In this blog article we will talk about the two most important financial lessons that can be learned from the book The Richest Man In Babylon by George S. Clason.
This book was first published in 1926 and it is not the best book to read on finance in our opinion. But we did notice two extremely important financial lessons in this book that we found worthy of writing about.
These two important financial lessons are:
- Learn to pay yourself first;
- Learn to pay off all of your debts first;
In the Old Babylon, there once lived an extremely rich man named Arkad, who once was just a poor scribe. He became the richest man in Babylon because he had learned the “golden rules” of money.
Another character in the book, called Bansir, said the following:
“Arkad is so rich. I fear if I should meet him in the darkness of the night, I should lay my hands upon his fat wallet.”
Whereupon Kobbi responds:
“A man’s wealth is not in the purse he carries. A fat purse quickly empties if there is no golden stream to refill it. Arkad has an income that constantly keeps his purse full, no matter how liberally he spends.”
Some of his old friends decided to ask Arkad for his financial advice in how he had been able to acquire such an extreme amount of wealth.
Thereupon Arkad said:
“If you have not acquired more than a bare existence in the years since we were youths, it is because you either have failed to learn the laws that govern the building of wealth, or else you do not observe them.”
“”Fickle Faith” is a vicious goddess who brings no permanent good to anyone. On the contrary, she brings ruin to almost every man upon whom she showers unearned gold. She makes wanton spenders, who soon dissipate all they receive and are left beset by overwhelming appetites and desires they have not the ability to gratify. Yet others whom she favors become misers and hoard their wealth, fearing to spend what they have, knowing they do not possess the ability to replace it. They further are beset by fear of robbers and doom themselves to lives of emptiness and secret misery.”
“In my youth I looked around me and saw all the good things there were to bring happiness and contentment. And I realized that wealth increased the potency of all these. Wealth is a power. With wealth many things are possible.”
“As for time, all men have it in abundance. You, each of you, have let slip by sufficient time to have made yourselves wealthy. Yet, you admit; you have nothing to show except your good families, of which you can be justly proud.”
The person that had helped Arkad in becoming so extremely wealthy was Algamish, the moneylender. Algamish had said to Arkad:
“I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you.
Whereupon Arkad had responded:
“But all I earn is mine to keep, is it not?
Whereupon Algamish responded:
“Far from it! Do you not pay the sandal-maker? Do you not pay for the things you eat? Can you live in Babylon without spending? What have you to show for your earnings of the past month? What for the past year? Fool! You pay everyone but yourself. Dullard, you labor for others. As well be a slave and work for what your master gives you to eat and wear. If you did keep for yourself one-tenth of all you earn, how much would you have in ten years?”
These quotes from the book The Richest Man In Babylon are the basics of the financial lessons that are being taught in the book.
What the author of this book means is that every time when you receive your salary, you should pay yourself at least 10% of your earnings. You can do this by investing this percentage monthly into an index fund for example. Than you let your savings compound over a long period of time.
If you steadily do this over a long period of time, you will see that your (initially small) savings start to compound to a significant amount of savings. This is one of the basic principles to achieve financial freedom!
The second financial lesson that is being described in The Richest Man In Babylon is that you should learn to pay off all of your debts first.
In the book is being described that if you have debts, you should start to live off only 70% of your income.
- Your income is 100%;
- Your living money is 70%;
- Your savings are 10%;
- And you pay off your debts with the remaining 20%;
When you do this you will start taking your life into your own hands again and soon you will no longer be dependent upon your creditors. After you have paid off all of your debts, you will have lived off 70% of your income for a long period, and you could start saving 30% of your income for your own future!
If you would like to buy The Richest Man In Babylon, you can do so by following one of the links that we have provided in this article.