The Richest Man in Babylon is a wonderful book by George Clason. It uses short stories set in the ancient city of Babylon to teach basic lessons on personal finance which everyone can use to achieve financial freedom. In the article, I summarize the key teachings of this book. You can read the book review here.
Lesson #1: A part of all you earn is yours to keep
When we buy things we are paying others. We pay the grocer when we buy fruits and vegetables. We pay the restaurant when we eat out. We pay others for things we do not have and there is nothing wrong with it but we should always pay ourselves first i.e. set aside a part of our income that we do not give to others. This means not spending it since spending it would mean giving it to others. Try to save at least one-tenth of all you earn and then spend the rest for your needs. Slowly and gradually, this amount will grow in size creating peace of mind and a cushion to fall on if something unfortunate happens.
An easy way of automating this is through scheduled payments. You can open a separate savings account where you send 10% of your income every month.
Lesson #2: Control your expenditures
”That what each of us calls our necessary expenses will always grow to equal our incomes unless we protest to the contrary. ”
We are surrounded by a hostile host of companies that use aggressive marketing tactics like flash sales, discounts, and promo codes to lure us into buying things we do not need. They artificially create desires for things we don’t need. Anyone who wants to avoid wasting hard-earned money should understand the difference between necessities and luxuries. A good way of doing this is to stop following online stores and food chains which you follow on social media. When you will no longer see posts from these websites, you’ll end up spending less on things that you don’t need.
Lesson #3: Use money to create money
In this age, no one can complain about lack of opportunities. A simple Google search will return videos and articles on saving for the future and investments. Spending a little bit of time on researching your options and then using them will produce huge returns.
Put your savings (one-tenth of your income) to create another stream of income.
Lesson #4: Seek advice
Keep looking for opportunities where you can partner up with people who have a good track record of creating successful businesses. Not only will you learn how to do business but also earn a profit along the way.
Lesson #5: Own your house
A person who owns his house greatly reduces his cost of living and earns peace of mind.
Lesson #6: Invest in yourself
One of the most powerful ways of becoming wealthier is working on yourself. Ask a friend, a family member, and a workplace colleague for feedback. Use that feedback to improve skills and knowledge. With a newly acquired skill, you can start working part-time on something which you have always wanted to.
Lesson #7: Take risks-Men of action are favored by the goddess of good luck
There are a lot of opportunities that we do not avail and regret later on because we procrastinate out of fear. We fear that we may incur a loss but we do not entertain the possibility that it can turn out to be very profitable for us. Through careful risk taking, we can make huge gains from opportunities.