The Richest Man in Babylon

If you could choose between a bag of gold or wisdom – which would you choose?

The Richest Man in Babylon is by George S. Clason and is one of the most popular personal finance books. Although it is written in 1926, a lot of the insights from the book are still some of the best advice you can get. The chapters of the book cover different stories set in Babylon, the wealthiest city of the ancient world 8000 years ago. Many of the stories revolve around Arkad, the richest man of Babylon that was once a poor scribe. For Arkad, wealth-building is a matter of learning and following the rules of the game. His friends asked how is it that “fate” brought him so much wealth, but Arkad responded that fate or luck might bring someone riches, but if they don’t know how to keep or grow the money, they will only come to ruin.

Here are 5 lessons you need to learn to build your wealth:

Lesson 1: Budget and save

Budgeting is common sense, but not everyone does it, and not everyone sticks to it. Some are turned off by the thought of having to cut down on fun, shopping, travel, etc. But think about it this way: budgeting is about discipline, not restriction. What Clason suggests is to put aside 10% of your income into your savings as soon as you get it, and then budget for what is possible with 90% of your income.

In one story, Arkad addresses a room of 100 men eager to learn from him the secrets to getting rich. He points out that each of them have different trades that earn them an income: why not use that source of wealth you have? He turns to an egg merchant and asks, if you put 10 eggs in a basket every morning and take out 9 eggs every evening, what will happen? The egg merchant replies that it will overflow, because he would be putting in one more egg than he takes out.

The same logic is true of money: simply spend less than you earn. You’ll find that the 10% won’t even make much of a difference in your life, because it is possible to cover your basic expenses as well as indulge in what you want. What budgeting does it that forces you to reflect on what you actually value in your life, so that on a day to day basis, you can be protected by all the distractions that tell you you should buy this or that.
Don’t confuse your temporary desires with “necessary expenses.” Otherwise, even if you get a promotion next year, the amount you spend will grow as much as your income increases.

Lesson 2: Accumulate wisdom

Building wealth requires wisdom. In the book, almost every story involves a conversation or lecture, either Arkad or someone else is transmitting his knowledge to someone else. When Arkad was labouring hard as a scribe, his life changed when he met Algamish a successful money lender, who was willing to give him financial advice and mentor him over the years. So a great way to build your wisdom is to get advice from the experts: get a mentor, read a book, attend courses.

Part of wisdom is also knowing how to defend your wealth against loss. When he was young, Arkad gave his money to a brickmaker, who said he could buy rare jewels that they would be able to sell for a good profit. Hearing this, Algamish asked, why would you listen to a brickmaker about jewelry? Sure enough, the brickmaker was conned into buying worthless glass, and Arkad lost his money. Maybe you’ve been tempted to put in some money into an investment a friend of a friend said is a sure-win. But how much research have you done on it? What do the experts you trust say about it? How much are you putting at risk? Or maybe a cousin is asking you to borrow a substantial amount of money. Assuming you want to get it back, do they have the capacity to pay it back in the future? Would you be taking on a burden if you loaned them that money?
As Clason writes, “Better a little caution than great regret.”

Lesson 3: Make your money work for you

“Wealth, like a tree, starts from a tiny seed.” But whatever you save will stay a seed unless you actively grow it. Wealth is not the money you have; wealth is your stream of income. Whether it’s real estate or other investments, you have to make your money work for you so that you can grow your wealth and secure your future.

One part of making your money work for you is to take advantage of opportunities that come your way. In the book, an old merchant tells of a time in his youth when the son of his father’s friend wanted to buy a tract of barren land, make it into fertile soil, and sell divided parts of the land to residents of the city for herb patches. Not having enough money, he invites a group of people, including the merchant, to invest 10% of their earnings into the land with him; they would divide the earnings equally. His father advised him to grab the opportunity, but he hesitated: there were new robes he wanted to buy for him and his wife. He delayed the decision until it was too late. Later, that venture became more profitable than any of them could’ve imagined.

Caution is good, but once you see a good opportunity, don’t procrastinate; don’t let it get away. We don’t attract good luck by gambling or playing on chance, but by taking action with wisdom.

Lesson 4: Increase your earning capacity

If you could choose between a bag of gold or wisdom – which would you choose?

Arkad sent his son, Nomasir, with a bag of gold and a tablet carved with the laws of gold to a distant land, telling him to come back in 10 years. If he proved worthy, Arkad would make him heir to his estate. But very quickly Nomasir lost his gold to a scam as well as a bad investment. He remembered the tablet, and guided by the wisdom on it, began earning back the money he lost and much more — all by gaining experience and learning.

Invest in yourself and commit to deepening your skills. The effort you put in to increase your value won’t go unnoticed by those around you. Along the way, the new experience and expertise you have will attract new opportunities to build your wealth. The important thing is to keep learning and avoid stagnancy. Money can come and go, but wisdom and knowledge stays with you.

Lesson 5: You will make mistakes, but keep going

Even after Arkad learned from his mentor, he still made mistakes. Once, he saved for 12 months, only to lose his money to a bad investment due to faulty advice. So he starts again, saving for 12 months, and provided capital for a shieldmaker’s venture, earning a good return every quarter. But he ends up spending that money on food and wine and clothes — not putting his money to work. Still, he keeps going, learning his lessons and building more wealth along the way.

In another story, a man becomes a slave because of his debt. Even after he was released, he had a slave mindset, wanting to give up to despair as he traveled through the desert to Babylon. Eventually, he realised that if he had the soul of a free man, wouldn’t he just keep going, repay his debts, make his wife and parents happy?
We’re human, so we need to get comfortable with mistakes. Failure is normal, frustration is normal, confusion is normal. Whether you’re learning to invest or trying to get out of debt, you have to be determined to see things through.

Our Thoughts

This book touches the most important aspects of becoming wealthy, which is to increase your earning capacity. The fastest way to do that is to accumulate wisdom by learning from people who are already where you want to be. Ask them for advice and do what they say because they have already gone through making all the mistakes.

The mistakes will happen, but if you continue to persist, you will definitely become successful.

Once you make over 5000 ringgit a month, then it’s time to focus on making your money work for you. Clason suggests saving 10% each month, but if you really want to live your perfect life, then I would challenge you to invest over 50% of your money.

The way that’s going to happen isn’t by cutting back on your life right now, but by continuously increasing your income while only increasing your standard of living by 50%.

That’s what happened for me. My first job in Malaysia paid me 4000 a month but I was only spending 3000. Now I’m making 9000 a month but spend around 4000 each month. That means I’m saving over 50% which allows me to put that money into creating the life that I want. In my case, this is the reason why I can afford to travel 3-4 months a year.