The Richest Man in Babylon is a fictional story that outlines the financial principals used by the citizens of Babylon to help the city become known as one of the richest cities in the history of the world. The author, George S Clason, uses a number of parables to display these financial principles and show how the characters learn and apply them in their lives to build wealth.
In the first portion of the book the author tells a story about a man named Arkad, who is said to be the richest man in Babylon. In this story he gives seven principles to “cure a lean purse” and build wealth. The author also shows us how hard work, saving, and investing helped Arkad to achieve greater “luck” and ultimately build the wealth he has.
In the second portion of the book he tells a story of a man named Nomasir, the son of Arkad. In this story, the book teaches the “Five Laws of Gold” which were passed down from Arkad and used by Nomasir to rebound from financial ruin after he lost all the money his father had given him.
The remainder of the book uses a number of stories to teach principles of investing, financial security, and hard work.
In this post we are going to cover the seven principles for building wealth, the laws that govern its accumulation, and the traits that lead to financial success as outlined in this book. Then I will give you three action steps you can take today to begin implementing these principles into your life.
The Seven Cures to a Lean Purse
While it may not be common for guys to carry purses like it was in the days of Babylon, the seven principles taught in this section are sure to help all of us – male of female – to increase the amount of money we have in our accounts, wallets, and purses. The seven principles are:
#1 – Pay yourself the first 10 percent.
In the book, Arkad says that for every 10 coins he earned he would keep 1 and use the other 9 to pay his debts and other expenses. Depending on your religious beliefs you may believe that the first 10 percent belongs to God rather than to you. If so, great! Keep your belief and pay yourself the next 10 percent. The idea is just to pay yourself before you pay outside expenses. Keep this money in a savings account, or use it to invest. No matter how you use it, the key is to make sure you are keeping a portion of the money you make each month.
#2 – Control your expenses
Have you ever felt like no matter how much money you make, somehow you end up spending it all? Well, thats a pretty common thing. The author says, “That what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.” Personally I like the way Dave Ramsey says it. He says, “You can’t out-earn stupid.” You have to be able to control your expenses and hold them accountable. No matter how much money you earn, you will never achieve financial success if you can’t control how much money you spend.
#3 – Invest the savings
It’s great to have money sitting in your bank account, but its even better to have money invested somewhere earning you even more money. The book says that we should use the savings that we accumulate from principle #1 and invest them to earn more. It says, “The gold we may retain from our earnings is but the start. The earnings it will make shall build our fortunes.”
#4 – Guard your money from loss
Investing is great, unless it is done in a way that leads to losing the investment. The key to successful investing is to invest it in places where you have a belief that the money will be safe. The book says, “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.
#5 – Own your own home
I’ve been around the real estate industry my entire life, so its safe to say I am a huge believer in this principle. However, you need to be in the right position to buy a home. It is not a blessing if it ties up all your free money and puts you into a stressful financial position. But, if you are financially able to purchase, owning your own home is a great way to achieve wealth. Historically, real estate has always appreciated over the course of time, and by paying for your own home rather than giving rent to someone else, you are building an investment that will continually grow. Sure, there are downturns in the real estate market, but over time home prices have nearly always increased.
#6 – Invest for retirement & get life insurance
At some point in life you may not be able to – or want to – work anymore. By investing you give yourself the potential to draw an income in the future without the need to work. The key is to invest wisely – don’t invest in things you don’t understand. But, investing is the not the only important aspect of securing a future income. It is also important to have life insurance, and potentially other types of insurance, to protect your family in case of death or premature inability to work due to injuries.
#7 – Increase your earning capacity
Dave Ramsey always says “your income is you number one wealth building tool.” This book seems to agree. Which is why the last principle encourages us to work on increasing our earning potential. Learn anything you can that will help you in your career field. The author says, “As a man perfecteth himself in his calling even so doth his ability to earn increase.”
The Five Laws of Gold
The five laws of gold as outlined in the book are as follows:
- Gold comes glady and in increasing quantity to any man who will save not less than 10% of his earnings to create an estate for his future and that of his family
- Gold labors diligently and contentedly for the wise owner that finds for it profitable employment, multiplying even as the flocks of the field
- Gold clings to the protection of the cautios owner who invests it under the advice of men who are wise in its handling
- Gold slips away from the man who invests it in businesses or purposes with which he is not familiar or which a not approved by those skilled in its keep
- Gold flees the man who would force it to impossible earnings or who follows the alluring advice of tricksters and scheamers or who trusts it to his own inexperience and romantic desires in investment
As you may notice, they go hand in hand with the seven principles outlined above in the cures for a lean purse.
These laws are described in the book to be the reasoning behind the seven principles. Take a look at them and ask yourself if you have seen them present in your life.
I am sure you will realize how accurate they are.
If you can fully understand these 5 laws, and follow them in your life, you will be in the best position possible to achieve financial success. The book says, “To him who is without knowledge of the five laws, gold comes not often, and goeth away quickly. But to him who abide by the five laws, gold comes and works as his dutiful slave.”
