The Richest Man in Babylon (Summary of the book)
For the past few days, on my way to the office, I have been reading this book.
I completed 2/3 days back from writing this blog, so I decided to write a summary of this book.
It's August 15, 2019, today as I write this, so first of all, Happy Independence Day 🇮🇳.
Then after some time as I was going through the notes, I made on my kindle while reading this book and began to think that financial freedom is the most important freedom one should focus to get on early in life. It’s a different feeling altogether and it actually makes your parents proud of seeing their son/daughter being able to take care of his/her expenses.
So let’s get started on how to achieve this if you are still dependent on parents.
NOTE: This is for the students and working professionals alike as I have seen folks who have a job but still end up spending more than what they earn and at the end of the month ask money from their parents.
The author explains the concepts in the form of a story which took place many years back in Babylon Civilization. Babylon was considered as the richest place on earth where everyone had more than enough to take care of basic needs, luxuries in life, etc. The principles in the book worked for them and still hold true and will benefit for many more years to come.
I won’t be writing the story in short but would like to focus on the important points mentioned in the book. After each point, I would explain it in layman terms so that every reader of this blog feels that he has learned about the principles without spending much time to buy and read the book. But if you want to learn it through a story, I would suggest you buy the book and read it in your free time.
Let’s get started -
The seven cures for a lean(empty) purse:
- Start fattening your purse, how?
The simplest solution to fill an empty purse is to actually start filling it. Pretty neat, right? But how, you may wonder — it’s very simple.
As a student, you get pocket money from your parents for your expenses and as a working professional, you get a salary or your fees if you are a freelancer/independent consultant. The trick is to make sure you first pay yourself. That is, save a chunk of the total money that you earn first and then spend what is remaining.
For example: If you make INR 50,000/- a month, put aside INR 20k–25k in some other bank whose debit card you don’t have access to, but it is your account and then you try to take care of your expenses from the remaining amount.
It may be difficult at first if you have a habit of spending more than what you earn for whatever reasons which I won’t judge you on 😂. but as time goes, you will see the difference, over the years, the chunk has become massive in size. I will get back on what you should do of the amount you accumulated in below points.
So the first rule, start paying yourself first. - Control your expenditures
Now, in following the first rule, it can get difficult or some may raise questions like why should one save if he/she can enjoy and live a lavish life with her own money. I would say — try to understand that there are limits to everything you do, you won’t and should not live paycheck-to-paycheck. You are easily replaceable at your workplace or there can be someone else offering the same consultation or service at a cheaper rate. So, it is important to control your expenses in order to save a chunk of what you earn.
Stop spending on friends to just impress a girl that you just met in college 😂. Stop spending your parents’ money just to throw useless parties to folks who won’t even care about you. If you want luxury, the book has a solution for that too, but for that solution to work (which we will talk below) you need to control your expenditures.
So the second rule, spend less than what you earn and control your expenditures. - Put your money to work and multiply it
Your money is your slave and should work for you and no one else.
The sole job of your money is to make more money and put everything to work for you. How?
The first rule has started to fatten your purse, the second rule has enabled you to keep it growing by reducing your expenditures, the third rule is to put your money to grow.
Here, the investment instruments come to play. Mutual Funds, Share Market, investing in your side-business hustle, investing in yourselves which help you and your money to grow exponentially.
Trust me on this one, it is very gratifying to see your money work for you and grow itself and put more money to work and the cycle continues.
So the third rule, your money is your slave, put it to work and watch it grow. - Guard your money against loss
While following rule 3, make sure you do it carefully. You have to save all your money from going waste. All that you saved, invested, grew over time, it should be protected from loss. How? — By not making bad investment decisions. It isn’t rocket science as to how to protect your money from making losses.
Don’t indulge or invest in a business that you don’t understand in and out completely. Make sure it is your own domain, you have experience in dealing with it. It is just as simple as that. Never-ever invest in get-quick-rich schemes. They are scams for a reason.
So fourth rule to make sure your investment instruments are not loss-making deals. - Invest in buying a home
Now, if you ask me, this is somewhat not relatable to the current state of the world. Although the author says, owning your home saves on rent and as the value of the property grows over time it becomes an asset. This is the only point that the author mentions but I would leave it to the reader’s discretion.
So the fifth rule is dependent on the reader to follow it or not that to buy a home for yourself. - Ensure a future income
Let’s accept the fact that none of us is going to work our whole life. But we may still need money for our day-to-day expenses. So, there should be a continuous flow of income. For that to work, you need to invest first while you are in your prime. If you need fruits (money) in the future, you need to sow the seeds (invest) now 😄. You should plan some investments for the long term which will mature when you want to retire. There are many other ways to do this. You just need to look for them 😏.
So the sixth rule is to ensure a future income which you will need when you are no longer able to work for money. - Increase your ability to earn
Invest in yourself. Improve your skillset. Become indisposable. Provide value to what you deliver. Make a hustle on weekends, build a passive income stream, invest that income in return to make more money, exponentially. The more of wisdom we know, the more we may earn.
So the last rule is to cultivate your own powers, to study and become wiser, to become more skillful.
Luxuries
Everyone is entitled to enjoy luxuries in life, but most of us fail to understand that we heavily depend on a single source of income to meet our basic needs and luxuries in life and then at the end of the month, many of us have nothing left. Now, that’s a serious issue. To tackle that, make sure you follow the above-mentioned points of cure to empty purse.
Luxuries can be enjoyed on income other than the principal source. Invest the principal, earn on it, invest some of the extra income back to the pot, and enjoy on the remaining, little each day 😄. This keeps your principal intact and you are able to enjoy some of your luxuries every day.
In the rest of the book, the author talks about laws of gold which are on similar lines as mentioned here. It is just that they are part of a story of how a father helps his son to learn about money and gain financial freedom.
I think I would do the same for my kid, years later from now 😆.
So, that’s it for this post, I hope you attain financial freedom as early as possible and not burden your parents, in fact, it is your turn to provide for them once you are independent.
Next book in my pipeline is The Alchemist. I have just started it and would take some time to learn and apply what it has to say. Expect a summary of the same in a few weeks :)
Peace ☮️
