10 Critical Life Lessons From The Richest Man In Babylon
The world’s 3rd wealthiest man, Warren Buffet, has used these principles to grow his empire
“The mind is just like a muscle — the more you exercise it, the stronger it gets and the more it can expand.” — Carl Sagan
My friend Alana is one of the humblest and sweetest people I know, and also one of the most brilliant.
She has one of those authentic rags-to-riches stories that leave you awestruck and inspired whenever you hear it. Alana lost both her parents to HIV/AIDS when she was just an infant. She was taken in by a paternal aunt who already had more than her share of shoes to fill.
Her aunt left the country in search for greener pastures when Alana was only 11. She was the eldest of the bunch and was left in charge of her 6 niblings. She dropped out of school and started hawking fruits and vegetables to allow the younger children an opportunity to continue with school.
There is more to the story but in a nutshell, she really is the rose that grew from the concrete.
Fast forward to today, Alana is a multi-millionaire and her empire keeps growing. She is generous with the information regarding how she has attained the success she has in two short decades.
On a sunny afternoon last week, we were discussing an all-time classic, The Richest Man in Babylon, that has transformed both our lives and I made a mental note to share my top 10 lessons from the book.
The Richest Man in Babylon is a 1926 book by George S. Clason that dispenses financial advice through a collection of parables set 4,000 years ago in ancient Babylon. According to Wikipedia, the book is regarded as a classic of personal financial advice.
The key learnings for me from this book are:
Save at least 10 percent of everything you earn and do not confuse your necessary expenses with your desires.
Work hard to improve your skills and ensure a future income because wealth is the result of a reliable income stream.
You cannot arrive at the fullest measure of success until you crush the spirit of procrastination within you.
Who is the richest man in Babylon?
First off, this was such a brilliant title for the book, it piques curiosity.
Before I delve into the critical life lessons I garnered, who was the richest man in Babylon that shared these timeless nuggets of financial wisdom?
The Richest Man in Babylon is a composition of stories told by a fictional Babylonian character called Arkad, a poor scribe who became the richest man in Babylon.
Included in Arkad’s advice are the Seven Cures that detail how to generate money and wealth, and the Five Laws of Gold that detail how to protect and invest wealth.
A core part of Arkad’s advice is around “paying yourself first”, “living within your means”, “investing in what you know”, the importance of “long-term saving”, and “home ownership”
Here are the 10 Critical Life Lessons I Learned From The Richest Man In Babylon That Will Transform Your Life If Adopted.
- Invest in Yourself
“Increase thy ability to earn.”
Investing in yourself means looking at yourself and determining that you are worth your own time. You are worth your money. You are worth your effort.
The most priceless investment in your life is you. Many would say their retirement account or their children. Both are high on the list but without investing in yourself you are really not helping the other two for the better.
Christopher Salem wrote this brilliant article about why it is important to invest in yourself. He said you are the most important when it comes to putting your health first and then toward what you love to do that yields money. However, for many they place themselves last on the list when it comes to investing time, money, and resources.
When other people’s priorities come up or it’s time to sacrifice something, you might be the first to bend.
Investing in your self is not selfish. In fact, by helping make your life better, you will by default make the lives better of everyone else around you. It is the best way to ensure that you are well-taken care in the future, too.
So why is investing in yourself so important?
Think about it, besides being the person you have to spend the most time with, you are also the best example of seeing an immediate return on investment.
When you put your wellness first, you over time you have more energy to increase production at work increase thus yielding more revenue. You are able to add more value to others as you invested first in yourself. Unlike other investments out there, investing in your self is never a risk, because it always pays off.
Even when you make bad investments it is not really a bad thing when you have learned something from it. Failure is part of success as when you learn something from it and apply corrective action; the results you desired manifest it. You gain confidence to come out of your comfort zone often to see sustainable success.
“The more of wisdom we know, the more we may earn,” preaches Arkad. “That man who seeks to learn more of his craft shall be richly rewarded.”