The Remaining Principles of Babylon’s Wealth
The remainder of the book is comprised of 4 additional stories. In each of these stories we are presented with a single lesson the character learns that helps them to achieve financial success. Each of these additional principles fits within the seven principles outlined earlier in this post, but has been broken out individually in the book due to being traits that we must fully grasp if we want to become financially successful.
“Better a little caution than a great regret.”
In the story of Rodan we learn the importance of making wise investments, or making wise decisions when loaning money to others. Mathos, the gold trader who Rodan seeks for advice, says “If you desire to help thy friend, do so in a way that will not bring thy friend’s burdens upon thyself.” He also tells us that when leanding money to another we need to be well aware of their reason for needing the loan. Mathos says, “If they borrow for purposes that bring money back to them, I find it so. But if they borrow because of their indiscretions, I warn thee to be cautious if thou wouldst ever have thy gold back in hand again.”
“We cannot afford to be without adequate protection.”
We may not have giant walls surrounding our cities like they had in the days of ancient Babylon, but we still have the same needs and desires for protection. The book says, “In this day, behind the impregnable walls of insurance, savings accounts and dependable investments, we can guard ourselves against the unexpected tragedies that may enter any door and seat themselves before any fireside.”
“Where determination is, the way can be found.”
In the story of Dabasir, we are shown how a spirt of determination allowed a man sold into slavery to find a way to achieve his freedom. Though an unlikely series of events, Dabasir is able to find a way toe space slavery and become a free man. The lesson of the story is that if you are looking for an opportunity, one will present itself, even though it may look much different than you would have expected.
“Work is the key to the golden shekels.”
In the last story of the book we are told a story about a boy named Hadan Gula, who is traveling to Babylon with a man named Sharru Nada. As they make their journey from Damascus to Babylon, Sharru Nada shares a story about Hadan’s grandfather Arad Gula, who is said to be one of the most successful men of Damascus. Sharru shares with Hadan the story of how he and Hadan’s grandfather became business partners. He tells a tale of how both him and Arad Gula were slaves, but were able to become respected free men through hard work. The moral of the story is tha hard work is the key to success. The book says, “Many things do I enjoy but nothing takes the place of work.”
The Richest Man in Babylon contains some of the best and most sound financial principles I have ever heard. While many of them may seem simple, they are commonly overlooked in our culture today.
Whether you are struggling financially, or sitting on stacks of Benjamin’s, these principles will surly help you to achieve greater success over the coming years if you apply them to your life.
Read over them carefully and be honest with yourself about how many of these principles are currently being implemented in your life.
My Favorite Quotes
- Our acts can be no wiser than our thoughts. Our thinking can be no wiser than our understanding.
- A man’s wealth is not in the purse he carries. A fat purse quickly empties if there be no golden stream to refill it. Arkad has an income that constantly keeps his purse full, no matter how liberally he spends.
- A part of all you earn is yours to keep
- Crush the spirit of procrastination
- Where desire is, a way can be found
- Then learn to make your treasure work for you. Make it your slave. Make its children and its children’s children work for you.
- That what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.
- As a man perfecteth himself in his calling even so doth his ability to earn increase.
- 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.
- To him who is without knowledge of the five laws, gold comes not often, and goeth away quickly.
- Wealth that comes quickly goeth the same way.
- 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 which govern its acquisition.
- Money is governed today by the same laws which controlled it when prosperous men thronged the streets of Babylon, six thousand years ago.
It’s Action Time
- Start paying yourself first. The book recommends that you set aside the first 10 percent of your income to save and invest, so starting right now you should make this a priority. Can’t afford to set aside 10 percent? Have too many commitments to make that happen? Start small, begin by setting aside whatever amount you can. Whether it is $10 or $10,000, getting in the habit of intentionally paying yourself first each month is critical to your financial success.
- It’s time to start investing. Once you are setting aside money, begin making that money work for you. Maybe you can invest in the stock market, or in a friends small business. Maybe you want to invest in rental real estate, or even in a home for yourself. It may take some time to be able to begin investing, but start today to develop a plan for what you will invest in. Remember the lesson from the book, only invest in things that you are knowledgeable about, or where you have someone guiding you in an investment they are knowledgeable about. If you are not ready to begin investing yet, take a few minutes to write down types of investments that interest you. Then pick one and set it as a goal to research and gain greater knowledge about that type of investment, so that when you are financially ready to invest you are also prepared with the knowledge it will take to make your investments successful.
- Increase your earning capacity. As Dave Ramsey says, “Your most powerful wealth building tool is your income.” Make it a goal starting today to increase your income. Learn things that will make you better at your job. Get additional education or certifications. Strive to be the best you can be at your job and your income will surely begin to increase. Take 10 minutes to make a list of things you can do today to begin making progress in your career. Then pick one and begin taking action on it!