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Long story short, “The Richest Man in Babylon” is about the fundamental financial management principles of building your wealth. These principles show how to start building your wealth at any point in time, no matter what stage you are in life.
The prosperity of a community is upmost dependent on the prosperity of its individuals. Paraphrasing from George Clason’s “The Richest Man in Babylon”, while many view money as the root of all evil, we cannot deny the importance of wealth and the role it plays in terms of supplementing our quality of life and most importantly building our communities.
Despite the criticism and negative connotations it spurs, money is an undeniably important facet that affects the world around us.
Instead of falling victim to the sins of greed and being enslaved by it, we should learn how to use this as a resource to build our wealth and propel the communities we are apart of.
For those who don’t know
Long story short, George Clason is most known as a best selling author for his works on “The Richest Man in Babylon”. In addition, he served in the US Army and fought in the Spanish-American War.
Babylon is the story of a once prosperous kingdom in Ancient Mesopotamia that flourished due to the knowledge and wisdom of its people when it came to the management of their wealth.
By observing this once prosperous community, Clason had drawn out the wisdom of wealth management best practices that can still be emulated today.
These principles stood the test of time as they provide a foundation for us to learn from when starting to build our wealth.
Here are the 7 principles Clason states when it comes to building our wealth:
- Contribute to our Savings
- Control our Expenses
- Multiply your Wealth
- Protect your Wealth
- Use Wealth for Assets
- Ensure a Future income
- Increase your ability to Earn
Save, Save, Save:
When it comes to managing our income, we tend to pay everyone but ourselves.
When the glorious pay day arrives, a piece goes to our living expenses, a piece goes to the government, a piece goes to the grocery for food and water, and a piece goes to our friends & family, but at the end of the day, we are left with the crumbs of that pay cheque.
By flipping convention wisdom on its head, the first principle when it comes to building wealth is to actually pay ourselves FIRST.
With a never-ending list of obligations and expenses, it may seem daunting at first, however the best way to approach this would be to have a savings goal in mind.
The best course of action would be to set aside a small fraction of your income each payment period, for example 10% of your income, and make sure that it is safety stored. Over time as you continue to contribute little by little, your wealth will grow considerably larger than it once was.
It’s like planting a tree. First you start with a seed. Then you make sure if gets sufficient sunlight, good quality soil and enough water for feeding. As time goes by, that little seed will grow into a beautiful tree.
Control your Expenses:
Perhaps one of the most difficult aspects to control, the idea of spending less than your earn makes perfect sense, yet, so many of us fail in actually following through with this concept.
When it comes to controlling your expenses, the most important idea to understand is that we MUST distinguish the difference between “what is necessary?” And “what is nice to have?”
The struggle of differentiating necessity and desire is the root of determining how we utilize our wealth for expenses. While the message is not trying to say never spend on our desires or luxuries, but instead:
Do not spend on desires if it exceeds our income.
Aligning what is essential and what we want as luxuries to the actual income that we produce every payment period, is how we can BUDGET.
Income > Expenses = WEALTH
Income < Expenses = DEBT
To illustrate this, let’s say if our goal was to save 10% of our income, we must understand that our expenses on necessities and desires SHOULD NOT exceed 90% of our income.
Make your Wealth work for you:
When it comes to wealth management, what is the best thing next to wealth? The answer is MORE WEALTH.
The irony is, in order to create more wealth you need wealth to begin with. As you continue to accumulate wealth by saving it aside, another way to build this even further, is to multiply it through investments.
By investing your wealth, you provide opportunities to multiply it by making the wealth work FOR YOU.
There are various ways in which you can allocate your wealth. While these are not recommendations, these are just some examples you can choose to invest your wealth in:
- Stocks
- Bonds
- Commodities
- Mutual Funds
- Index Funds
- Real Estate
- Fine Art
- Cryptocurrency
Nonetheless, it is ultimately up to your discretion to make these decisions, and your obligation to do the proper due diligence in order to select the right vehicles to place your wealth in.
Protect your assets:
After understanding the fundamentals of saving, budgeting and investing, the next principle is to focus on PROTECTING your wealth.
There are several ways of protecting your wealth, but it really comes down to two factors: understanding what you know, and more importantly, understanding what you don’t know.
By operating in these two spheres, leveraging the knowledge you have, and the knowledge of experts to invest your wealth is the most optimal approach to successfully protect your assets.
Normally, it is by association when it comes to gaining new knowledge and absorbing different types of innovation.
Therefore when it comes to building wealth, it would be wise to absorb the sound advice and opinions of individuals or groups who have a track record of achieving profit when it comes to managing wealth.
When asking for advice on baking a cake, you ask a baker. When it comes to asking advice for improving your piano skills, you ask a piano teacher or pianist. The exact same goes for asking advice on building wealth.
As the market evolves and you find different ways of investing your wealth, again, it is STILL your discretion to consult with the appropriates parties and pulling the trigger when it comes to making the final decision.
One thing to note, is that naturally when a reward of investment is higher, the risk is equally as high.
Use Wealth to get Assets:
Ownership is one aspect of wealth that many take pride of. Whether it’s ownership of an investment portfolio, a brick & mortar store and especially a home.
Leveraging your wealth to accumulate a portfolio of assets is another multiplier aspect in the wealth building process. Accumulating assets lead to an increase in an individual’s equity which they can leverage to further the growth for future sources of income and potentially appreciate the value of their wealth.
What this does is that it creates a snowball effect where your wealth constantly accumulates as you start to pour more gasoline in the fire.
Obviously, the type of asset would still depend on the individual or group’s current situation and priorities. Assets such as real estate, brick & mortar businesses and vehicles are viewed differently based on the lens of the individual.
Ensure a Future income:
After securing enough wealth for yourself, the next step to think about is to secure wealth for future generations.
With a surplus of wealth, considerations about the future should involve preparation and succession plans in best put future generations at a point where they can sustain themselves.
Most notably, the popular methods of setting this up in today’s world would involve estate planning, trusts and life insurance, however the main idea behind these financial vehicles is to ensure the transfer of wealth.
Again, this is completely dependent on the situation of the individual or group to assess which option that would be best to consider to ensure this future income for successive generations.
Increase your ability to earn:
It’s a common phrase that is often used, but the more you learn, is the more your earn.
Despite the savings, investments and preparation, one who increases their wisdom and knowledge, is the ultimate indicator of improving your ability to earn more wealth.
Combining a strong sense of desire with the aptitude to learn, is the best way of positioning yourself to enhance your earning potential. By learning, you make yourself either more employable for opportunities with higher compensation, or it broadens and sharpens your skillset to solve problems in the free market.
The free market operates in a way where you get compensated based on the value you provide and the ability of your solutions to solve certain problems.
The better the solution is at solving problems and the more people it can help, the better the compensation will be.
Some ways to increase your ability to build wealth would include:
- Going to courses and seminars to sharpen/ get new skills
- Obtaining additional certifications and degrees to meet certain opportunity requirements
- Reading from a diverse set of books and publications
- Starting a new business (full-time or part-time)
What can WE do from here?
As cliche and cheesy as it sounds
“The best time to start building your wealth was yesterday, and the second best time to start building your wealth is TODAY.”
While it may seem inspiring viewing from multiple sources on how to build wealth by learning new concepts and gaining new skills, the essential step on that path would be to get up and start doing it.
If you would like to give George Clason’s The Richest Man in Babylon a read while supporting the blog feel free to click below:
#2: “George S. Clason (Author of The Richest Man in Babylon).” Goodreads, Goodreads, www.goodreads.com/author/show/688.George_S_Clason.