Rich people choose to constantly learn and grow — they would rather be educated than entertained, even after they’ve attained incredible success. Take Warren Buffett, for example, who estimates that 80% of his working day is dedicated to reading.
“Cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself,” says Arkad. “Thereby shalt thou acquire confidence in thyself to achieve thy carefully considered desires.”
You have the power to earn more money by:
- Learning more skills
- Investing in your education
- Making yourself more employable
Always take classes, always improve yourself, and always keep moving forward. Don’t settle.
- Surround Yourself with Winners
“You are a product of your environment.”
Those you spend the most time with have a huge influence on your moods, how you view the world and the expectations you have of yourself.
When you surround yourself with positive people, you’re more likely to adopt empowering beliefs and see life as happening for you instead of to you.
Surround yourself with those who want to become more, those who are striving to achieve something great, those who empower you and push you to be better, those people who make you raise your standards to a higher level, and those who make you believe in yourself that you can achieve greatness.
Surround yourself with those who want more from life, those who are working towards making the world a better place, those individuals who you can learn from, and those who are driven to succeed.
If you want to win with money, you have to surround yourself with financial winners.
Your social environment influences your:
You are a product of your environment. Select it wisely.
- Make Your Money Work For You
“Make Thy Gold Multiply”
Prosperity comes readily when your money multiplies, meaning that one dollar does many jobs.
Your money is disabled when each dollar performs only one or two jobs. Basically, you do not want to put all your eggs in one basket. You want to expand your opportunities for investment so that your money can do the work for you.
Don’t just work for your paycheck.
It is important to find an opportunity that will help multiply your money. This should be a venture that doesn’t require your constant presence. Find something to invest in or something you can create that will be used over and over again by consumers.
Use your paycheck to invest in assets with predictable, steady streams of income.
Money in your bank account won’t make you money. Take advantage of compound interest so you can get rich while you sleep.
- Protect Your Future Income
“Insure a future income.”
“The life of every man proceedeth from his childhood to his old age,” says Arkad. “Therefore do I say that it behooves a man to make preparations for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.”
Plan for your future today before your health may not allow you to work and earn income.
First and foremost, saving money is important because it helps protect you in the event of a financial emergency. Additionally, saving money can help you pay for large purchases, avoid debt, reduce your financial stress, leave a financial legacy, and provide you with a greater sense of financial freedom.
In the book, this concept was so beautifully illustrated.
I am paraphrasing from memory.
Imagine you have a basket that can hold exactly 30 eggs. Every month, you receive 30 eggs and the basket is full (income). However, every month, you take out all the 30 eggs (expenses) so the basket is empty until next time.
It is important that you save at least one egg every month.
If you do, in the first month, the basket will have 31 eggs at the start of the month, in the fifth month, the basket will have 35 eggs; but the 20th month, the basket will not be able to hold the extra eggs.
That is how savings help you build your financial base.
Protect your future income by:
- Saving money today
- Investing in insurance
- Investing in your retirement
When you fail to plan, you plan to fail.
- Life Is Short — Enjoy It
“Your life is happening now.”
Every so often I like to put money and career issues aside, and focus on life beyond money, careers, and success.
We need to recognize that just about anything related to money is a numbers game at its root. Also, money concerns tend to be overwhelmingly future oriented.
In this way, an obsession with the financial future can rob us of the pleasures of today. This is why it is so important to enjoy life now.
Because we do not know how much time we have left.
No matter how grand our future plans may be, the biggest X factor is that we do not know how much time we will have in our lives.
That does not mean that we should live life with a mortal fear that we may die tomorrow, but rather that when we make our plans we need to be well aware of the possibility. And it should have an impact on how we live our lives.
Balance is key and you can’t just focus on the future.
Don’t over-focus on:
- Your future
Maintain a balance between your future and your present.
- Save At Least 10%
“Start thy purse to fattening.”
Most people agree that saving is a good thing, but they find it difficult to do. Believe it or not, it is possible to save for short-term and long-term goals, emergencies, and even retirement. The choice is up to you.
