5 Lessons from the book: The Richest Man in Babylon

Timeless Personal Finance Wisdom From 1926

Photo by Corbin Mathias on Unsplash

For those who prefer their personal finance advice in the form of parables, look no further than George Classon’s 1926 book The Richest Man in Babylon.

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Recounted as a series of interrelated short stories set in ancient Babylon, the book follows the life of a young scribe who expands his wealth and stature over the course of his life. The book’s “seven cures” present lessons on wealth generation, while the “five laws of gold” present a guide to investing this wealth once you have it.

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Below we share five pearls wisdom from the book that one should consider on their financial journey:

1. “Advice is one thing that is freely given away, but watch that you only take what is worth having.”

― George Clason, The Richest Man in Babylon

Advice is free and often conflicting, so choose wisely! If the advice results in a positive outcome, the advisor will be more than happy to claim credit. When it doesn’t, they will blame the listener. Advice, whether sought out or unsolicited, should always be carefully analyzed to determine how it applies to your unique situation. So how do you choose which advice to follow? See the quote below for more on that.

2. "...why trust the knowledge of a brick maker about jewels? Would you go to the bread maker to inquire about the stars?"

― George Clason, The Richest Man in Babylon

In other words, seek advice from those with relevant knowledge and experience. Consider the source of information as you analyze its validity. Many individuals are quick to offer dubious guidance on topics about which they have limited experience. Since you can rarely hold such individuals accountable after the fact, it is best to ignore them entirely.

3. “A part of all you earn is yours to keep."

― George Clason, The Richest Man in Babylon

A central tenet of financial wisdom is to pay yourself first! Income generation is only half of the wealth generation equation, the other half being spending. No matter how high your income, expenditure over that amount inevitably leads to debt. Countless lottery winners, celebrities, and other high income earners end up penniless as a result of their spending. Meanwhile, many with more modest incomes retire as millionaires by keeping spending in check and building wealth over time. One strategy to build wealth with this approach is called “reverse budgeting”, where you save a portion of your income as you earn it and then budget your expenses according to what remains.

4. "Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field."

― George Clason, The Richest Man in Babylon

Put simply, annual returns on investments, when reinvested, yield increasingly higher returns. So $100 invested with a 5% annual return will yield $5 the first year, $5.25 the second year (5% of 105), $5.51 the third year (5% of 110.25), and so on.

One can also use the so-called “rule of 72” to determine how many years it will take to double your money. Simply divide the number 72 by the rate of return of the investment, and the result is the doubling time. Thus, funds invested with a 10% rate of return will double in just over seven years.

5. "...cultivate thy own powers, to study and become wiser, to become more skillful... Thereby shalt thou acquire confidence in thy self to achieve thy carefully considered desires."

― George Clason, The Richest Man in Babylon

Never stop expanding your knowledge. The pursuit of lifelong learning will ensure that your personal and professional pursuits continue to improve and adapt to changing times. Besides the obvious benefits towards business endeavors, a learning mindset can also boost happiness and prevent cognitive decline later in life.

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