A financial classic, originally published in 1926, The Richest Man in Babylon is a series of fables written with key financial success principles dotted throughout. It’s still as powerful and relevant today as it was when first published. Learn the simple truths of how to save money, make money and grow money.
There are a few things that are common themes for distress in peoples lives. Love, career and health are up there as some of the most pressing. But one that many people struggle with is matters of finance. Having no dedicated financial classes at school means that you probably learnt everything you know about money from your parents. But if your parents were not great with money, you’d better get self-educating.
While money isn’t the be all and end all, it is a key driver in the way we live our lives. If it is scarce, then stresses in your day-to-day life can be devastating. If it is abundant, then although it may not solve all your issues, it certainly removes a whole pile of worries from your life, letting you focus on what’s really important to you.
The Richest Man in Babylon is a great primer on how to build the foundations of a solid financial life. It may have been written close to 100 years ago (and the story itself is set way back in ancient Babylon) but the foundations remain the same. Here are some of the principles to a good financial life from The Richest Man in Babylon.
Pay yourself first
At first glance, this is a strange principle, but it is probably the most powerful. In it’s simplest form, it means that for all the money you earn, take a percentage of it and squirrel it away before you do anything else. By doing this, you make sure that you always having a growing savings account. It’s far too easy to pay your bills and enjoy what’s left over without considering saving a bit.
So how much should you pay yourself? The book says you should aim for 10% but also states that you should only save as much as you can – if your outgoings only allow for a small saving. This can be modified over time as you pay down your debts, decrease your living expenses or maybe earn more money, with the target of 10% always in the back of your mind and the end goal.
So how should the rest of the 90% of what you earn be split? 20% to pay down debts and live off the remaining 70%.
“A part of all you earn is yours to keep. It should not be less than a tenth no matter how little you earn. It can be as much as you can afford. Pay yourself first.”
Pay down your debt
Owing money can be a scary thing. In the Richest Man in Babylon, one of characters owes a lot of money to a multitude of people. He hides from this fact and eventually runs away, getting sold into slavery in the process (glad we weren’t alive then!). During his time as a slave, he has an epiphany of sorts. He manages to help his master and work his way out of slavery. Once free, he decides to go back home and face his debtors. He approaches each of the people he owes money too, and explains he is back to pay off his debts. Over the years he pays off all of his debts and becomes a wealthy man.
“No man is otherwise who cannot respect himself and no man can respect himself who does not repay honest debts.”
You cannot run away from your debt. The only way to deal with it is to face it head-on. The book suggests using 20% of all your earn to pay down any debts you have. Then, when all your debts are gone, that extra 20% is yours to spend or better yet, save.
Live within (or below) your earnings
Most people want the latest toys and gadgets, a new car or home, fancy dinners and nights out. And those are all amazing things. It’s when they cannot afford to do these things that it becomes an issue. Credit cards and loans are used to remove the wait. Meaning, we’re so impatient for the things we want, we are willing to forfeit our future earnings (and potential happiness) to acquire them now. Delayed gratification is a powerful tool if you can use it.
If we could all step back from this mentality (some people already do and are probably the more wealthy of the people you know) we could save much heartache, and learn to appreciate what we already have.
There is a growing trend in minimalism at the moment. The guys over at theminimalists.com promote living within your means, and controlling your expenditures. They espouse the benefits both financially and spiritually of having less ‘stuff’. It’s worth considering.
Live like the Richest Man in Babylon
While this isn’t a comprehensive listing of all the concepts in the Richest Man in Babylon, it’s a really good framework to get started with. By making sure you always save some of what you earn, you are covered in case of an emergency.
I would recommend reading this at least once (probably more!). It’s only a short book, but the way it’s presented in a story based format lends itself to an almost emotional investment in the success of its protagonist which – in a strange way – is the reader.
The key takeaways for my current position in life are those outlined above, use the 10/20/70 rule to pay yourself first, pay down your debt and live within your means. There are more stories about investing what you save and growing your money. I may come to those in a later post.