The 70–20–10 Rule
One easy way to save is to follow the 70–20–10 Rule. Divide your income in the following manner:
70% for living expenses (rent, food, clothing, gasoline)
20% for savings
10% for retirement (IRA, 401(k), company pension)
5% for emergencies (car repairs, medical expenses, unemployment)
5% for specific goals (vacation, car, school tuition, a new computer)
10% for debt (student loans, car payments, credit cards)
If you exceed these percentages in any category, reduce your spending in the other areas. For example, if you spend 75% of your income on living expenses, reduce the amount you put into your savings by 5%.
If you want to put more money into your savings, you must reduce your living expenses and/or decrease your debt.
Every time you earn money, save 10% or more — even if you are paying off debt.
Saving money will help your:
Become disciplined enough to save no matter your income.
- Invest in Your Home
“Make of thy dwelling a profitable investment.”
Buy and don’t just rent.
Home ownership allows a person to save without affecting his or her lifestyle, because the money invested is cash that would have been spent on rent anyway. Buying a home allows you to save and invest; without affecting your lifestyle or reducing spending.
The pride of ownership, home value appreciation, mortgage interest deductions, and potential property tax deductions are a few of the best reasons. Other benefits include the capital gains exclusion, preferential tax treatment, building equity through mortgage reduction, and equity loans.
You’ll be putting a lot of money into the property — and its value can rise or fall with the economy. Plus, unlike renting, a house helps you build wealth.
Many experts believe buying a home is a great investment because it’s a fairly safe place to put your money, and home values generally increase over time.
Buy a home where your payments will turn into equity.
Don’t pay a landlord for eternity.
Your home is an investment for your future.
- Don’t Spend More than You Make
“Control thy expenditures.”
My sister and I were having an animated conversation a few years before we read The Richest Man In Babylon.
We were both frustrated that despite all our hard work and fat paychecks, we still had nothing to show for our sweat, financially.
We complained about all the expenses we needed to make to maintain the lifestyle we were used to at the time.
We also realized that the more we were paid, the more lavish we became in our spending. We somehow consistently managed to spend more that we had earned.
We have since learned that it is extremely important that as you earn more money, you save more money.
You will be tempted to spend more money because you can, but don’t allow your mind to trick you.
Control your expenses before they control you.
“A part of all you earn is yours to keep.”
- Invest In What You Know
“Guard thy treasures from loss”
The Richest Man In Babylon emphasizes that it is better to invest in what you know. Invest in what is proven, not the hottest new thing.
There is always going to be a level of risk involved in investing, which is why it’s crucial to be smart about where you invest your money.
“The first sound principle of investment is security for thy principal,” says Arkad. “Is it wise to be intrigued by larger earnings when thy principal may be lost? I say not. The penalty of risk is probable loss. Study carefully, before parting with thy treasure, each assurance that it may be safely reclaimed. Be not misled by thine own romantic desires to make wealth rapidly.”
Investing is a long term game and the “get rich quick” mindset will only set you back. As legendary investor Warren Buffett likes to say, “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”
It can be tricky to figure out the best way to invest your money, but you don’t have to go at it alone.
As you focus on building your income streams, avoid being tempted into hot, new investments.
They could cost you:
Invest in familiar, boring but proven investments.
- Choose Your Mentors Wisely
People love handing out their advice for free.
Do not take advice on finance from a brick layer. Go to people who are experts in a particular subject if you want expert advice. It’s too easy for amateurs to give out advice.
Surround yourself with people who are familiar with money, who work with it each day, and who make lots of it.
Advice is one thing that is freely given away, but watch that you only take what is worth having.
Remember to stick with the plan. Money accrues surprisingly quickly and debts are gone fast with discipline and consistency.
Work attracts friends who admire your industriousness. Work attracts money and opportunity. “Hard work is the best friend I’ve ever had.”
CONTRIBUTED BY Natesky
Read More: Finance 101 in 5 Minutes.