the office, and he is currently fighting the rat race by working on his own business. He enjoys exploring unvisited places around the world and gaining new experiences. He believes that by properly managing our energy and time, we can learn to invest our lives wisely.

14 Comments Kevin on May 3rd 2010

14 Responses to “Becoming a Rich Man (or Woman)”

  1. I enjoy reading your philosophical posts about life. Keep them coming. Your photos really add to the quality of your postings as well.


  2. Valentina says:

    Well said Kevin,

    Nugget: “…take advice from those whom are qualified to give it…”
    It is amazing how people will ask for financial advice from those who have no financial success! Why people think that they can get good, qualified advice on money from those who have none is beyond comprehension, yet it seems to be the default mechanism!!!

  3. Valentina,
    You’re right! Here’s a little story you might enjoy: When I first moved to Singapore in 2003, I was approached, at work, by a representative from Raymond James Financial. He was hitting up all the new teachers for business. When he started to sell his “Midas Touch” to me, I said this:
    “Hey, I’ll show you my personal portfolio with statements over the past 5 years and you show me yours. If your results have been better than mine, I’ll invest with you.”
    He didn’t know me from a bar of soap, so he had no reason to believe my results would have been good, disastrous etc. Then I whet his appetite, telling him that I invest $100,000 a year. He left, promising to come back with proof of his personal results for comparison.
    Do you think he ever came back? Nope! I didn’t think he would come back–which is why I said what I did.
    Valentina, if you were a house builder, wouldn’t you have pride in showing the house you built for yourself? Of course you would. If you made jewelry, wouldn’t you be proud to show off your personal rings that you created? Of course.
    You hit the nail on the head, Valentina–by expanding on what Kevin suggested.
    You do have to take advice from qualified people. And being “qualified” is more than just passing a lame series 7 exam or Canadian securities course. Even a certified financial planner can earn their strips with pathetically little “education”—as little as 6 months to complete the CSC and the CFP exam.
    And besides those “qualifications”, there’s the real one: the one that asks, “show me the money”. It’s not based on the size of their personal account but the productivity of it. If they can’t make money in the markets for themselves, then they can’t make it for you.

  4. Valentina says:

    Andrew, you slay me! But the poor guy has to get his career off the ground somehow … eventually some of them actually do become good. :-) Statistics, however, are not very kind to the financial planners as apparently on average they don’t do very much better than $39K per year … the operative word being AVERAGE …

  5. Ahh Valentina, I can tell that you’re kind. But let that neophyte advisor cut his or her teeth on somebody else’s account. You deserve somebody great!


  6. Kevin says:

    I know, I know… I have to make at least my first million before I can be REALLY qualified to be giving other people advice ;)

  7. Probably not Kevin,

    Some guy who earns $200,000 a year can’t boast of a million dollar investment account. But someone earning $50,000 a year definitely can.
    I think it’s all about productivity. Besides, you’re being too modest. I have a feeling you’re well on your way.


    • Kevin says:

      Hey Andrew,

      That’s a good point! I do feel like I have learned a lot over the past few years; since I started this blog adventure I’ve realized how much more there is to learn, and I’m definitely glad that there’s such a great community out there to learn from. Thanks for the comments!

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