The book is set in Babylon, a city that has endured the test of time. The king returned from war and realized that most of the wealth are with a few rich men who mastered the art of wealth creation. He summoned the richest man Arkad in Babylon to share his knowledge on wealth creation.
The First Lesson – Pay Yourself First
Keep a part of what you earn for yourself. In order to thrive, always set aside 10% of your income and never use this as an expense. The rest of 90% will be adjusted to fit into your budget to spend. If you do this for 10 months, you will set aside 1 month of your income. You cannot become rich unless you save what you earn. 10% is the beginner level for the noob. In the FIRE community, we focus on increasing the savings rate. It is like a game, you start with a 10% savings rate and slowly you increase this to 50% and we see Instagram posts on people who share savings rates for the month reaching 80-100%! Do they even spend on food? Yes, they do.
Second Lesson – Live below your means
We find it difficult to set aside even 10% of our income because of unnecessary expenses. We have lots of wants. You and I have different wants. You may desire the latest gadgets, latest Hermes bag, and latest watch. I desire time freedom. Ok, I want to buy lots and lots of books, cannot stop buying them. You need to study your habits of living to eliminate unnecessary expenses.
We need to create a budget to identify what we will spend on and plug the leakages. This will help to control your spending. You can always set aside 10% of your income for a splurge.
Third Lesson – Make your savings work for you
The ancient term is “Make thy gold multiply”, this is simply making your money work for you. You must invest your money so that it provides a return for you. You need to learn how to invest, then invest your money, and reinvest the profits so that every dollar is working harder for you. This is a compounding effect of wealth. When you receive $100 in dividends and you plow back to buy more shares, more dividends will be returned to you with more shares acquired. In the book, they refer to the parable of the money lender. This is the same in terms of interest you receive from lending out silver to people and plowing back to lending more to others. The cycle continues. You get back more with a compounding effect. Put each coin/gold/silver to labor so that it may reproduce a stream of wealth that shall flow continuously into your purse.
Fourth Lesson – Guard your treasures against loss
Avoid investments that sound too good to be true. He who takes advice about his savings from one who is inexperienced in such matters shall pay with his savings for proving the falsity of their opinions. Don’t rush into investments or deals that promise huge returns. Do not be misguided by your own selfish romantic desires to amass wealth rapidly. A hasty path may become slower and you will lose your money. Who you take advice from is important as well. Some financial advisers (not all, you need to do your homework) will advise you in a way that benefits them, they are compensated by commission. When you buy a property, you live with it for years while the property agent walks away with his or her commission. Always do your own homework.
Fifth Lesson – Make of thy dwelling a profitable investment: own a home
Your home is the biggest investment. You can choose to own a home or rent it. Owning a home or renting has its own expenses. After you clear your mortgage, you own your house and there will be minimum expenses. Whereas renting is an expense which you need to incur as long as you stay in one. Renting can be profitable as well if it cost lesser to live in a house and you can invest the rest of your free cash flow.
Lesson 6 Insure your future income
Protect yourself with life insurance. Insurance will provide you with a lump sum or income when you cannot work or are not around for your family. Make your retirement plan because we will not always be young and healthy. We will come a time when we cannot work or cannot find employment. When you save and plan your investment, you can let your money compound for you such that you will have endless streams of income when it comes time for you to enjoy the fruits of your labor.
Lesson 7 Increase your ability to earn
Invest in yourself, you are your best engine of growth. Your knowledge will create the power to earn your wealth. Learning a new skill will create a new venue for wealth. As you become more skillful, your wealth will increase. It is about adding more value to others and in return, your wealth will grow. We have the internet which allows you to learn anything you desire. There’s no excuse not to learn something new.
Other takeaways from the book
To fulfill your desires and dreams, you need to be successful with money. The laws of money do not change, it is the same from the past till now. The only medium changes, it has evolved from barter trade, copper, silver, and gold to dollars and to virtual money. The principle does not change. There is an abundance for those who understand the simple laws of making money. You must create multiple streams of income (MSI) so that you do not rely on one form of income.
It is simple to say but many people never achieve a serious measure of wealth because they never seek it. Seek wealth, focus on achieving it, and commit to it. Youth goes by easily and the old and wise have the wisdom but their days have gone by.
Surround yourself with like-minded people, those who strive to thrive. Enjoy life while you are here, do not overstrain to save. This is to strike a balance in all aspects of life, you don’t want to have a high savings rate but you don’t get to enjoy any of it. Do not procrastinate when there is an opportunity to create wealth. Sometimes we just need to take the plunge.
Gold comes easily and increasingly to those who save at least 10% of their earnings. Gold labors diligently and multiplies for the person who finds it profitable employment. Gold clings to the protection of the person who invests their gold with wise people. Gold slips away easily when people invest in things that they are not familiar with. Gold flees the person who tries to force it into earnings too good to be true.
There are many ways to help people, you don’t have to choose ways that restrict your time, money, energy, or ability to care for yourself. The money-lender always has a payment guarantee plan should the investment goes poorly. The man who does not repay his debts will not be respected.
The poor will whine “What can I do?”, the free will look at the world with problems to be solved. If you can solve more problems, you can attract more wealth. Stick with discipline and consistency, you will quickly amass great wealth and get rid of debts. Discipline is the key.
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