The Richest Man in Babylon by George Clason Summary and Analysis

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George Samuel Clason’s Perspective

George Samuel Clason is an author from the early 20th century who revolutionized financial advice. After serving in the Spanish-American War, George started writing international pamphlets about achieving financial success. The Richest Man in Babylon is a compilation of his more popular pamphlets. George is credited with inventing the term ‘Pay yourself first.’ He also started two companies, the Clason Map Company of Denver, Colorado and the Clason Publishing Company. The Clason Map Company was the first to publish a road atlas of the United States and Canada.

Synopsis

The Richest Man in Babylon is a book almost 100 years old. That said, the book is still as applicable today as it was when it was first published in 1926. The book focuses on explaining financial advice through a collection of parables. These parables are set in Ancient Babylon. Specifically, set 4,000 years ago. They are associated with a fictional Babylonian character called Arkad. Arkad is a poor scribe who became the ‘richest man in Babylon.’ Babylon was the wealthiest city in the world at the time because its people appreciated the value of money. This book is one of the most influential classical books providing financial advice. By the end of this book summary, you will have an understanding of Arkad’s financial advice. Specifically, you will have seven cures and five laws of gold. These will help you generate money and then protect and invest it. 

Arkad’s Seven Cures

Pay Yourself First

You should always be looking to save money when you can. Clason recommends saving at least 10% of your earnings. If you can save a higher proportion than this, then that is great. This money might be just going to pay off debt, but it is still growing your wealth. If you are in debt, you should live on 70% of what you earn. Save 10% for yourself and use the remaining 20% to repay your debts. You should set this aside before you spend any other money. 

Every expense you have is you slaving for someone else. If you do not pay yourself first, you are merely working to pay other people. Clason explains you might as well be a servant if you do not pay yourself first. This is because servants work to earn food and shelter.

Control Your Expenses

You want to control your expenses. To save a minimum of 10% of your earnings, you will have to minimize the money going out. You need to be spending 90% or less of your income. So, you need to learn to live below your means and try to avoid unnecessary expenses. Your expenses will always grow equal to your income if you don’t protest. Stop and consider what you are spending money on and minimize this. If not, you will be saving 0% of your earnings each month. A perfect example of this is when people get a raise. Instead of using this as an opportunity to save more money, people start to spend more. Unless you can control your urge to buy unnecessary things, you will struggle to maintain this cure.

You will never become rich without controlling your expenses. Everybody must live by ‘income minus expenditures equals savings.’ Part of controlling your expenses is establishing a budget. Less than half of Americans currently use a budget. To budget effectively you need to divide your expenses into two categories: wants and needs. Dedicate roughly 50% of your budget to needs, like housing and insurance. You should then allocate the remainder to your wants, which Clason calls your discretionary spending.

Make Money Work for You

Together, saving money and not spending stupid money is not enough to become wealthy. You also have to be investing your money. The first two cures, saving and controlling expenses, will help you with this third cure. The first two cures will provide money for you to invest.

Every cent of your savings should be invested. If you then receive returns on your money invested, you should be investing these returns. If you do this, your wealth will slowly build. You are effectively building an army of workers that are earning money for you. 

Some of the best areas to invest your savings are stocks, bonds, or real estate. If you make a sound investment, your saved money will increase considerably. So, do not let great opportunities pass you by. If a fantastic investment opportunity arises, make sure you grasp it. This might mean having to cut your expenditures further so you can make this investment, but it will be worth it in the long run. 

Finally, make sure you are investing in areas that you are knowledgeable. Or, if there is an opportunity that you are not knowledgeable in, you may need to learn more. The best people to learn from are financial advisors. In The Richest Man in Babylon, there are several fictional characters who can be described as financial advisors. They are rich, self-made men who are endorsed by the king and other leaders. In the story, they are trustworthy experts who help other people making their money for them. So, avoid being scared of hiring a financial advisor if you are struggling.

