One of the best ways to improve your financial habits is to learn as much as possible and the best way is to read a great book on personal finance. From that collection of books, WealthDrift brings you a book named “The Richest Man in Babylon”, which is written by George S. Clason. It is one of those books that successful people, who pursued financial freedom, often recommend to read and follow its principles.
Summary of the book ‘The Richest Man in Babylon’ at glance:
The author starts his book “The Richest Man in Babylon” with a story of a person named Bansir (shield maker) who works for money and spends it and again goes to work for the same and cycle continues. Bansir along with his musician friend Kobbi, seeks out how to make gold (their currency). They, along with a group of people, pay a visit to his old friend, Arkad, now the richest man in Babylon. Arkad tells his story of how he became rich and continues to grow his wealth year to year.
Arkad tells the following seven cures for a lean purse and also explains five laws of gold to them.
Seven Cures for a lean purse:
- The First Cure – Start thy purse to fattening – (Keep 1/10th of your earning to yourself before you pay your bills)
- The Second Cure – Control thy expenditures – (Fact of life – Our expenses grow with our income. Therefore, tame your desires and limit them to 9/10th of your income).
- The Third Cure – Make thy gold multiply – (Invest your cumulative saved 1/10th income and multiply it)
- The Fourth Cure – Guard thy treasures against loss – (Invest your money only where you have the knowledge and don’t get trapped into scam investment)
- The Fifth Cure – Make of thy dwelling a profitable investment – (Own your home rather paying high rents to landlord ) – Some may argue against this cure in today’s time.
- The Sixth Cure – Insure a future income – (Prepare yourself for retirement days financially)
- The Seventh Cure – Increase thy ability to earn – (Increase your skills to earn more)
Five Laws of Gold (Currency)– Excerpts from the book
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.
2. Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
3. Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
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 skills in its keep.
5. Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of trickster and schemers or who trusts it to his inexperience and romantic desires in investment.
Further, in the book ‘The Richest Man in Babylon’ author tries to make us understand the following lessons also –
- Never lend your money to anyone who cannot repay.
- Have adequate protection from people that might try to take what is yours.
- ‘Goddess of Luck favours those who are determined to take risks and work hard for their dreams.
- Don’t give up at the first sign of adversity. Stay focussed and determined.
- Debt is the barrier to growing your wealth, get rid of it as early as possible.
Here the top 10 lessons that Wealth Drift brings to you from the book ‘The Richest Man in Babylon’:
1. Start paying yourself first
This means that you must keep aside at least 10% of your income and pay yourself first. This point is actually the bottom line of this book. You shall keep this money aside even you are broke or paying off your debts. This activity could be difficult at first depending upon your spending habits.
Surprisingly, your money is not exactly your money because you immediately spend it on various things such as rent, food, or items you don’t even need. You won’t notice any difference in your life if you start keeping 10% tucked away somewhere and will eventually learn to live with that.
You cannot accumulate wealth if you do not save what you earned. The difference between rich vs poor people is that wealthy people know and follow this rule where poor does not. That is the most important building block to start your wealth creation. The amount you are going to keep aside should not be less than the 1/10th of your income no matter how small you earn. You can keep it as much as you can afford.
2. Spend less than you earn
This rule asks you to live within your means and avoid lifestyle inflation which comes with an increase in your income. The unusual truth of humanity is that necessary expenses what you call them always grow proportionately to your income unless you protest. So you should always try to keep these expenses in check and maintain it and kill your desire to spend extravagantly.
Keeping your spending in limit does not mean you should deprive yourself of everything. Most people, especially young, spend every penny of their paycheck. Limiting your expenditures enable you to make good use of the money you have saved and paid to yourself.
The best advice is to keep spending habits in check and maintain the same expense level even if you get a raise. Assess what is your necessary living needs not your wants and desires. Never cross spending more than 9/10th of your earnings. Then only you can save money which will pay for your necessities, enjoyments and will even lead you to the path of becoming wealthy.
3. Multiply your money by investing it properly
Put your saved money to work by doing smart investments and take advantage of time and compounding interest. Your wealth should be extended beyond your income. Compounding can make you go up and even make you fall. When compounding is your invested money, consider you will go up. On the other hand, when compounding is your borrowings, then it will pull you down.
Most people make someone else rich by spending on things that will rust, rot, or deteriorate to zero net worth. E.g. spending on expensive cars, clothing, watches, jewelry, etc. Investing your money has been voiced in many books such as Robert Kiyosaki Rich Dad Poor Dad and Kevin O’Leary’s Shark Tank.
In fact, what smart people are doing, they are saving any penny they can save and investing it to make more money. There are various ways you can invest your money such as shares, mutual funds, government bonds, real estate, businesses, etc. With time your investment will accumulate interest and that interest will earn more interest to make your wealth multiply.
You can read our article on the safest investment options. Click here to read
4. Secure your hard-earned money
Investments are subjected to market risk and not every investment bears fruit. Preventing every loss can be difficult however there are ways you can minimize your risks. You can learn about risks associated with the stock market or investing in a whole new business. You should diversify your portfolio and as your wealth increases consult financial advisers with more experience to address financial or legal issues.
