LiaBased on a summary of The Richest Man in Babylon by George S. Clason
To grow your wealth you’ll have to start by saving money. Reading the book “The Richest Man in Babylon” was very interesting and I think it summarizes the essential aspects of saving money and later letting it work and accumulate for you. That’s why I decided to use it as a guideline for the first steps of starting to build wealth and pack everything up in a short summary of the book. So the following outline is a mix of quotes, my personal notes and take aways. Sometimes I also added explanations and additional information.
“I found the road to wealth when I decided that a part of all I earn is mine to keep. And so will you”
The Richest Man in Babylon by George S. Clason
The book is built on the “seven cures for a lean purse”. Those seven rules of money will help you to build wealth:
- Start thy purse to fattening
- Control thy expenditures
- Make thy gold multiply
- Guard thy treasures from loss
- Make of thy dwelling a profitable investment
- Insure a future income
- Increase thy ability to earn
1) Start thy purse to fattening: start saving money
Save at least 10% of your income. And, very important: pay yourself first!
As soon as you get your salary, transfer 10% of it to a separate account which is out of your site and range. Now you can use the remaining money for your expenditures.
My personal input: A little goes a long way. The book says that you should save at least 10% of your income, no matter how little you earn. If your salary just doesn’t allow you to save 10%, adjust the percentage to an amount that suits your personal circumstances. Save as much as you can and ALWAYS pay yourself before you spend money on any other products or services. To save a little amount of money every month, no matter how little it is, will always be better than nothing. The money you put aside will accumulate over time. And I promise you’ll be surprised when throwing a glance at your saving account after a year or two.
2) Control thy expenditures: don’t spend more than you earn
The remaining 90% of your salary will pay for your necessities, enjoyments and satisfy your desires.
Be careful at this point, not to confuse the necessary expenses with your desires. Most of us have more desires than we can afford to fulfil. Often desires get more expensive simultaneously with our increasing income. Or a new one pops up not long after we satisfied another. I know, that’s pretty mean, but be assured, most of us are in this together.
The Richest Man in Babylon, called Arkad also teaches us that we should enjoy life while we’re here. Meaning that we shouldn’t try to overextend and save too much. If you can comfortably save one tenth of your income that’s enough. If you’d like to save more, feel free, but you shouldn’t get afraid to spend and enjoy good things in life.
3) Make thy gold multiply: let your money work for you
“Every gold piece you save is a slave to work for you. Every copper it earns is its child that also can earn for you. If you would become wealthy, then what you save must earn, and its children must earn, that all may help to give to you the abundance you crave.”
I think what is meant at that point is that you should use the compound interest in your favour. For example: having money on a bank account pays you interest. After receiving the interest payment from the bank, you earn more money on your bank account than before. From now on also this money will pay out interest for you. And so on, and so on…
Unfortunately nowadays, the interest payments on bank accounts are so low, they don’t really help to accumulate your wealth. Actually they mostly don’t even cover the money you lose through inflation. (Inflation: when prices rise over a certain time period. Which means your money loses in value.)
4) Guard thy treasures from loss: invest wisely and seek for advice of the wise men
So if a bank account isn’t the right place to let your money work for you, what is? The answer is: making investments that pay off over time. An investment can be made by buying an object whose value will multiple over time, lend money to somebody who pays you an interest rate in return, invest in the stock market, …
For all investments you’ll need some kind of knowledge. Arkad advises to consult wise men, being experts in their field and having learned from their own experience. Learn from them and let their wisdom protect you from unsafe investments.
“And next time if you would have advice about jewels, go to the jewel merchant. If you would know the truth about sheep, go to the herdsman. Advice is one thing that is freely given away, but watch that you take only what is worth having.”
A tiny addition from my side: Always remember, there is no investment providing a big interest without taking any risks. Investments that sound too good to be true, usually are. You can see the interest payment as a compensation for pain and suffering that you get payed for taking a risk. The bigger the risk you take, the bigger the interest payment will be.
5) Make of thy dwelling a profitable investment: own your home
“No man’s family can fully enjoy life unless they do have a plot of ground wherein children can play in the clean earth and where the wife may raise not only blossoms but good rich herbs to feed her family.”
One way to turn a part of the nine left parts of money into a profitable investment is to buy a home. It gives you (and your family) the opportunity to live in a place of your own in a hopefully safe and comfortable environment.
In my personal opinion there are financial pro’s and con’s to be considered before investing in a home for yourself. Not speaking of real estate investment in which you intend rent out or sell the property. Also it can be a very different starting position depending on the country you live in. So all I want to say at this point: Bear in mind that buying a property will need a lot of thinking about and calculating. Which you obviously would have done anyway. That’s if you want it to pay off financially. If your desire is, to earn a home for yourself out of emotional reasons, to have “your own home”, that’s another story. But as we’re talking about finances here, I felt obliged to mention that in my opinion this cure is to take with a pinch of salt 😉
6) Insure a future income: secure your retirement provisions
“Provide in advance for the needs of thy growing age and the protection of thy family.”
This Chapter is about preparing for retirement not only for yourself, but also for protection of your family. The richest man in Babylon recommends to plan in advance and make wise investments in younger age, which will provide a full purse when time makes us less able to earn money. This could be by building a retirement pension or buying property to rent out and generates a steady flow of income.
7) Increase thy ability to earn: strive to become wiser and more knowledgeable
The seventh chapter is about developing your mindset, gaining knowledge and becoming wiser.
“Desires must be simple and definite.”
Arkad tells us, that it’s of little purpose to wish to be rich. But to desire five pieces of gold is a specific desire which can be achieved. So always remember to formulate your goals precisely and clearly in order to reach them.
“The more wisdom we know, the more we may earn.”
In the previous chapters we learned, that we should only invest our money in areas we are experts about. Not only will an open mindset help you to learn new skills, conquer new subject areas and following expand your ability to create new streams of income. It can also lead to a development in the area you are already earning money in.
Reading this article you have taught yourself how to acquire money, how to keep it, and how to use it. I really enjoyed the small book with the story about Arkad written in an “ancient” language and recommend reading it.
Did you like this extended summary of the book The Richest Man in Babylon and was it helpful for you? Let me know in the comments.
*Please note, that this article is not providing financial advice. It is a book summary and reflects my personal opinions and experiences.
