Years ago, I had an encounter with ‘Doc’, a physician in charge of a diagnostics company in Mumbai.
He very graciously came to my aid during a medical emergency, and being an investment adviser, the best way I could return favour was by offering financial guidance.
Doc was a success in his field. His firm was servicing a huge number of multi-national companies. He was young, dynamic and effectively supervised a team of 20 to grow the company into a market leader in the pathology laboratory space. That’s the good part.
The goof up, if one could call it that, was that he invested all his time and energy solely into growing the business. The trade-off being that his own personal wealth creation took a backseat, after all one requires time and effort to create, nurture and grow one’s assets intelligently. So, while he was undoubtedly working hard at making a living, he was not really on a path to creating a financially secure life.
Why am I narrating this incident? Because Doc’s situation threw me back to the characters of the book The Richest Man in Babylon by George Clayson. Let me elucidate.
Same story, different time...
The book’s main narrative revolves around two friends Bansir and Kobbi. The first chapter sets the stage. Bansir is a chariot builder and Kobbi is a lyre player. Kobbi approaches the former to consider loaning him some money. To his utter amazement, Bansir is not a wealthy man and in no position to make that loan.
Here’s the plight they both found themselves in. Both had specific skills. Both were hard working. Both resided in Babylon, the richest city on earth at that time. But neither possessed any gold, the ultimate measure of success in those days.
Enter the third character, an old friend Arkad. Arkad is generous and rich, rich enough to the be dubbed (you guessed it) the richest man in Babylon.
Here’s the conundrum. At one time, all three were on an equal footing; studied under the same master, lived in the same neighbourhood, and played the same games. Each attained a skill and worked hard in their profession. What tilted the scales in favour of Arkad?
Arkad gifts them his five rules of gold, which are timeless and points to the fact that money is still governed by the same laws as it was on the streets of Babylon thousands of years ago.
1) Gold cometh 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.
Doc was making minimum payments towards his high-interest personal and vehicle loans, which no doubt enabled him to maintain a high lifestyle and comfort level.
We worked out a budget and started paying less toward the lifestyle wants and allowed for savings to take place. It was not 10%, but at least a start towards his rainy-day fund. That move paid off. Eventually, he cleared both the loans and started saving over 25% of his salary.
Pay yourself first.
2) Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
We opened a fixed deposit sweep-in facility for his bank account. Once we opened a mutual fund account, we linked it to his goal of owning a home in Mumbai. Doc's money multiplies each year, consistently.
Consistency counts.
3) Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
We do quarterly meetings and discuss simple strategies to meet his goals. He negotiated a home rental and cell phone allowance from his employer. Every bonus or raise is directed towards his investments.
Exercise restraint over your money.
4) Gold slippeth 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 keep.
Doc was saddled with a high-premium insurance plan started by his father. Because his father had passed a few years ago, there was an emotional attachment to that policy.
After a careful analysis of the costs and benefits, and a realization that insurance is for covering risk and is not an investment, he agreed to surrender the policy and bought term insurance instead.
Value the advice given by experts and execute the strategies recommended.
5) Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.
Doc has a real estate investment gone bad. The builder has fled. Doc has taken him to court but in the bargain has spent a significant amount of money on legal proceedings, with no real outcome in sight. Though the case is still in the court, until the builder is located Doc will not be actively pursuing it.
If it is too good to be true, it usually is not true.
Five years down the road, Doc is firmly on track in terms of stability and clarity in his financial life.
My final advice, pick up that book and give it a read.