The Richest Man in Babylon is my favourite book on managing personal finances. It’s also probably one of my favourite books of all time.
Money is the medium by which earthly success is measured.
Money makes possible the enjoyment of the best the earth affords.
Money is plentiful for those who understand the simple laws that govern its acquisition.
It’s probably worth clarifying that this book takes place thousands of years ago in the ancient land of Babylon.
Anyone can create their own nest egg by following these lessons of saving and making smart investments.
The Richest Man in Babylon
Arkad, known as the richest man in Babylon, taught the seven laws of money to his fellow countrymen. But he, himself, started out as a poor man.
I found the road to wealth when I decided that a part of all I earned was mine to keep.
He tells the story of his path to wealth. At first, he had no idea how someone like Algamish could become so rich. Algamish told him:
You pay the garment-maker and the sandal-maker and you buy the food you eat. But can you live in Babylon without spending? What have you to show for your earnings of the past month? What for the past year? You pay to everyone but yourself.
Every gold piece you save is a slave to work for you. Every copper it earns is its child that can also work for you. If you become wealthy, what you save must earn, and its children must earn, that all may help to give to you the abundance you crave.
A part of all you earn should be yours to keep. It should be not less than one tenth, no matter how little you earn. It can be as much more as you can afford.
Wealth, like a tree, grows from a tiny seed. The sooner you plant that seed, the sooner the tree grows. The better you nourish and water the tree, the sooner you may bask in contentment beneath its shade.
By setting aside a part of all the money we make for later investment, we begin to nourish the seed that will become our financial tree.
Arkad’s First Investment
After a year of saving, Arkad met Algamish again and told him about his first investment. He had invested in the brick-maker’s venture to discover rare jewels from the Phoenicians.
Algamish commented on his plan:
Every fool must learn, but why trust the knowledge of a brick-maker about jewels? Would you go to the bread-maker to inquire about the stars? Advice is one thing that is freely given away, but watch that you only take what is worth having.
Arkad lost his investment after the Phoenicians sold the brick-maker worthless bits of glass. But by now, he had built up the habit and was easily able to continue saving.
After his second year Arkad found a profitable investment in the shield-maker, who buys bronze every 4 months and always pays back the rental with interest.
Arkad told Algamish he spent the profit on feasts of fine wine and spiced cakes.
“You do eat the children of your savings. How do you then expect them to work for you? And how can they have children that will also work for you? First get thee an army of golden slaves and then many a rich banquet you may enjoy without regret.”
By following this principal, we should not spend our successful profits on hedonic pleasures. Instead, we should reinvest our income from investments in order to multiply our savings.
The Three Steps to Successfully Handling Wealth
If we boil down Arkad’s story to the key takeaways, we’re left with a three-step process to building wealth.
- First, we must learn to live upon less than you could earn.
- Then, we learn to seek advice from those who are competent through their own experience.
- Finally, we learn to make our money and recurring profits work for us.
We must engrain these three steps into our daily activities.
The 7 Laws of Money
Lo, money is plentiful for those who understand the simple rules of its acquisition. The path to wealth is governed by seven laws.
- Start thy purse to fattening
- Control thy expenditures
- Make thy gold multiply
- Guard thy treasures from loss
- Make of thy dwelling a profitable investment
- Insure a future income
- Increase thy ability to earn
The beauty of these seven laws is in their simplicity.
I’d recommend writing down this list, just so you don’t forget it. We’ll cover them in detail in the following section.
Seven Cures for a Lean Purse
One may not condemn a man for succeeding because he knows how. Neither may one with justice take away from a man what he has fairly earned to give to men of less ability.
The Richest Man in Babylon taught his fellow countrymen the 7 cures for a lean purse.
1. Start thy purse to fattening
Step 1, start saving.
For every ten coins thou placest within thy purse, take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.
2. Control thy expenditures
Step 2, watch what you spend.
That which each of us calls our ‘necessary expenses’ will always grow to equal our income unless we protest to the contrary. All men are burdened with more desires than they can gratify.
3. Make thy gold multiply
Step 3, invest your money so it starts working for you.
My first profitable investment was a loan to a man named Aggar, a shield maker. Once each year did he buy large shipments of bronze brought from across the sea to use in his trade. Lacking sufficient capital to pay the merchants, he would borrow from those who had extra coins. He was an honourable man. His borrowing he would repay, together with a liberal rental.
Put each coin to labouring that it may reproduce its kind even as the flocks of the field and help bring to these income, a stream of wealth that shall flow constantly into thy purse.
4. Guard thy treasures from loss
Step 4, make sure you don’t invest in something foolish that will make your hard-earned money disappear.
Before thou loan treasure to any man assure thyself of his ability to repay and his reputation for doing so, that thou mayest not unwittingly be making him a present of thy hard-earned treasure.
Before thou entrust it as an investment in any field acquaint thyself with the dangers which may beset it.
Better by far to consult the wisdom of those experienced in handling money for profit. Such advice is freely given for the asking and may readily possess a value equal in gold to the sum thou considerest investing.
Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments.
Make sure the person you’re investing in is skilled in the craft needed to successfully complete the venture.
5. Make of thy dwelling a profitable investment
Step 5, favour a monthly mortgage over rent and you will own valuable property one day.
If a man setteth aside nine parts of his earnings upon which to live and enjoy life, and if any part of this nine parts he can turn into a profitable investment without detriment to his well-being, then so much faster will his treasures grow.
6. Insure a future income
Step 6, save and invest your whole career so you don’t need to worry about retirement or your family after you’ve passed away.
It behooves a man to make preparation for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.
This lesson shall instruct thee in providing a full purse when time has made thee less able to earn.
7. Increase thy ability to earn
Step 7, which is the main one people think about when they want to get rich, increase the amount of money you make.
For a man to wish to be rich is of little purpose. For a man to desire five pieces of gold is a tangible desire which he can press to fulfilment. After he has backed his desire for five pieces of gold with strength of purpose to secure it, next he can find similar ways to obtain ten pieces and then twenty pieces and later a thousand pieces, and behold, he has become wealthy.
This is the process by which wealth accumulates. First in small sums, then in larger ones as we learn and become more capable.
As we perfect ourselves in our calling, our ability to also earn improves.
The more of wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded. If he is an artisan, he may seek to learn the methods and the tools of those most skilful in the same line. If he laboreth at the law or at healing, he may consult and exchange knowledge with others of his calling. If he be a merchant, he may continually seek better goods that can be purchased at lower prices.
There are four keys to increasing your ability to earn:
- Cultivate thy own powers
- Study and become wiser
- Become more skilful
- Act as to respect thyself
Learning from the Richest Man in Babylon
The Richest Man in Babylon is full of wisdom. This book was my entry into saving and investing, and before that I really felt the only way to get rich was to found some sort of successful start-up.
But now I know better. It’s our approach to money, rather than our current circumstances, that is key to growing wealth.
Our modern world is, just as Babylon was millennia ago, full of opportunities to grow rich – simply by saving a share of our income and making smart investments.
Learn more about the ancient laws that govern gold and good luck. Or take a more modern approach and learn how to become a capitalist without capital.
Hopefully these lessons were as interesting for you as they were for me. If so, I definitely recommend giving this classic a read.
We can all become wealthy with these ancient lessons and Mind & Practice.