7 Lessons I learned from The Richest Man in Babylon
The Richest Man in Babylon is a book by George Samuel Clason that offers financial advice through a series of parables set in ancient Babylon. The book centers around Arkad, a once poor worker who adopts financial practices that enable him to become the richest man in Babylon.
- Hard work does not equal a fat wallet
There is a myth that claims poor people do not work hard. This myth is far from the truth because there is no group of people that work harder than the poor. If hard work directly translated to wealth then the global south would be more developed.
In my first year of college, I worked 20 hours a week while juggling a 19 credit course load and at the same time trying to acclimate to my new college setting. When tax season rolled around, I received my W2 forms and had to double check whether it was actually my W2 form. My taxable income was $5000. How? When did I ever earn that money? In all the months of working a minimum wage job on campus, my bank account never held more than $500. As soon as I got paid, I would spend it on either paying some bills or doing some shopping (to reward myself for all of my hard work). I was constantly over drafting and constantly anxious for my next paycheck to arrive. I never thought that I had earned a whole $5000. I was frustrated by the fact that I was still broke even after working for 20 hours a week.
The simple fact is: it ultimately does not matter how much you money you earn or how many hours you work. If you do not properly handle your money, then your wealth will never grow.
2. Money Making Money
The only money that you should be interested in: is money that makes money. Think of money as your employee. An employer wants their employee to work hard for them. As an employer, you wouldn’t be interested in retaining an employee who sits around all day looking at memes — we all occasionally look at memes at work but that is not the point. Think about money in your savings account as an employee who sits at their desk all day scrolling through memes. You wouldn’t want that, would you?
Saving money is not bad. But what is the point of letting your money sit in a bank account that is only accruing an average rate of 0.09% per year? It’s similar to putting your money under a mattress!
A savings account will not grow your wealth. A savings account should be used to hold your emergency stash so that you are not stranded when you are in a tight spot. A savings account is also beneficial in holding money that you are planning to invest. Save to invest- that’s the key.
Back to the topic of money making money. You should be interested in making money that will gain compound interest. Albert Einstein reportedly said that compound interest is the greatest force on earth. This coming from the man who discovered gravity!
What is compound interest? Compound interest is earning interest on not only your initial deposit but also the interest accrued so far. In simple terms, it is interest on interest. One way that you can tap into the power of compound interest is to reinvest your stock dividends.
The point is that your money (initial investment) and your money’s children and grandchildren (interest) should always be working for you. Money is your worker, not the other way around.
3. A part of all I earn is mine to keep
You know how you get excited when pay day is around the corner? I’ve personally developed this annoying habit of constantly refreshing my mobile banking app on payday so as to see the exact time my money hits the bank. But in actuality, it is not my money! It is the landlord’s money, it is the clothing store’s money, it is the grocer’s money. Your money is the money that goes into your future self.
When we have money we remember to pay everybody else apart from ourselves. This keeps us in the rat race, where you are working 9–5 every day but you can’t really tell where the money is going.
At least a 1/10th of all you earn should be yours to keep.
Even when things are tight and money becomes hard to come by. try to cut costs in every other area and don’t touch the money you have kept aside unless you have no other options. Keep a portion of all you earn for yourself, future you will be the better for it.
4. Get Advice from people who know what they are doing
Would you go to a bakery if you wanted advice on what ring to buy for your fiancé? No! Then why do we solicit advice from every other person about our money problems? To learn about money get advise from people who have actually made some. If you personally don’t know anyone who is financially successful then turn to other more public figures whose advice comes in the forms of books, podcasts, and interviews.
I am at the stage of my wealth journey where my primary focus is to learn as much as I can from financial books and podcasts. I am not a trained financial adviser I am a 22-year-old woman looking to learn all I can about personal finance and share my journey with anyone who is interested.
Financial Books that are in my reading list include:
>>Think and grow rich by Napoleon Hill
>>The Intelligent Investor by Benjamin Graham
>>The Millionaire Real Estate Investor by Gary Keller, Dave Jenks, and Jay Papasan
5. Your Budget acts as a Light House
Budgeting feels like a chore to most people. I personally struggle with making and maintaining a budget. There’s nothing sexy about keeping an excel sheet of all your expenses. Thankfully there are apps like Mint that help you see where your money is going to.
Budgeting is not sexy. However, how we think about budgeting can drastically change our feelings about it. Instead of thinking about budgeting as a chore, think about it as a lighthouse. A lighthouse that guides you in establishing what your cherished desires are and protecting them from your casual wishes.
You’d be surprised how much money goes into things like eating out for dinner. If your cherished desire is to go on a vacation, a budget will steer you into saving for your vacation instead of spending a ton of money on nights out.
A budget is a lighthouse that guides you in establishing what your cherished desires are and protecting them from your casual wishes.
Again budgeting is not my thing. I practice a sort of pseudo-budgeting, where immediately I get paid I invest/ save a certain portion usually a third or more thereafter whatever is left is free-reign. Hopefully, I’ll get into more rigorous forms of budgeting.
6. Invest where your principal is secure
Nothing worthwhile is void of risk. However, you don’t want to get into dumb situations where the risk far outweighs the returns. The stock market is a volatile market and your principal is not secured, therefore it’s advisable to only invest disposable income that is not tied to any of your core expenses.
Don’t put money in the stock market if you expect it to make returns that you will then need to pay off next month’s rent. No! That’s foolish. My strategy as a novice investor is to buy and hold. But don’t trust me I just started out. You know who you could trust? Investment guru Warren Buffet. Buy and hold is one of the strategies that he used to amass his vast amount of wealth. The stock market goes through cycles of ups and downs. Every time the stock market crashes it has always turned back around and ends up doing better than ever before. The key is to not panic and hold your position when the numbers dip. It’s also important to invest in solid blue chip companies that will remain profitable for the foreseeable future. A good example of this is Apple and Amazon.
Having a diversified portfolio is also important. Bonds are a great way to mitigate risk since your principal is guaranteed. Cryptocurrency, the new hot thing, has a great capacity for returns but that comes with a lot of risks. I’m not against crypto just don’t put your life savings in it is all I’m saying.
A diversified, well thought out portfolio that is based on long-term strategy is key when it comes to investing and building wealth.
7. Become wiser
Become wiser: this was by far the best piece of advice from the richest man in Babylon. Your greatest asset is not money but your time. How do you value your time? The greatest mistake is to sell your time for the effort. Working a 9–5 job where you are being paid for the hours you work is the mainstream way of approaching work. The smart way of working is equating your work to your skill, proficiency, and efficiency in a certain field.
To the extent that you can, allocate a significant amount of time working on a skill that can earn you more than what you are currently making. I am not ignoring the facts that people have to work to put food on the table. If somebody relies on a minimum wage job to support their family, it is completely unfair for me to step in and tell them to quit their job and go back to school to get more skills.
We, however, have more time than we realize. If we can value education more than entertainment then we can spend some weekends learning a valuable skill that significantly increases our net worth. And you don’t have to go back to traditional school, there is so much to learn on ‘Youtube University’ and other online platforms like Udemy, Lynda, and Coursera that offer courses on a variety of skills.
The key to working smart vs working hard is to realize that skill > effort.
Financial literacy is also a must-have if you hope to build wealth. It is a shame that our schools never taught students the basics of financial management like how to fill your taxes or how to make a budget. It then becomes your duty to seek this information out for yourself if you want to be wealthy. You have to know how money works if you want to be wealthy just like you need to know how to fly a plane to be a pilot. It’s that obvious.
