As I stated in my list of books for entrepreneurs, The Richest Man of Babylon is essential reading if you want to learn and understand the principles of saving money and building wealth. When I read the book, I made sure to make notes so that the lessons would be burned into my mind.
I’m never stingy with the information, so here I will share the most valuable lessons that the book teaches. I still recommend reading The Richest Man in Babylon because the stories within the book show you how to apply the knowledge under specific circumstances.
The Most Valuable Lessons from The Richest Man in Babylon
The Richest Man in Babylon Lesson #1: Think of each coin like a child
Think of each dollar / pound like a child. And each child will make more children. And then the children of your children will make more children.
Basically, the money you earn and keep should be thought of as a means of making even more money. If you put yourself in the mindset of using your money to earn more money for yourself, you’ll have the mindset to one day become wealthy. This thinking will put an importance on each and every coin you acquire.
The Richest Man in Babylon Lesson #2: Save one-tenth of all earnings
This lessons sounds so simple that many people don’t actually follow through with it. Our psychology has a way of denying the plain truth sometimes.
Basically, if you save just one-tenth of all the income you earn (which doesn’t sound like much), you’ll soon have a nice chunk of money in the stash. If you earn £1000 per-month, then in one year you’ll have a spare £1200. Now, just imagine how much you’ll have if you have multiple streams of income coming in and you apply the rule to each income?
The goal is to keep earning, and keep saving that one-tenth each time you earn. If you make this a standard rule that you never break, it will make it easier to apply lesson #1 and all of the lessons that follow this rule.
The Richest Man in Babylon Lesson #3: Chose your purchases wisely and act on short-term deals
What turns many people off with money management, is the thought of restricting their spending. Many feel like they can’t enjoy their lives if they give themselves a spending limit, but the truth is, you can still enjoy spending your money if you simply choose your purchases wisely.
A segment in the book suggests that you should make a list off all the things you wish to purchase or spend money on. And then, you should select those that are the most necessary and are possible through the expenditure of nine-tenths of your income. So think hard before putting a big purchase on your credit card.
Additionally, the book suggests that if you see a good enough discount on something you intend to buy anyway, act on it right away before the price has the chance to shoot up again.
Remember, after you save your one-tenth and pay all of your bills, the rest of the money is yours to spend how you wish. But making the right spending decisions will keep money in your hands for longer.
The Richest Man in Babylon Lesson #4: Do not bet money on games
Arkad, one of the characters in the book who is teaching others to be wealthy suggests that it is never worth it to gamble your money at the game tables. Arkad’s reasoning are that although you might find yourself in a lucky winning-streak, it is always the gamekeeper that wins the most. And should you be on the opposite end of a winning streak, the losses will sting.
According to Akard, even if you find yourself in a winning-streak, this streak offers no longterm value to the growth of your money.
In reality, depending where you are, it might be appropriate to make a bet or two. If you’re in New Vegas and want the experience, why not bet a little something as long as it’s not the majority of your travel money? But if you’re the type that gambles weekly, you might want to consider cutting down if you’re trying to build wealth.
The Richest Man in Babylon Lesson #5: Use a portion of your one-tenth to invest in new enterprises
So you’ve been saving your one-tenth of wealth for five years straight. You have multiple streams of income so your savings are now in the five-digit range. What do you do with all this money, besides just letting it sit there?
Our mentor Arkad in The Richest Man in Babylon suggests that you should invest in new enterprises. But don’t just give your money away to anybody. Speak with the people you intend to invest your money with and find out their level of understanding in their industry. If they don’t have a solid plan, then you’re pretty much gambling your money. But if they have thought of every possibility and outcome, and are actively doing the work already, then investing in them can bring you some serious returns on your money over time.
There’s some key things to understand here. Firstly, you should never invest a majority of your savings in something like this. Invest an amount that you won’t miss if you end up losing it.
Secondly, these investments can come in many forms. It could be property, stocks or equity in companies. Just be sure to put the effort into understanding where your money is going. Especially if you’re using middlemen to handle the investments for you.
That’s all the lessons I have to share for now but The Richest Man in Babylon has many more lessons to learn.
Now let your children grow!
