My Learning from "The Richest Man In Babylon"

"A Part of all you earn is yours to keep."  - Arkad Money is one of the most essential part of one's life, but the subject of money is not taught in our schools. It is quite unfortunate, but they don't teach how to get rich in school. So in my journey to financial wellness, this is one of the first book on money I read - The Richest Man in Babylon by George S Clason, published in 1926, provided me with great insights and wisdom on the subject of financial planning and personal wealth.

The story has Bansir, a chariot builder and Kobbi, a musician who were best at their craft yet they were poor.  In contrast, their childhood friend Arkad had grown to be the richest man in Babylon. They go to seek advice from their friend on why fate has been so kind to him while they received no favor. Arkad did not agree to their idea of fate being responsible. According to him, it is his friends lack of knowledge of the principles which govern the acquisition of wealth is the key reason for their failure to be wealthy.

Simple as the above statement may sound, the message that Arkad is conveying is of immense value. I have tried to summarize some of the lessons I have learnt from this financial classic.

1. “Start thy purse to fattening.”  

Pay yourself first! This message is very powerful in accumulating wealth. It is a tough lesson for many of us to learn, as we generally do the spending first and then if something is left behind, that money will go into saving instruments. However, the right way is to keep aside a percentage of your income in form of savings first before paying others or spending the money. In good times and bad, I have been consistently trying to save a significant portion of my income for my retirement, which most likely will be one of the largest expense of my life.

2. “Control thy expenditures.”  

Live within your means. Keep a firm hold on the discretionary spends. Discretionary spends are most often things that are “wants” rather than “needs”. The necessary expenses will always grow to match the income unless one resist that urge, so I started budgeting my expenses so that I may have money to pay for my enjoyments and gratify my desires without spending more than 50% of my earnings. This simple piece of advice was probably the most important key to my financial success.

3. “Make thy gold multiply.”  

Saving up money is not sufficient to become wealthy. We must seek investment opportunities and make our money work for us. I have been investing my money smartly so that it can compound to generate wealth to accomplish all my life goals.

4. “Guard thy treasures from loss.”

The first sound principal of investment is security of the principal. We must avoid instant get rich schemes or over promising investments. There will always be some kind of risk involved in investing, so it's extremely important to understand the risk & invest smartly. Remember, it is better to be a little cautious than have a great regret.

5. “Make of thy dwelling a profitable investment.”  

Own a house where you live. Ensure that the mortgage payment for the house is not more than your earning.  I wonder if Mr.George S Clason would still hold to this one as a law in the year 2020, where there are times when it is better to rent than owning a home.

6. “Insure a future income”.  

Retirement Savings and Insurance are two of the most vital steps that you can’t afford to ignore. Every person gets old. Make sure your income will continue without work. Start investing early and you will watch the magic of compounding aid you in the accumulation of wealth for your retirement. Also, make sure that you are adequately insured. The right amount of Term Insurance is vital to ensure that your family is protected in case of your untimely death. Get a health insurance to avoid hefty medical expenses which can erode accumulated wealth significantly. Emergencies happen in life but one tends to think that it will not happen to them.

7. “Improve thy ability to earn”.  

Invest in yourself and your earning power. Educate yourself. Improve your skills. There are so many ways to constantly educate ourselves in the area of our interest. Most people quit learning when they finish college, while the successful ones keep learning and improving. Always improve your ability to earn, either by improving your skill-set in your job, or by increasing your knowledge of investment activities.The smarter and wiser we become, our ability to earn more will also increase.

8. "Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handlings".

One of the biggest lessons that I learnt was to go to people who are experts in a particular subject if you want expert advice. Everyone has opinions about everything and it is too easy for amateurs to give out advice. Consulting with wise men and securing the advice of those experienced in business is essential. I became more and more stringent with whose advice I listen to.

9. "Men of action are favored by the Goddess of good luck" .

Get luck on your side. Good luck waits to come to that man who accepts opportunity. Luck is not some random event. It is earned through skills and connections that is built up over time. Hard work will help spotting opportunities and we need to seize them without procrastination. Wealth grows wherever men exert energy.

This is a book that you must read if you want to become rich. I also believe that this is a perfect book for the kids to learn about wealth management as the entire book is written in a short stories format. In each of the short stories we learn simple lessons in financial wisdom. From The Seven Cures for a Lean Purse to The Five Laws of Gold, you will learn personal finance lessons that will always be relevant. The lessons in this book may be ancient, but they are absolutely timeless.

"Money is plentiful for those who understand the simple laws which govern its acquisition" - George S Clason