Protect Your Wealth

There are risks associated with attempting to become rich and with being wealthy. It is easy to lose money or make a poor investment. So, you need to minimize the risk of losing money. One way to do this is to learn from those who have successfully built wealth and kept it for long periods. Surround yourself with people who are familiar with money, who work with it each day, and who make lots of it.

You also want to spread your wealth. You do not want your investments to all be placed in one stock or bond. Doing so is too risky. Diversify your investments based on logic, and you will make money. Some risks are reasonable, as the higher the risk, the higher the rewards. That said, you do not want your financial risk to ever compromise your wealth. Place your investments in activities that provide a dividend and avoid investments that are too good to be true. 

Another way to protect your wealth is to only help friends financially if there are safety nets in place. You do not want to help a friend if it burdens you financially. You can help people in many ways, and lending money is a very complicated and avoidable way. If you want to lend money, you must ensure there is a guarantee of repayment should the investment go poorly.

Own Your House

Owning a property gives a person more confidence. 

Renting a property is an easy way to waste money. You are simply giving your money away to a landlord. It is better to take out a loan and buy a property. When the loan is paid off, you own that house. You can then do whatever you want with it. You can even start renting out this property as a form of investment. But, the best-case scenario is buying a house without a loan. If you can do this, then you definitely should. 

Ensure a Future Income

The life of every man proceedeth from his childhood to his old age. This is the path of life and no man may deviate from it unless the Gods call him prematurely to the world beyond. Therefore, do I say that is behooves a man to make preparation for a suitable income in the days to come, when he is no longer younger, 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 learn.”

– George Samuel Clason

You always need to be looking forward to the future. Financial circumstances can change rapidly. So, you need to have a plan in place in case circumstances are worsened for you. Examples of this include becoming too ill to work or a specific industry no longer being needed. You want to have investments in place that are leveraging compound interest. You also want to develop a passive income stream that will keep coming in after you no longer work. This will help account for factors that could crop up in the future, like becoming ill.

Invest in Yourself

Your most valuable asset of all is your mind. So, to maximize your ability to gain wealth, you must invest in yourself. You need to improve your earning potential. You can do this by acquiring new skills and knowledge important for acquiring wealth during that period. Think about how you could be earning more money. Then, consider what changes you need to make to yourself to make that potential wealth a reality. Invest in making those changes. 

As well as learning new skills, investing in yourself can mean developing new, healthy habits that help you achieve your financial goals. Examples of healthy habits would be running daily, reading helpful financial books before bed, or cutting out a bad spending habit. 

When people are talking about wealth acquisition being lucky, they are talking about chance. We have the opportunity to change the chances of us becoming wealthy by investing in ourselves. Chance is merely a result of preparation and taking opportunities that come to us.

The people who complain about others being lucky are not the ones who will become wealthy. Opportunities will come by, and the complainers will not try them. To become wealthy, take every opportunity that comes by and try it. It doesn’t matter if it fails, you are increasing your chances that one day it will work out and you will gain wealth.   

The Five Laws of Gold

“Ahead of you stretches your future like a road leading into the distance. Along that road are ambitions that you wish to accomplish…desires you with to gratify. To bring your ambitions and desires to fulfillment, you must be successful with money.”

– George Samuel Clason 

In the book, Clason also provides a summary of how to make money. He calls these the five laws of gold:

1. Gold comes easily to those who save at least 10% of their earnings.
2. Gold labors diligently and multiplies for people who find this gold a profitable employment.
3. Gold clings to the people who invest their gold with wise people.
4. Gold slips away from people who invest in unfamiliar purposes.
5. Gold flees from people who force gold into impossible earnings.

Final Summary and Review of The Richest Man in Babylon

The secret to creating wealth is spending as little as possible, saving money so you can invest, and investing in yourself so you can seize financial opportunities as they arise. 

To become rich, you have to think about your money like a tree. Trees grow slowly from a seed, and they need water and light to flourish. These seven cures are the food for your money tree. That said, they cannot help your tree grow without hard work and consistency. Set out a logical plan and stick to your financial plan. If you do this and you work extremely hard, then money will accrue surprisingly quickly.

Comment below and let others know what you have learned or if you have any other thoughts.

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