Before you step into something, learn about it first. Because beginners are more prone to make mistakes during investing and managing their funds. Always remember and follow the rule – ‘Never lose your principal money.’ Always beware of the instrument you are using for saving and investing to multiply your money.
You can buy insurance to safeguard your wealth in case if something bad happens. There are many insurances, therefore, you should do your research for which one to buy. Insurances hold the capacity to absorb the potential loss and mitigate our financial situation. By the way, taking insurance is a proactive approach you can do.
5. Safeguard your retirement and family future
You must have a retirement plan to retire comfortably. Younger you start putting money away for retirement, much better will be your retirement. You are not safeguarding yourself but your family also at the time of your retirement. You will take the best advantage of ‘compounding interest’ at the time of retirement. By the way, Compounding is known as the 8th wonder of the world.
At present, by the rule of EPFO (Employees’ Provident Fund Organization) the employers and the employees contribute 12% each (24% total) of basic salary and dearness allowance monthly. This monthly contribution helps you to avail tax benefits under Section 80CC, also you save a good tax on both the interest and money received on superannuation. You can also increase your EPF contribution to save and avail yourself more money at the time of retirement.
6. Enhance your ability to earn more
You should use every opportunity to gain more skills and improve upon your abilities to earn more. You can train yourself at home, you can go to classes and even you can leverage any skill-building trainings offered at your workplace. Remember, the more wisdom you know, the more you will earn.
Learning should be your lifelong goal and remember, increased skills are well rewarded everywhere. Also, you would not like doing the same thing in your 50s as what you are doing now. The majority of people after work go home watch TV and do nothing to improve themselves and rot their brains to die broke ultimately.
Of course, you do not want that to happen with you, therefore upgrade your skills & wisdom for the best fortune & luck in the future. Wealth will be around those who deserve it. Thanks to World Wide Web (Internet) the Information age has come where who has the most knowledge wins and earns more.
7. Always take advice from an expert in that field and only invest your money in the field you know
The only knowledgeable person who understands where he is investing money can save himself from bad financial loss. You will lose your money if you put it to foolish use or let greed cloud your judgment. Crazier things have been done and accomplished in this world so far. There are various rags to riches stories float around us.
Billionaires like Sam Walton/Warren Buffett choose the path to build wealth slowly rather than rushing into an opportunity. They were always very conservative with their investments. What this means is that if you invest money in businesses you aren’t familiar with or if you buy into scammers or if you spend money based on your inexperience or emotional urges, you will lose it.
If you have a problem with teeth, you would go to the dentist, not to an engineer. Therefore, you should take advice only from people who are skilled in that field. You should only trust your money to someone who is a knowledgeable financial advisor/expert. Learn it and then earn it because it’s easy for people who are scammers to mislead you to do the biggest regret on your hard-earned money.
8. Never think of borrowing & never lend your money to these people
The lesson to the borrower – A debt-ridden person can never think of saving and investing money because all of his money goes to the lenders. Further, ill-fortune follows a person who thinks of borrowings than repaying. Every person who borrows money destroys his future self. That’s why you should never think of borrowing if in case you have to, then repay the borrowed money as fast as possible.
The lesson to the lender – A lender should never lend money to a borrower who cannot pay. Never lend to people who are unwise with their investment or who are lazy and take shortcuts to make money fast. These people will soon lose all of their money or use their money on unnecessary things and would not repay him. While lending you should always look for equivalent security such as property or jewels with greater value than the loan.
9. Follow this Budget Rule: 10/70/20
Having a proper budget can improve financial habits and fulfill your basic needs as well as pay for your most valuable enjoyment. By following this budget, with time and discipline, you will be able to make a good amount of wealth.
Budget as per this book –
10% – Paying to self and saving for future investments.
20% – Pay off your debt with this money as early as possible even when you are broke.
70% – Pay for your necessary expense such as food, home, clothes, charity, and joy.
Although, the above (%) break up differ from Elizabeth Warren’s popular budget rule of 50/20/30: 50% on your needs, 30% on your wants, and 20% on savings. However, budgeting of any kind which works for you is the best way to control your overspending and better your financial life. Overspending on unnecessary things will lead you to borrow money which will become too difficult to pay off ultimately and will ruin your life.
10. Just don’t wish for cash instead be determined and work for it.
There are no shortcuts to success. Even if you win a million-dollar lottery, you would not have that money mindset to grow the same. Eventually, the winning amount will depreciate to zero value and you’ll be broke again.
Rather than wishing luck, work towards having a consistent and growing system for making more money constantly. The harder you work, the luckier you get on the path of success. It is not how much you have, it is how much money you keep and keep making in the future.
Broke people spend their money on stuff that will never bring them more money, like expensive clothes, food, and entertainment. While rich people instead, invest in themselves, hone their skills, or create income-generating opportunities to earn more.
To become rich, you need to have strong determination, a hard-working attitude, and good discipline. Remember fortune favours the bold.
At last, we just want to say, build your wealth and track it. There is a big difference between rich people and poor people that the rich always track their wealth and know their net worth while the poor do not care.
“You cannot manage what you do not measure.” – Bill Hewitt (co-founder of Hewlett Packard)
Well, that’s all with the lesson from the book ‘The Richest Man in Babylon’. Implement these lessons in your life to become wealthy. Always be compassionate.
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