Today I want to tell you about one of my favorite books – “The Richest Man in Babylon” by George Clayson. The book is very small, but it is very informative and probably contains even more useful information than most Talmuds on financial literacy. I literally convinced my relatives and friends to read it, and they loved it too. I recommend that you also get acquainted with it. And now I will briefly talk about the content and the seven laws of money from this wonderful book.
The author of the book, American George Clayson, was born in 1874. He was always interested in financial education, and he began by preparing a series of brochures that were distributed in banks and insurance companies. Then Clayson collected these brochures into one book. To give his advice an aura of eternal, time-tested wisdom, the author chose the setting of Ancient Babylon for it. This literary technique turned out to be incredibly successful. Thus, the book presents universal financial principles through the prism of the wisdom of one of the greatest civilizations of the past.
The main idea of the book is that you can become rich by mastering the simple laws of money accumulation. The plot is built around the Babylonian scribe Arkad, who worked a lot, earned little, but really wanted to get rich. One day, the rich usurer Algamish approached him with an order. The order was complex, but Arkad undertook to fulfill it in exchange for the secret of wealth. After the work was perfectly done, Algamish revealed his secret: “The secret of my wealth is that I keep a part of everything I earn for myself.” Arkad was surprised: “But I also pay myself.” Then Algamish asked: “How much money did you pay yourself last month? Not to the butcher, not to the tailor, but to yourself.” Algamish meant that a person who spends everything he earns is a slave to his needs and works for others. He argued that every tenth coin earned should be saved. This is the “golden rule of 10%” and the principle of “pay yourself first”, which are currently promoted by Robert Kiyosaki, Bodo Schaefer and many other financial literacy experts.
Wealth is like a tree. The sooner you plant your first coin, the faster your tree will grow. This is the law of compound interest, a force often called the “eighth wonder of the world” in a phrase attributed to Albert Einstein. Algamish taught that you need to take care of your “money tree” and constantly fertilize it with new coins. The more diligently you do this, the thicker its crown will be. Arkad listened to the advice and began to save money, but he did not become richer. After some time, he already had a small, in modern terms, starting capital.
Arkad entrusted his first savings to a bricklayer, asking him to buy jewelry stones abroad. He entrusted the money to a non-expert in this matter and, of course, lost. The next time Arkad was smarter. He started saving again and entrusted the money to a person who knew how to multiply it.
Having received his first profit, he happily bought himself a red tunic and a young donkey for traveling – the modern analogue of an expensive car and branded clothes. Algamish, having learned about this, severely scolded his student: “You yourself are eating the children of your savings! Who will then work for you? First you need to create an army of golden slaves, and only then think about pleasant expenses.”
Arkad turned out to be a good student, listened to the advice of the wise Algamish, and within a few years had created a significant fortune.
And you will learn how events developed further by reading the book to the end. We will analyze the 7 laws of money that can be gleaned from this wonderful book.
First Law: Start Filling Your Wallet
Save money, pay yourself first, then everyone else. This rule seems incredibly simple. You only need to transfer 10% of your income to a savings account. This way you won’t feel as if you have less money, and at the same time your capital will gradually accumulate. If your income is very small, you can start with at least 1%. Over time, as your income grows, you can increase the percentage.
Second Law: Control your spending
There is always a temptation to buy something you can't afford. But if you are looking to build wealth, you will have to make some sacrifices at the beginning. It is very important to keep regular records of your expenses and create a monthly budget so that you understand where your money is going.
Law Three: Increase Your Wealth
Every coin you save should work for you. However, it is worth clarifying here: before investing, you need to create a financial cushion and get rid of high-interest debts, and only then direct your free money to investments.
Fourth Law: Protect your treasures from loss
Trust your money only to people and companies that know how to manage it properly. Don't chase after super profits: it's better to earn less, but have guarantees that your money won't disappear. It's worth trusting money to companies that have the appropriate licenses. Be careful with promises of high returns. If someone guarantees you a return significantly higher than the market rate (for example, more than 20% per annum in hard currency), this is most likely a scam.
Law Five: Make your home a profitable investment
The book argues that it is better to own your own home than to pay rent. This is a classic view, but in today's world, the dilemma of “to rent or to buy” has no clear answer. Owning a property can be profitable in the long run, but it is associated with a mortgage, taxes and repairs. Renting, on the other hand, provides flexibility, mobility and does not require a huge initial capital. Sometimes it is financially more profitable to rent and invest the free funds in other assets. The decision depends on your personal circumstances and financial goals.
Law Six: Secure your future income
From a young age, while you are full of strength and energy, take care of what you will live on when work becomes difficult. Create assets that will generate passive income in the future.
Seventh Law: Improve your earning skills
Don't be satisfied with what you've achieved. Constantly develop your skills and knowledge to increase your value in the job market and your ability to earn more. Read, talk to smart people, attend seminars, and learn new things.
