RICHEST MAN IN BABYLON

The Book in Three Sentences

Save at least 10 percent of everything you earn and do not confuse your necessary expenses
with your desires. Work hard to improve your skills and ensure a future income because
wealth is the result of a reliable income stream. You cannot arrive at the fullest measure of
success until you crush the spirit of procrastination within you.

The Richest Man in Babylon summary

This is my book summary of The Richest Man in Babylon by George S. Clason. My notes are
informal and often contain quotes from the book as well as my own thoughts. This summary
also includes key lessons and important passages from the book.

 The 7 simple rules of money: 1) Start thy purse to fattening: save money. 2) Control
thy expenditures: don’t spend more than you need. 3) Make thy gold multiply: invest
wisely. 4) Guard thy treasures from loss: avoid investments that sound too good to be
true. 5) Make of thy dwelling a profitable investment: own your home. 6) Ensure a
future income: protect yourself with life insurance. 7) Improve thy ability to earn:
strive to become wiser and more knowledgable.
 To bring your dreams and desires to fulfillment, you must be successful with money.
 The laws of money are like the laws of gravity: assured and unchanging.
 Money is plentiful for those who understand the simple laws of making money.
 Babylon was the wealthiest city in the world at the time of its height because its
people appreciated the value of money.
 You must constantly have an income that keeps your purse full.
 “It costs nothing to ask wise advice from a good friend.”
 It’s simple to say, but many people never achieve a serious measure of wealth because
they never seek it. They never truly seek it, focus on it, and commit to it.
 Youth often assumes, incorrectly, that the old and wise only have wisdom about days
gone by.
 You will only begin building wealth when you start to realize that a part of all the
money you earn is yours to keep. That is, pay yourself first. You always pay others
for goods and services. Pay yourself as much as you can. Save money.
 You should save at least 1/10th of what you earn. More if you can afford to do so.
 Do not take advice on finance from a brick layer. Go to people who are experts in a
particular subject if you want expert advice. It’s too easy for amateurs to give out
advice.
 Build for yourself a mountain of gold first, then you can enjoy as many banquets as
you wish without worry. Don’t spend your money as soon as you earn it.
 Surround yourself with people who are familiar with money, who work with it each
day, and who make lots of it.
 Enjoy life while you are here. Do not overstrain to save.
 Do not put your money in investments which do not pay a dividend, but also do not
invest in risky places that seem too good to be true.
 What each person calls their “necessary expenses” will always grow to match your
income unless you resist that urge. Do not confuse your necessary expenses with your
desires.
 “A man’s wealth is not in the coins in his purse. It is in his income.”
 Ensure a future income. Every person gets old. Make sure your income will continue
without work.
 By life insurance. Provide in advance for the protection of your family.
 Increase your ability to earn. Improve your skills. As you perfect your craft, your
ability to earn more increases.
 The more we know, the more we may earn. The person who seeks to know more of
their craft is capable of earning more.
 You cannot arrive at the fullest measure of success until you crush the spirit of
procrastination within you.
 The 5 Laws of Gold: 1) Gold comes easily and in increasing quantity to the person
who saves at least 1/10th of their earnings. 2) Gold labors diligently and multiplies for
the person who finds it profitable employment. 3) Gold clings to the protection of the
person who invests their gold with wise people. 4) Gold slips away from the person
who invests gold into purposes through which they are not familiar. 5) Gold flees the
person who tries to force it into impossible earnings.
 If you desire to help you friend do not do so in a way that brings their burdens onto
you. There are many ways to help people. You don’t have to choose the ways that
restrict your time, money, energy, or ability to care for yourself.
 The wise lender always has a guarantee of repayment should the investment go
poorly.
 Above all you should desire safety for your money. Better a little caution than a great
regret.
 Protect yourself with insurance. You cannot afford to be unprotected.
 Do not live beyond your means.
 No man respects himself if he does not repay his debts.
 The soul of a free man looks at the world as a series of problems to be solved.
Meanwhile, the soul of a slave whines, “What can I do?”
 “Where the determination is, a way can be found.”
 If you are in debt, live on 70% of what you make. Save 10% for yourself. Use the
remaining 20% to repay your debts.
 Stick with the plan. Money accrues surprisingly quickly and debts are gone fast with
discipline and consistency.
 Work attracts friends who admire your industriousness. Work attracts money and
opportunity. “Hard work is the best friend I’ve ever had.”
1. Pay Ourselves First ( “Start thy purse to fattening.”)

