In 1926, George S. Clason published a series of pamphlets written in parables that was set in the ancient city of Babylon. The book became known as The Richest Man in Babylon and has become a classic in financial literature.
The story sprang from the characters Bansir who was a chariot builder and Kobbi who was a musician. The two had become the best at their craft but yet had no money and were poor. They went out to seek the advice of their childhood friend Arkad who in contrast had grown very rich and amassed fortunes.
The lessons that Arkad provided for his friends was the premise of the book and they are lessons of wealth building habits.
1. Pay Ourselves First ( “Start thy purse to fattening.”)
One of the greatest lesson the book has taught is this first lesson. When Bansir and Kobbi seeked the advice of their very wealthy friend Arkad he tells them a story. Arkad was once a poor scribe who made a deal with a rich man to find out the secret to wealth in exchange for his work on a clay inscription. The rich man gave him a very valuable advice “I found the road to wealth,” he said, “When I decided that a part of all I earned was mine to keep. And so will you.” Although this is a very subtle message it is very powerful in accumulating wealth. We cannot accumulate wealth if we do not save what we earned. We can do that by paying ourselves first and foremost before we spend any of the money we have earned.
“If you have not acquired more than a bare existence in the years since we were youths, it is because you either have failed to learn the laws that govern the building of wealth, or else you do not observe them.”
“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford. “
“Pay yourself first”
2. Live below our means (“Control thy expenditures”)
If we have paid ourselves first at least 10% of what we earn that leaves us with 90% or less of our income to live on. Controlling our expenditures enable us to make good use of the money we have left over after we have paid ourselves.
“Budget your expenses so that you may have money to pay for your necessities, to pay for your enjoyments and to gratify your worthwhile desires without spending more than nine-tenths of your earnings.”
3. Make our money work for us (“Make thy gold multiply”)
Every one of us should think about investing only after we have built our savings and an Emergency Fund. After we have accumulated 6-8 months worth of expenses in our Emergency Fund it is only then that we should consider about investing our money on other investment vehicles. Our Emergency Fund is a security blanket especially if an ’emergency’ happens. Of course if you haven’t got a fund for emergencies and need money in a hurry, Loansmart can help with an emergency loan – only 3 minutes to apply.
…put each coin to work so that it may reproduce its kind even as the flocks of the field and help bring to you more income, a stream of wealth that will flow constantly into your purse.”
If everything else is good and gravy, making our money work for us is a great way to accumulate wealth. There are many investment vehicles we can tackle but the best thing we should all be aware of is that we should never invest in anything we do not completely understand. Investing our money will mean becoming knowledgeable about what we are investing in as well as the repercussions if the investment does not pan out as well as our potential exit strategies when we are ready to take our money out. There are many ways we can invest our money such as stock markets, real estate, businesses, and so on. We must do our diligent effort to find great investments so we ensure our money will multiply and work for us.
We should also invest our money to ensure we have a steady and safe income while taking advantage of compounding interest we receive from our investments. Time is our biggest ally and as our investment accumulate interest and the money we get from the interest earns interest and so on this is how we can make our gold multiply.
4. Insurance protects our wealth (“Guard they treasures from loss.”)
Have you ever had a car accident? Insurance helps safeguard our wealth by absorbing potential loss and mitigating our financial situation. There are many insurance we can buy and we should do our research on which one and how much we need. A renter’s insurance or a homeowner’s insurance helps protect our homes. Another one is long term insurance which become suitable to help us as we grow older and help protect us from medical expenses and long-term care.
We should all consider buying insurance now in case we need it if something happens. This is a proactive approach and one we should take and not forget. The idea is that we will never have to use the insurance but in case something does happen we are protected financially from the loss it would have caused.
5. Our home is our biggest expense (“Make of they dwelling a profitable investment”)
Our homes are potentially the biggest expense we have to tackle. Many of us do not own a home and instead rent one. There is absolutely nothing wrong with that, whatever the case we should manage our biggest expense smartly. Since our home is our biggest expense we must play great defense in this arena to lessen that expense as much as possible.
6. Have a retirement plan (“Insure a future income.”)
A 25 year old earning an annual salary of $40,000 with an annual raise of say 3% will have earned an estimated $3 million if they retire by age 65. That’s about 40 years of working and earning. We should have a retirement plan if we want to retire comfortably. We can do that by setting aside money to be invested for our retirement. There are many retirement investment plans out there like KiwiSaver etc. The younger we can start putting money away for our retirement the better. When we start putting money away for retirement early we take advantage of a magical thing called ‘compounding interest‘.
Compounding interest is known as the eight wonder of the world.
“Remember that money is of a prolific generating nature. Money can beget money, and its offspring can beget more.” – Benjamin Franklin
7. Invest in ourselves (“Increase thy ability to earn.”)
The best way we can increase our earning is by investing in ourselves. We can do that by continually learning and striving to develop ourselves. We are now in a very exciting time: the Information Age where knowledge is literally within our fingertips thanks to the Internet.
“Those eager to grasp opportunities for their betterment, do attract the interest of the goddess of fortune. She is ever anxious to help those who please her. And who is she pleased with? She is pleased with those who do – rather than those who merely talk and engage in wishful thinking. Action will lead you forth to the successes you desire.”
There are many things we can learn on our own and should strive to make ourselves well-rounded. Whether we learn to eat more healthy, enhance our current work skills, or learn to make more money, we must take the initiative to invest in ourselves. When we become smarter and wiser our ability to earn more also increases.
The 5 Rules of Gold from the “Richest Man in Babylon”
- Gold comes 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
- Gold labours diligently and contentedly for the wiser owner who finds fir it profitable employment, multiplying even as the flocks of the field
- Gold clings to the protection of the cautious owner who invests it under the advice of men wise in its handling
- Gold slips away from the man who invests it in business or purposes with which he is not familiar or which are not approved by those skilled in its keep
- Gold flees the man who would force it to impossible earnings or who follows the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment
8. Track Our Wealth (Know where you are and where you are going.)
In order for us to know where we stand financially we need to face the whole truth of our current situation. We can do that by tracking our current wealth or lack thereof. This is a tough exercise but we must face the truth of how we earn and spend our money in order for us to know where we are going. There is a big difference between wealthy people and those who are not, wealthy people know their net worth while the poor do not pay particular attention nor care at all about tracking their assets and liabilities.
“You cannot manage what you do not measure.” – Bill Hewitt (co-founder of Hewlett Packard)
We can track our wealth by creating a spreadsheet of all our months earnings and expenses and tallying the difference between the money we earn and how much we spend. When we do this work we are able to gauge how we are doing financially. We can also track our net worth by calculating our assets versus our liabilities (our debt). If you have not done this work yourself it is an eye-opening experience. In order for us to fully develop a plan to be wealthy we need to learn how to track our wealth so that we may know where we want to go and create a plan to get there.
We highly recommend you acquire a copy of The Richest Man in Babylon or borrow it from your library – it could change your life.
adapted from source…