In 1926, George Samuel Clason published a series of pamphlets written in parables that was set in the ancient city of Babylon. The book became known as The Richest Man in Babylon and has become a best seller in financial literature. I encountered this little book a while ago and was blown away by the way of the storytelling about the tried-and-true lessons for accumulating wealth.

The story sprang from the characters Bansir who was a chariot builder and Kobbi who was a musician. The two had become the best at their craft but yet had no money and were poor. They went out to seek the advice of their childhood friend Arkad who in contrast had grown very rich and amassed fortunes.

The lessons that Arkad provided for his friends was the premise of the book and they are lessons of wealth building habits that almost every rich person had followed to accumulate their wealth. Below are lessons of this book that has helped many become financially stable and wealthy, these lessons can help you build a firm financial foundation on your way to becoming the richest person you can become.

Seven Cures for a Lean Purse

1. Start the purse to fattening. (Pay yourself first.)
Save and invest at least 10% of what you earn and more if possible.

When Bansir and Kobbi seeked the advice of their very wealthy friend Arkad he tells them, “I found the road to wealth when I decided that a part of all I earned was mine to keep.

Although this is a very subtle message it is very powerful in accumulating wealth. We cannot accumulate wealth if we do not save part of what we earned. We can accumulate wealth by paying ourselves first and foremost before we spend any of the money we have earned.

“A part of all that 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”.

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.

2. Control the expenditures.
Live below your means. Stop unnecessary expenditures.

After paying ourselves first at least 10% of what we earn, we are left 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 after we have paid ourselves. “Budget your expenses so that you may have money to pay for your necessities and to gratify your worthwhile desires and enjoyments without spending more than what is left of your earnings.”

The best advice to becoming wealthy is to keep expenditures down even when your 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.

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 the gold multiply.
Make the money work for you.

A person’s wealth is not in the dollars he carries in his purse or bank account; it is in the income he built from it, the golden stream that continually flows into his purse and keeps it always bulging, an income that continues to come whether you work or travel.

This lesson is about investing your money and letting it work for you, put each dollar to work for you so that it may reproduce itself like the flocks of the field and bring you a stream of wealth that will flow constantly into your purse.

4. Guard the treasures from loss.
The first sound principle of investment is security for the principal.

It is not wise to be intrigued by larger earnings when the principal may be lost, “the penalty of risk is probable loss.”

Study carefully, before parting with your capital, be sure that it may be safely reclaimed if desirable and that you will not fail to collect a fair return on your capital. Be not misled by your romantic desires to make wealth rapidly. Take the least risk possible, rather go with a minimal stable return with low risk versus a higher return with more risk.

Be not too confident of your wisdom in entrusting your treasures to the possible pitfalls of investments, consult the advice of those experienced in the profitable handling of capital, let their wisdom protect your treasures from unsafe investments. In reality, experienced advice is of the value as your capital if it saves you from loss and prevents your purse from being emptied once it has become well filled.

The smart way is to invest with someone who has experience in that particular trade or field for many years and is successful in it. For example, only invest in real estate with someone who has years of experience and is successful in that field in real estate and do not invest in real estate with someone who is very successful and experienced in the diamond business, invest in diamonds or in a diamond business with someone who is successful and has years of experience in the diamond business and not with even the most experienced successful real estate investor etc.

There are many ways we can invest our money such as stock markets, real estate, businesses, whole life insurance policies and so on. We must do our diligent effort to find great investments with great people to ensure our money will multiply and work for us.

Once this is accomplished, we need also to re-invest the return that we make from our investments, to take advantage of the compounding growth we receive than from our investments.

Time is our biggest ally as our investment accumulate income, when the money we get from the income earns also income and so on, this is how we make our gold multiply.

5. Make of the dwelling a profitable investment.
Own the house you live in, so the same payments you do monthly is for your own investment instead of someone else’s, paying him rent. There is no better feeling and investment than living in your own home.

6. Insure your wealth and future income.
There are many insurances we can buy and we should do our research on which one and how much we need.

A homeowner’s insurance helps protect your home and belongings.

Another one is long-term care insurance which becomes suitable as we grow older to help protect us from medical expenses and long-term care.

A whole life insurance protects our accumulated wealth from being destroyed by capital gain death taxes and in the same time accumulate wealth for our retirement plan, it can also work well by making it possible to buy out partnerships that may not work well with the next generation.

A Term life insurance protects the financial well-being of our family in case an early unpredicted death happens, it protects us for the difference of the full insurance amount needed while we cannot yet afford to invest enough in a whole life to cover for our full insurance amount needed.

Buying Insurance is a proactive approach and one we should not forget. The idea is to reduce and eliminate downside risks as much as possible so that we are protected financially from the loss it would cause.

A person who, because of his understanding of the laws of wealth acquired a growing surplus, should give thought to those future days. He should plan certain investments or provision that may endure safely for many years, yet will be available when the time arrives which he has so widely anticipated.

We can do that by setting aside money to be invested for our retirement. There are many retirement investment plans such as whole life insurance strategies, TFSA’s, RRSP’s etc. The younger we start putting money away for our retirement the more value it will grow to at time of retirement. When we start putting money away for retirement early we take advantage of a magical thing called ‘compounding interest.

Compounding interest is known as the eighth wonder of the world. Albert Einstein said that the power of money is “Time & compounding Interest” the earlier you start the stronger it grows for the final goal date.

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

7. Increase your ability to earn.
We can increase our earning by investing in ourselves.

The more of wisdom we know, the more we may earn. That person who seeks to learn more of his craft shall be richly rewarded. If he is an artisan, he may seek to learn the methods and the tools of those most skillful in the same line. If his profession is in law or in healing, he may consult and exchange knowledge with others of his calling. If he is a merchant, he may continually seek better goods that can be purchased at lower prices.

“Always does the affairs of man change and improve because keen-minded men seek greater skill
so they may better serve those upon whose patronage they depend. Therefore, all men should be in the front rank of progress and not to stand still, lest they be left behind.

The 5 Rules of Gold from the “Richest Man in Babylon”

1) 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.

2) Gold labors diligently and contentedly for the wiser owner who finds for it profitable employment, multiplying like the flocks of the field.

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

4) 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.

5) 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.

In closing here are a few more quotes of the author.

“Many things come to make a man’s life rich with gainful experiences. the following, a man must do if he respects himself:”

“He must pay his debts with all the promptness within his power, not purchasing that for which
he is unable to pay.” (Live within your means.)

“He must take care of his family that they may think and speak well of him.”

“He must make a will of record that, when God calls him, proper and honorable division
of his property be accomplished.”

“He must have compassion upon those who are injured and smitten by misfortune and aid them
within reasonable limits.”

“He must cultivate his powers, to study and become wiser, to become more skillful, to so act as to respect himself.