This is a classic story that instills the basic principles of finance through stories set in ancient Babylon. It is a short book that was a compilation of articles written in the early 20th century to help teach people basic concepts of finance. This short pamphlet style book highlights the keys to saving, investing, and building wealth. The mini-stories show how those who come into money through lottery or luck will waste their riches because they do not understand the basic concepts of money. The son of a wealthy man in Babylon sees his son lose his riches for not understanding these rules and having to go out on his own to learn them before he can be entrusted with his father’s wealth. I identified 3 key concepts of from The Richest Man in Babylon which are universal to building wealth.
One of the key concepts is paying yourself first. In the book, the rule of thumb is saving no less than 10% of your total earnings. No matter how poor or wealthy you are – it is crucial you save a minimum of 10% of your earnings. This simple concept will change your financial standing and is the first key to success on your journey towards building wealth. If you cannot save some of what you earn then you will be in financial trouble.
As you build wealth and master the first rule of saving at least 10% of your income the next principles of wise investing become crucial. Ensuring that as you build savings each pay period through saving 10% of your earnings, are you able to not increase your lifestyle and continue to spend less than what you earn. Again this is a simple concept but spending less than what you earn and not spending your savings is the second albeit simple rule to building riches.
The last How can you make that 10% of your income earn more income for you? Mastering the art of having your money work for you is the next key. The Richest Man in Babylon highlights stories of Babylonians “investing” their money with inexperienced men or searching for “get rich quick” schemes that ultimately lead them to financial ruin. Identifying and finding people who are experts in certain areas and investing in their future is key.
If you are able to master the principles of wealth than you will be able to build wealth for the future. The 3 key principles to internalize and master are:
- Save no less than 10% of your earnings
- Live within your means – do not increase your spending with earnings
- Have your money earn you more money
I recommend you read this book for the stories and help to see how the basic concepts of building wealth are timeless from generation to generation. The differences that exist today are in the complexity and choices we have to save, spend, and invest. If you master the principles in this text you will be able to build long-term wealth.