Summary – The Richest Man in Babylon.
The Richest Man in Babylon is a book on frugal living and financial planning. It is written by George S. Clason. Though originally published in the 1920s, it is mostly valid even today.
The story is set in Babylon, which was once a city of wealth and splendour due to the hard work and wisdom of the people there. In the book, a wise, rich man from Babylon offers valuable advice on how to create and preserve wealth. Here is a summary of the lessons in the book –
To begin with, the seven rules of money to be practiced are listed. These comprise of steps without which one cannot generate wealth –
Save money. He says for every ten coins, you put in your purse, spend nine. This way you will accumulate money over a period of time.
Control your expenditure by recognizing the difference between needs and desires. Have a budget so that you satisfy your needs and save money for worthwhile desires.
Put your money to work. Invest your savings wisely to increase your wealth.
Guard your hard-earned money against frivolous investment schemes. You should invest only when there is reasonable security for the principal amount.
Own your home as in the long run, it will be financially beneficial.
Protect yourself and your family adequately through insurance so that you have a financial cushion against loss of income, death or other misfortunes.
Increase your knowledge and update your skills so that you are capable of earning income.
The wise man then talks about the five laws of wealth –
Choose to learn more and become knowledgeable than getting money for free. The wisdom will help you earn money. Money obtained without work can be misused or squandered.
If you invest money in appropriate assets, your investment and earnings will beget more wealth for you.
You are better off investing based on the advice of qualified financial experts.
You can lose your wealth if you invest without proper knowledge and informed, unbiased advice.
You can run into losses if you invest in dubious investment schemes.
He then narrates stories of certain individuals – Gold lender, Camel trader and the luckiest man in Babylon. Through these stories, he says lend money only if you have some guarantee of getting the money back or have collateral for the loan. Set up a firm repayment time frame and conditions. If you borrow money, live within your means and service your debts regularly so that the principal loan amount and interest instalments are quickly paid off. Find out different ways of earning money to reduce your loan. Be ready to work hard and work smart. You will be able to earn money and generate opportunities for creating wealth.
In earlier times, knowledge was stored and imparted through clay tablets. Five clay tablets that were excavated from Babylon had these key lessons –
Devise a financial plan to save and earn money, budget expenses, pay taxes and invest wisely.
Keep a track of all your liabilities and work hard to pay them off through regular instalments.
If you have loans to repay, save 10% for yourself. Use 70% for living expenses and the remaining 20% to repay your debts. To achieve financial success, take steps to execute the financial plan and review it regularly.
The book gives meaningful lessons on financial prudence for people new to financial planning or those interested in revisiting fundamentals of personal finance.
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