One of the greatest lesson the book has taught is this first lesson. When Bansir and Kobbi
seeked the advice of their very wealthy friend Arkad he tells them a story. Arkad was once a
poor scribe who made a deal with a rich man to find out the secret to wealth in exchange for
his work on a clay inscription.  The rich man gave him a very valuable advice  “I found the
road to wealth,” he said, “When I decided that a part of all I earned was mine to keep. And so
will you.”   Although this is a very subtle message it is very powerful in accumulating wealth.
We cannot accumulate wealth if we do not save what we earned.  We can do that by paying
ourselves first and foremost before we spend any of the money we have earned.

Did you ever wonder why the U.S. government takes taxes on our wages before we can get to
it?  The U.S. government (IRS) knows this law well.  They pay themselves first with our
money.   This is why we must be vigilant to pay ourselves first with every money we earn.
The book recommends that we pay ourselves 10% of all that we earn.   For every dollar that
we earn, 10 cents should go to pay the person you see in the mirror every morning. You may
call it the “Me Tax” if you like. The difference between rich financially stable people versus
poor broke people is knowing this first rule. Wealthy people pay themselves first and poor
people do not. Before we start paying others or start spending the money we earn we need to
pay ourselves first.

“If you have not acquired more than a bare existence in the years since we were youths, it is
because you either have failed to learn the laws that govern the building of wealth, or else
you do not observe them.”

“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little
you earn. It can be as much more as you can afford. “

“Pay yourself first”

2.   Live below our means. (“Control thy expenditures”)

If we have paid ourselves first at least 10% of what we earn that leaves us with 90% or less
of our income to live on. Controlling our expenditures enable us to make good use of the
money we have left over after we have paid ourselves.   There have been many advice on
frugality over the years but I think it will not solve the problem for the majority of us until we
truly define what money is to us and also define the difference of need vs. want.  I wrote
about this on the guide to becoming smart about money.

“Budget your expenses so that you may have money to pay for your necessities, to pay for
your enjoyments and to gratify your worthwhile desires without spending more than nine-
tenths of your earnings.”

The best advice to becoming wealthy is to keep expenditures down even when our earning
power increases.  Many of us have the habit of spending more as we earn more and it’s not
unusual to see someone splurging and suddenly their expenses go up as they start earning
more.  For example, if we suddenly have a $2,000 – $3,000 raise it is best to maintain our
current expense level as if the raise never happened. Instead we can tuck that extra money
away into our savings or investment. Controlling expenditures will mean living below our
means. When we live below our means we accumulate wealth faster.  We can think of it in
this way, our earning power is our ‘offense’ and controlling our expenditures is our greatest
‘defense’.

3. Make our money work for us.  (“Make thy gold multiply”)

I believe this lesson is about investing our money and letting it work for us.   I personally
believe that each and every one of us should think about investing only after we have built
our savings and an Emergency Fund.  After we have accumulated 6-8 months worth of
expenses in our Emergency Fund it is only then that we should consider about investing our
money on other investment vehicles. Our Emergency Fund is a security blanket especially
during this time of economic downturns.

 ” …put each coin to work so that it may reproduce its kind even as the flocks of the field and
help bring to you more income, a stream of wealth that will flow constantly into your purse.”
If everything else is good and gravy, making our money work for us is a great way to
accumulate wealth.  There are many investment vehicles we can tackle but the best thing we
should all be aware of is that we should never invest in anything we do not completely
understand.  Investing our money will mean becoming knowledgeable about what we are
investing in as well as the repercussions if the investment does not pan out as well as our
potential exit strategies when we are ready to take our money out.  There are many ways we
can invest our money such as stock markets, real estate, businesses, and so on.  We must do
our diligent effort to find great investments so we ensure our money will multiply and work
for us.

We should also invest our money to ensure we have a steady and safe income while taking
advantage of compounding interest we receive from our investments.  Time is our biggest
ally and as our investment accumulate interest and the money we get from the interest earns
interest and so on this is how we can make our gold multiply.

 
 

4. Insurance protects our wealth.  (“Guard they treasures from loss.”)

Have you ever had a car accident?  I have.  I was in an intersection when a car on the left
passed a red light and hit my car head on.  Thankfully we both did not get hurt. And
thankfully we both had insurance.  Insurance helps safeguard our wealth by absorbing
potential loss and mitigating our financial situation.   There are many insurance we can buy
and we should  do our research on which one and how much we need.  A renter’s insurance
or a homeowner’s insurance helps protect our homes. Another one is longterm
insurance which become suitable to help us as we grow older and help protect us from
medical expenses and long-term care.

We should all consider buying insurance now in case we need it if something happens.  This
is a proactive approach and one we should take and not forget.   The idea is that we will never
have to use the insurance but in case something does happen we are protected financially
from the loss it would have caused.

