Book Summary: The Key Lessons
Written in 1926, The Richest Man in Babylon is a book of timeless personal finance principles, told in the form of short stories based on the “Babylonian parables”.
At its height, Babylon was the wealthiest city in the world, which Clason attributes in part to the relationship its people had with money. The book uses stories of characters from Babylon to illustrate the importance of our relationship with money and the basic principles for acquiring, keeping and earning money.
The below is an attempt to summarise some of the key principles outlined in the book. This includes quotations and rough notes from my reading.
Seven Cures for a Lean Purse
#1: Start thy purse to fattening. Save at least 10% of what you earn. Resist the temptation to spend any of that 10% for immediate gratification from smaller desires. Keep the eye of your finances on the bigger picture.
#2: Control thy expenditures. Limit the income-related inflation of expenses as much as possible. Don’t confuse necessary expenses with desires. Scrutinise spending habits and identify certain expenses that can be reduced or eliminated (make a budget).
“What each of us calls our “necessary expenses” will always grow to equal our incomes unless we protest to the contrary.”
#3: Make thy gold multiply. Put your money to work and its interest/profit to work. Embrace the power of compound interest.
“A man’s wealth is not in the coins he carries in his purse; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging.”
#4: Guard thy treasures from loss. Study carefully before parting with money. Don’t get misled by get-rich-quick schemes. Get acquainted with the risks. Consult those with proven experience of turning a profit. Keep the principal safe.
#5: Make of thy dwelling a profitable investment. Own your own home instead of renting.
#6: Insure a future income. Investment for retirement. Provide in advance for the needs of family and growing age.
#7: Increase thy ability to earn. Increase knowledge to grow income. Cultivate skills, study and become wiser. Consider your desires carefully.
“Desires must be simple and definite. They defeat their own purpose should they be too many, too confusing, or beyond a man’s training to accomplish.
Other Key Themes
Saving and investing is typically a gradual process:
“Wealth that stayeth to give enjoyment and satisfaction to its owner comes gradually because it is a child born of knowledge and persistent purpose.”
Better a little caution than a great regret: Help others but do so in a way that does not burden yourself. Be aware of how human emotion can limit faculties for financial decision making. Don’t risk everything on high-risk ventures. Understand your risk profile.
Associate with proven success: Associate with others that understand how to save and invest – and learn from them. Beware advice of those without a proven record of success and reward.
On perseverance and paying down debts:
“Where the determination is, the way can be found.”
On the perils of emotion in financial decisions:
“Humans in the throes of great emotions are not safe risks for the gold lender.”
On the importance of action:
“Good luck can be enticed by accepting opportunity.”
On compound interest and making money work:
“Every gold piece you save is a slave to work for you. Every copper it earns is its child that also can earn for you. If you would become wealthy, then what you save must earn, and its children must earn, that all may help to give you the abundance you crave.”
“I found the road to wealth when I decided that part of all I earned was mine to keep. And so will you.”
On building wealth:
“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.”
“Advice is one thing that is freely given away, but watch that you take only what is worth having.”
“Opportunity is a haughty goddess who wastes no time with those who are unprepared.”