Story of Babylon
4000 years ago, in ancient Mesopotamia, along the Euphrates River in present-day Iraq, existed one of the most glamorous cities of the ancient world, called Babylon. It is said that this city had no natural resources like forests or mines, and it had insufficient rain to raise crops. Yet, it was one of the richest cities in history. And that was because of the engineering feats, wisdom, wealth management abilities, and helping nature of the people living in Babylon.
The inhabitants lived a prosperous life in the city protected by massive walls. They were educated people, and it is said that they were the first known doctors, engineers, mathematicians, artists, or financiers. They didn’t have paper but inscribed their wisdom on clay tablets. The city had marvelous architecture like the hanging garden, Ishtar Gate, or temple for gods. All these make it difficult to believe such a developed city existed so many centuries ago.
But around 2500 years ago, Babylon was attacked and conquered by the enemy. From then, the city lost its power and prosperity, and people abandoned it. Babylon, once the wealthiest city, became lonely and forgotten. Until the beginning of the 20th century, when a German archaeologist discovered its foundations, excavated and recovered the clay tablets of that period. Babylon fell and became a deserted ruin, but the wisdom of Babylon remains…
What is The Richest Man in Babylon about?
The Richest Man in Babylon is written by George S. Clason in the year 1926. Though it is around a century-old book, it is still very relevant. The author shares some simple yet powerful financial advice through a collection of parables set in Babylon. He uses fictional characters of Babylon to tell the parables to the readers.
This is an excellent book on personal finance that is recommended for learning wealth management. And whatever you are going to be- an employee, engineer, doctor, civil servant, entrepreneur, etc.- you need to know how to manage money so that you have enough of it. Because ultimately, that’s what we all want.
Now, this is funny that I didn’t know there is any such thing as personal finance. I believed that you earn money and just save it in your bank account. Luckily personal finance is much more than that, and I have seen people struggling their whole life because they don’t know how to manage money. Books like Rich Dad Poor Dad and The Richest Man in Babylon have helped me understand some basics of personal finance. Though I don’t earn much, I am sure that the lessons would help me in the future.
So, in this article, I would share the five key lessons from the book, The Richest Man in Babylon.
5 lessons from The Richest Man in Babylon
1. Pay yourself first
What is the difference between these two equations?
Savings= Income – Expanses
Expanses= Income – Savings
Mathematically, there is no difference; they are just rearranged. But, in terms of personal finance, the difference between these two makes all the difference.
The first equation says that you should save whatever is left after spending on all the expenses. It prioritizes the expenses more than the savings. In contrast, the second equation says that you should spend what is left after saving. And it prioritizes the savings more than the expanses.
The book says you should first save money for yourself and then spend the rest. That is to follow the second equation, giving more priority to saving.
But how much should you save? There is no exact number for that. It should be a minimum of 10% of what you earn. So, if you are earning Rs. 30,000 per month, then save at least 10% of it, i.e., Rs. 3,000; and you can spend the rest Rs. 27,000. Remember that Rs. 3,000 is just the minimum amount; if your expenses are low, you can certainly save more.
Similarly, if you earn Rs. 5,00,000 per month, you should save at least Rs. 50,000. And you have to do it every month, earn, save, and then spend from what is left.
2. Control your expenses
The Richest Man in Babylon says, almost every one of us is not satisfied with the money we earn. If we make Rs. 30,000 per month, we would feel a lack of money, and if somehow our income increases to Rs. 5,00,000 per month, we would feel the same lack of money.
It happens because when our income increases, our expenses also increase. When our income is low, we drive only the motorcycle, travel in economy class flights, and live an average life. But when our income increases, we buy cars, travel in business class flights, buy costly gadgets, expensive clothes, and all these become our lifestyle. The more we earn, the more we spend, and the more we get used to it. This is what causes us to feel the lack of money.
The book says that you should save the money first and then spend the rest. Of course, it is easier said than done, especially if you are used to spending. So, you have to do one thing, make a list of all your expenses and differentiate them based on needs and desires.
Needs are the necessary expenses like buying food and medication, paying bills, spending on education, etc. Whereas the desires are primarily for entertainment purposes, like Netflix subscriptions, buying expansive mobile phones, partying, etc. So, if you want to save more money, you need to spend only on your needs and not on your desires because you can live without your desires.
“Unless you control your money, making more won’t help. You’ll just have bigger payments.”
-Dave Ramsey, an American personal finance personality
3. Make money work for you
Now that you are saving at least 10% of what you are earning every month, you can’t simply save that money in your bank account. So, what to do with it?
Most of you already know it. You have to invest the money so that your money works for you and makes more money. The Richest Man in Babylon says, instead of spending on unnecessary things like expensive electronic gadgets, cars, or clothes, you should spend it on assets like stocks, mutual funds, real estate, etc. In this way, money works to make more money for you, which you should reinvest. The process continues, you get compound interest, and your assets can be a steady source of income. And once you have enough money, you can wisely spend on your desires.
4. Luck favors those who take action
I will tell you a story from The Richest Man in Babylon. It’s the story of a merchant living in Babylon; let’s call him Pintu. So, Pintu was married and earning well from his work. Everything was smooth.
One day, Pintu’s father came to him and told him about an investment. There was a barren land where canal water couldn’t reach. Pintu’s father knew a person who wanted to buy that barren land, build large waterwheels driven by oxen, and bring water to that land to make it fertile. Once it became fertile, he was planning to sell it to the city residents at high prices. But he didn’t have money to buy the land, so he was looking for some people who could invest and be a partner.
Pintu’s father wanted him to invest in that barren land. But Pintu didn’t take it seriously and used his savings to fulfill his desires and enjoyed his life with his wife. He completely procrastinated the decision to invest, and someone else invested in it.
After a few months, he realized that the barren land project became immensely profitable, and investors earned more than anyone had thought.
So, what does the story say? Good luck comes to those who accept the opportunity and take action at the right time. Now, of course, it doesn’t mean accepting every opportunity and investing everywhere, but what it means is investing only after studying it well. So, those who would analyze the opportunity, take some risk, and accept it, only those have a higher chance of being lucky.
“Fortune sides with him who dares.”
– Virgil, an ancient Roman poet
5. Improve your skills
There will be times when we may lose everything we have earned- our money, house, car, reputation, etc. But the only thing which you will never lose is your skills. Skills and experiences are valuable because they will always be there to help you.
Hence The Richest Man in Babylon says that you should work on yourself to improve your skills and learn more about your profession. And in this globally competitive information economy, where everything is continuously changing, improving your skill is not a requirement but a necessity.
“Unless you’re continually improving your skills, you’re quickly becoming irrelevant.”
-Stephen R. Covey
Whatever you are, try to be better at it. If you are a computer programmer, learn a new programming language; if you are a writer, attend a writing course. If you are a salesman, read books about how to sell better. The better you become at your profession, the more money you will earn. Investing your time and money in improving yourself is essential because you are your greatest investment.
These were the five key lessons that I have learned from The Richest Man in Babylon. I would recommend this book to everyone who wants to learn wealth management as this has got some effective practical lessons. I hope the blog helped you, and thank you for reading.