I just finished reading the book, the Richest Man in Babylon. This is a short book of probably 150 pages in a decent sized font. The book was written by a college professor in the 1800’s, it was all about stories translated from texts of the ancient city of Babylon. The most interesting take away from the book is that the stories, even though they were written 100s of years ago, are still relevant to many of the financial issues that we as people, millennials especially, continue to face today. The book is about a man named Arkad, who was the richest man in Babylon, even richer than the King. The King sought to find the reasons as to why he was so independently wealthy, so he invited him in for an interview to understand what he learned. In this passage, I will cover some of the lessons and issues they brought up, and show you how they are still relevant today.
Lesson One: ‘Fatten Thy Purse’
One of the first lessons of the book and I believe is the most important is to pay yourself first. How can you expect to be a wealthy man if you do not have any priority of savings in your life? If a man receives 10 pieces of gold a year he is to keep at least 1 of them for himself and adjust his expenses accordingly. We can utilize this same method today by using an extremely powerful financial tool called the 401k or 403B. You can adjust this amount to come right out of your paycheck, Pre-tax or Roth, so the savings are out of sight and out of mind. Trust me, after a while you won’t even realize this money is affecting you because you will naturally adjust your expenses to what you can afford based on the lesser amount. Now what you have to be careful of is the credit card trap. With lines of credit, you still need to save 10% of your wealth but you cannot overspend on credit so that your net worth becomes meaningless.
Lesson Two: ‘Control Thy Expenditures’
This means if you are always buying the best most delicious food, the nicest robes and the finest horses you will have no money left over for creating wealth. What this translates into is if you are buying the latest Apple products, the newest Gucci loafers, always going on vacations or living above your means in a luxury apartment you are not saving because you are spending. The money is going into your pockets then leaving immediately. One of the biggest lessons of the rich is the concept of ‘frugality’. This goes along with another lesson that being wealthy is as simple as spending less than you make. A very simple concept but hard to put into action with the distractions that life throws at us these days. Advertising and credit cards make spending the easiest thing in the world.
Lesson Three: ‘Make Thy Gold Multiply’
The story goes on to give the laws of gold. This would be to put the savings you have(the 10%) into action by investing in smart investments to earn more money. He talks about them as your children and they will have children and multiply. This will make you a very rich man. These investments could be investing in a jeweler, traveler, salesmen, sword makers and in return set up a profit structure to get paid a return plus a rental of money fee also known as interest in this day and age. Today we can invest in things such as real estate, bonds, stocks, funds, gold, commodities etc.
Lesson Four: ‘Guard Thy Treasure from Loss’
Just as Warren Buffet put it, the name of the game is, “never lose money.” Whether that is safeguarding your smart investments, minimizing risk, adding “stop losses” to your trading account, or “protecting your pouch of silver from thieves and foreign armies.”
Lesson Five: ‘Invest in Your Dwelling’
Owning real estate is a great way to build equity and wealth where you live. Every mortgage payment is a way of paying yourself first so that one day you can refinance or sell the property for its future value. This also works well if you live in the property. The value will increase as well as paying down the debt.
Lesson Six: ‘Insure a Future Income’
One of the worries the ancients of Babylon had was that when they get old and tired they will not be able to work as hard and provide for their family. They can mitigate this by ensuring future income when they are older. Making part of your investments long term will help with this. Something we can do in this day in age I invest in long term funds or bonds that we will be able to sell when we retire and live off of the sale of the assets. Or a long term real estate holdings as an investment property. Either way, you want to be prepared for when you are no longer able to work effectively and provide for either yourself or loved ones.
Lesson Seven: ‘Increase Thy Ability to Earn’
Once you have mastered the other lessons it is essential that you increase your wage as to multiply the lessons and become richer. Everyone has something that they are good at and the point is to find that skills and act on it to increase wealth for something that pays the most. If you have a job you need to figure out how to outperform as to get promoted or if you are a business owner how can you increase sales or product lines to bump up your income.
It is crazy to think that these lessons are still relevant in this day and age. When Babylon was uncovered from the sand, archeologists found ancient rock texts with these parables. You see them today to build your wealth as the ancients did in civilizations a long long time ago.