The Richest Man in Babylon

by George S. Clason

Short summary

“The Richest Man of Babylon” is widely popular and is considered a classic in personal finance. It provides insights and wisdom on the principles of wealth-building and financial management. It’s a light read and a great start to get a sense of how to manage money. It tells the story of “Arkad”, who becomes the wealthiest man in the city of Babylon by following simple ideas on  money management provided by a friend. Key takeaways of this book are: focus on saving a portion of one’s income before you start spending, living within one’s means, and investing in yourself. 

“The Richest Man in Babylon” Takeaways

• Live below your means. Focus on spending less than what you earn. Aim to live a simpler life. It will pay off in the long run
• Save at least 10% of your income. I’d say this is probably one of the most important pieces of advice you will find in many books. Set aside a portion of your earnings each month in order to build a safety net and to invest for the future.
• Invest in cash flow producing assets. Focus on assets or business that will produce a consistent stream of income in the long term
• Seek knowledge and wise counsel. Similar to what was said on Rich Dad Poor Dad, start building your network of mentors and advisors on financial matters. No matter how young you are…it will help you to start moving in the right direction.
• Start small and be consistent. Start making small changes to habits (like setting aside a small portion of your income on a monthly basis). Stay consistent. Wealth will build over time.
• Take calculated risks. Take your time to learn more before you jump into new business ventures. The more you understand what you try to do the lower the risk.
• Seek multiple sources of income. Start with your job, then look for side hustles. No matter how small they are. Keep going. All of them will add up in the future. 
• Use compound interest to your advantage. On this one I’d suggest reading the book “The Compound Effect”. Compounding is a very powerful force. Spend more time learning about this one.
• Create a written financial plan. It will help you to stay on track. Start 3-month, 6-month, 1 year , 3-year goals. Again start small…but start soon. You can adjust overtime.

Quotes that resonated with me:

• “If you seek wisdom, you will find wealth.”
• “The best investment you can make is in your own abilities.”
• “The man who seeks to learn more of his craft shall be richly rewarded.”
• “The more one seeks advice, the more one learns.”
• “It is wise to learn from the mistakes of others.” 
• “He who asks is a fool for five minutes, but he who does not remains a fool forever”
• “A part of all you earn is yours to keep.” 
• “A wealthy man is not one who has the most, but one who needs the least.”
• “It is wise to keep something for a rainy day.” 
• “The gold you save will determine the life you live.”
• “Beware of little expenses. A small leak will sink a great ship.”
• “Wealth, like a tree, grows from a tiny seed.” 
• “A man’s wealth is not in the coins he carries in his purse, but in the income he buildeth.”

“The Richest Man in Babylon” Practical Advice  

• Live below your means:
  • Determine your monthly expenses and compare them to your income. Avoid getting into unnecessary debt or high cost debt – like Credit Cards
  • Identify areas where you can cut back on spending
  • Create a budget and stick to it

• Save at least 10% of your income:
  • Automatically transfer 10% of your income into a savings account before you start spending
  • Get used to living with 90% of your income. Adjust your expenses to this new level. In 20 years you will thank me. 
  • Avoid dipping into your savings for non-emergency expenses
  • Increase your savings rate as your income increases. Ideally aim for 20% of your income. Start small and grow over time

• Invest in income-generating assets:
  • Research different investment options, such as stocks, bonds, real estate, start your own digital business, write a book and publish it online, start a youtube channel, etc.
  • Consult with a mentor, a financial advisor or do your own research to determine the best options to start.
  • Start small and gradually increase your investment as you gain experience and knowledge

Additional Advice

• Seek knowledge and counsel:
  • Read books and articles on personal finance, investing on your area of choice for a business venture
  • Watch Youtbe videos of people that have done it. Start with small steps.
  • Surround yourself with people who have a positive and successful financial mindset and have experience doing what you want to do

• Start small and be consistent:
  • Start with small, manageable steps towards your financial goals
  • Consistently review and adjust as necessary

• Avoid debt (see more of Bad debt vs Good debt):
  • Pay off credit card balances in full each month
  • Avoid taking out loans for non-essential items or expenses
  • Prioritize paying off high-interest debt, such as credit cards. Remember to live below your means

• Use compound interest to your advantage:
  • Invest early and consistently to take advantage of compound interest.
  • For example, if you decide to skip your daily 5$ Starbucks coffee (and make it at home) that could get you over $120K in 25 years (invested in the stock market at 6% per year). Invest your savings consistently ( in this example $150 a month), the compounded interest earned on your accumulated savings will grow exponentially over time. Explore more on this concept on “The Compound Effect“ by Darren Darren Hardy.

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