5. Our home is our biggest expense.  (“Make of they dwelling a profitable investment”)

Our homes are potentially the biggest expense we have to tackle.  Many of us do not own a
home and  instead rent one. There is absolutely nothing wrong with that but I believe the
lesson we can learn from this one is that we should manage our biggest expense smartly.
Many of us have decided to take on a huge mortgage to buy our home and after the real estate
bust many were left with homes that lost their value and in many cases were underwater.   I
believe the lesson we can learn from that was that we needed to ‘live below our means’ and
buy or rent a home we can comfortably afford.
Since our home is our biggest expense we must play great defense in this arena to lessen that
expense as much as possible.  I learned this lesson when I bought my first home. I can afford
a home twice as much as the price of my current home but I was  happy with the home I
bought. It was affordable, in a location that I liked, and had enough space for myself.  I do
not sweat the mortgage since it is comfortably affordable for me and I am trying to pay it off
faster with the extra money I earn.

I know that many think their homes are an investment but the truth is it really is not.  It is an
expense and a very high expense at that and one we must manage carefully.

6. Have a retirement plan. (“Insure a future income.”)

A 25 year old earning an annual salary of $40,000 with an annual raise of say 3% will have
earned an estimated $3 million if they retire by age 65. That’s about 40 years of working and
earning.  We should have a retirement plan if we want to retire comfortably.   We can do that
by setting  aside money to be invested for our retirement. There are many retirement
investment plans out there such as 401K, Traditional IRA, Roth, etc.  The younger we can
start putting money away for our retirement the better.  When we start putting money away
for retirement early we take advantage of a magical thing called ‘compounding interest‘.

Our net-worth does not equal our self-worth.

We need to keep them separated.
Compounding interest is known as the eight wonder of the world.  Benjamin Franklin knew
of this knowledge.  Did you know that Benjamin Franklin left 1,000 pounds (about $5,000 in
today’s money) when he died to a trust. He bequeathed that trust and left it to his favorite
cities Philadelphia and Boston with the provision that the money was to remain untouched for
as long as 200 years.  What was left in the trust after it grew was the amount of $2 million
given to Philadelphia and a whooping $5 million for Boston. The lesson we can learn from
this is to make time work for us when we plan for retirement by starting early. Time can be
our retirement’s greatest friend.

“Remember that money is of a prolific generating nature. Money can beget money, and its
offspring can beget more.” – Benjamin Franklin

7. Invest in ourselves. (“Increase thy ability to earn.”)

The best way we can increase our earning is by investing in ourselves.   We can do that by
continually learning and striving to develop ourselves.  We are now in a very exciting time:
the Information Age where knowledge is literally within our fingertips thanks to the Internet.
I really love the OpenCourseware idea where many schools including Ivy Leagues post their
whole class courses for free. It’s a great way to learn on our own.  Another one
is Coursera which has many online courses for free from Finance to Philosophy, check it out.

“Those eager to grasp opportunities for their betterment, do attract the interest of  the
goddess of fortune. She is ever anxious to help those who please her. And who is she pleased
with? She is pleased with those who do  – rather than those who merely talk and engage in
wishful thinking. Action will lead you forth to the successes you desire.”

There are many things we can learn on our own and should strive to make ourselves well-
rounded.  Whether we learn to eat more healthy, enhance our current work skills, or learn to
make more money, we must take the initiative to invest in ourselves.   When we become
smarter and wiser our ability to earn more also increases.
The 5 Rules of Gold from the “Richest Man in Babylon”

Gold comes gladly and in increasing quantity to any man who will put by not less than one-
tenth of his earnings to create an estate for his future and that of his family

Gold labours diligently and contentedly for the wiser owner who finds fir it profitable
employment, multiplying even as the flocks of the field

Gold clings to the protection of the cautious owner who invests it under the advice of men
wise in its handling

Gold slips away from the man who invests it in business or purposes with which he is not
familiar or which are 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 schemers or who trusts it to his own inexperience and romantic
desires in investment

8. Track Our Wealth. (Know where you are and where you are going.) 

In order for us to know where we stand financially we need to face the whole truth of our
current situation.   We can do that by tracking our current wealth or lack thereof.   This is a
tough exercise but we must face the truth of how we earn and spend our money in order for
us to know where we are going.  There is a big difference between wealthy people and those
who are not,  wealthy people know their net worth while the poor do not pay particular
attention nor care at all about tracking their assets and liabilities.

“You cannot manage what you do not measure.”  – Bill Hewitt (co-founder of Hewlett
Packard)
We can track our wealth by creating a spreadsheet of all our months earnings and expenses
and tallying the difference between the money we earn and how much we spend.   When we
do this work we are able to gauge how we are doing financially.   We can also track our net
worth by calculating our assets versus our liabilities (our debt).   If you have not done this
work yourself it is an eye-opening experience.  In order for us to fully develop a plan to be
wealthy we need to learn how to track our wealth so that we may know where we want to go
and create a plan to get there.