In my review of Jim Rohn’s book “7 Strategies for Wealth & Happiness” I mentioned a book recommended by Rohn called “The Richest Man In Babylon.”  Rohn refers to it as “The Appetizer for the Full Discourse on the Subject of Financial Independence.”

“The Richest Man In Babylon” was written in the 1920s by George S. Clason as the first in a series of pamphlets about thrift and financial success.  “The Richest Man In Babylon” uses parables set in ancient Babylon to teach valuable lessons relating to finances.

Banks and insurance companies distributed these pamphlets in large quantities, and they became well-known to millions.  “The Richest Man in Babylon” became the most popular of these, and has impacted the lives of millions of people. These “Babylonian Parables” have since become a modern inspirational classic.

The book’s introduction, written by the Los Angeles Times, frames the book nicely by saying:

What can a book written in the 1920s tell modern investors about their finances?  A whole lot if it’s George Clason’s delightful set of parables that explain the basics of money.  This is a great gift for a graduate or anyone who seems baffled by the world of finance and a wonderful, refreshing read for even the most experienced investor.

The 7 Principles of Riches:

“The Richest Man In Babylon” offers 7 principles as told by Arkad, the riches man in Babylon.  When talking about the 7 Principles of Riches, Arkad says “Money is plentiful for those who understand the simple rules of its acquisition.”  The 7 principles of riches are:

1. Start thy purse to fattening
2. Control thy expenditures
3. Make thy gold multiply
4. Guard thy treasures from loss
5. Make of thy dwelling a profitable investment
6. Insure a future income
7. Increase thy ability to earn

Of course these principles are nothing new, but they are considered by many successful people to be the foundation to wealth.  The book lays them out in a way that’s interesting to follow, easy to understand, and really sinks in.

1. Start thy purse to fattening:

I’m sure you’ve heard this advice before, which for many is easier said than done:

For every ten coins thou placest within thy purse take our for use but nine.  Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and ring satisfaction to thy soul.

The advice here is to save at a minimum 10% of everything you earn, and to pay yourself first.  That means before paying any bills, before you buy those new shoes, before you do anything with your paycheck, take out 10% to pay yourself.  It doesn’t sound like much, but over time it will grow.

Other common advice, not specifically mentioned here, is to have the money direct deposited into an account that’s not easily accessible.  Since this is automatic, there’s no chance to put it off until you find you need that money for something else.  Also, it’s harder to access if you feel like spending it.

Of course, if you look at the statistics of how much people have in their savings account, this is not as simple as it sounds.  But if you think about it, for most of us, we easily blow 10% on things we don’t need.  This means it’s less a matter of being able to afford it, and more a matter of discipline.

2. Control thy expenditures:

Simply put, live below your means.  In the past, I lived above my means and I paid a heavy price for it.  The advice here is solid advice, no matter what your current level of income.  If you’re making $300,000.00 a month, and spending $350,000.00 a month, it’s just a matter of time (or a matter of a misfortune or two) before you lose it all.

The advice here is to create a budget for your expenses, and stick to it.  That includes the 10% you set aside, and making sure that you don’t touch that money.  This is not easy for a lot of people, and I know not everyone believes it’s necessary, but a budget is a great way to keep things under control.  I’ll be reviewing a budgeting program I just purchased in the next couple of months, called “You Need a Budget,” or “YNAB.”

3. Make thy gold multiply:

Compound Interest.  It’s one of the largest wealth growth components available.  Of course, with small amounts of money earning interest, the growth begins very slowly.  But that’s where the compounding comes in.  Anthony Robbins uses an example about wagering on a round of golf.  Starting with ten cents, you wager “double or nothing” for each hole.  What’s the worst that you can lose, maybe a couple of hundred dollars?

Things start off very slowly.  Of course, the first hole is $.10.  The second hole is $.20.  By the ninth hole, it’s up to $25.60.  Not bad so far.

By the time you get to the 14th hole, the total wager is up to $819.20.  If you think that’s surprising, wait until you hear the final wager after 18 holes!  After 18 holes, the wager has become $13,107.00.  That’s the power of exponential growth through compound interest, and that’s the lesson of “make thy gold multiply.”  The Wealthy know how to make their money earn more money:

Behold, from my humble earnings I had begotten a hoard of golden slaves, each laboring and earning more gold. As they labored for me, so their children also labored and their children’s children until great was the income from their combined efforts.

One very important point – starting earlier makes a huge difference in the rate of growth.  It’s never too late, but the earlier you start, the better.

4. Guard thy treasures from loss:

Simply put, make safe investments.  If you’re investing all of your money on a tip from your brother in law, because he knows someone who knows someone who said stock xyz was gonna explode, you might as well head to Vegas and let it ride on black…at least that way will be more fun.

You’ve got to do your due diligence with any investment.  The recommendation here is consult with experts related to the field of investment.  I say take it one step further, and research the topic yourself so you can make educated decisions.

5. Make of thy dwelling a profitable investment:

The fifth cure recommended here is to “own thy own home.”  Whether or not you consider your home an asset or a liability, it’s hard to deny the point mentioned in the book, the feeling of satisfaction of owning your own house.

6. Insure a future income:

This is advice that unfortunately so many struggle with in their old age.  During the retirement years, instead of enjoying life many are struggling to make enough to live.

Provide in advance for the needs of thy growing age and the protection of thy family.

7. Increase thy ability to earn:

Our recent article “Investing In Your Number One Asset” touches on the 7th Principle of Riches.  You must continue to improve yourself, making yourself more valuable and increasing your earning ability.  This includes all areas of our life!  We should always work to improve ourselves, physically, spiritually, intellectually, emotionally – in all areas of our lives.  It will bring wealth into your life, not just financially but in every way.

…cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself.  Thereby shalt thou acquire confidence in thyself to achieve thy carefully considered desires.

Final Thoughts:

These basic financial fundamentals have been around for ages.  They sound simple, but are not so simple in practice.  “The Richest Man In Babylon” nonetheless does a great job of explaining them in a simple to understand, enjoyable to read way that I think will benefit most people that read it.

I recommend that you buy and read this book!  It’s a small book, easy to read and inexpensive.  Who knows, you might find that it explains things in a way that will make you want to follow the advice and grow your own wealth.

Click to buy The Richest Man In Babylon