As part of my reading for my Personal MBA, I am documenting the key lessons I learnt from – The Richest Man in Babylon. It is not intended to be a summary or review, rather a reflection of how the book has influenced my thinking.
There is a reason this is a classic. Simple lessons, coherently told as a story.
Like the cliche, I wish I had read (and crucially acted on) these lessons earlier. I would probably be financially free by now. There was nothing new to me in it, it is just that it is presented in the powerful parable format. It makes the lessons feel more real and helpful. Wisdom, not facts. So powerful that in order to utilise Cure 2, I did a 21 days life experiment, which has transformed my spending habits.
In school we learn facts, in life we learn wisdom. With examples from others and an attentive mind we can shorten the distance between facts and wisdom.
In the real world, the economy is not going to change to help us, we all know this, but still we begrudge it for not being more accommodating. There is no point whining that times are hard, it’s a stale tale told for millennia and yet still some people thrive. They follow a simple formula to wealth, they make themselves more valuable (read books), spend less than they earn and wisely make their savings work for them.
It is easy say that I don’t have the same advantages as others, equally I could say that I have more than others. Whether someone earns £20k or £40k per year, they struggle, saying times are hard. How is it that despite variances in income, the majority do not have a surplus at the end of a month. The logical conclusion is that it is not as much about earnings as we like to believe. Perhaps the difference is that the £20k earner should have more desire and the £40k more ability to drive action. Both should be motivated to follow the simple formula in the previous paragraph. It is not as easy as complaining, but a lot more fruitful.
Where there is determination, a way can be found.
The 7 Cures – Simple, effective
- Fatten the wallet – Spend no more than 9/10th of what you earn. I prefer 7/10 as a target. 1/10 to making the world a better place, 2/10 on future Dave, paying off debt, educating myself and investing. With debt prioritised, but the second two never neglected. For more – see how to Accumulate Wealth.
- Control expenditure – loads of people say they can’t afford to save. But even those that say it, have varying incomes, so how can it be true of everyone? Expenses grow to meet (and just exceed) income – see 21 days frugal.
- Make your money multiply– put your money to work, so it can make more, which in turn can make more – see Compound Effect.
- Protect from loss – Keep the principal safe and protect the downside. Look for a fair return. Only get advice from wise people, experienced in the right areas.
- Own your own home – Make it a profitable investment. After a while it will free up cash.
- Plan for when you can’t earn – Avoid the Pension Time Bomb and maximise use of your Employer’s Matching Contribution (Not just the auto-enrolled one!).
- Increase your ability to earn – Preceding which must come desire. Desires should be simple and definite, not confusing. Future proof yourself and use Digital Mentors.
5 Laws of Gold (Wealth)
- Gold comes gladly and increasing quantity to anyone who would put 10% or more away
- Gold works hard for the wise owner in order to multiply
- Gold clings to the cautious owner who invests only with wise men
- Gold slips away from those who invest in something which they are unskilled in
- Gold flees from those who invest in attempts to gain impossible earnings from fraudsters and tricksters.
Other Golden Wisdom
- Have adequate insurance and protection.
- “Good luck” flees the procrastinator and seeks the person of acts when a profitable opportunity, where the odds of success are favourable.
- Don’t take advice from people less competent than you.
- Pay debt with determination, 20% of what is earned until it is paid down.