The Richest Man in Babylon, based on George Samuel Clason is a group of loosely connected stories that outline the primary principles of financial planning.
All stories are set in ancient Babylon and share a similar storyline.
Each story shows a wise rich man teaching an uninformed poor man how to work hard, budget, save and invest.
- Audible Audiobook
- George S. Clason (Author) – Grover Gardner (Narrator)
- English (Publication Language)
- 12/30/2012 (Publication Date) – Gildan Media, LLC (Publisher)
All in all, the parables cover some important topics, but the three biggest takeaways are:
- Everyone should save 10 percent of their income
- It is important to invest
- Budgets are an essential financial planning tool
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Lesson One: Everyone should save 10 percent of their income
Have you ever heard that you should “pay yourself first”?
The quote is still a surprisingly modern-sounding piece of advice.
It’s essential to save money, even while paying down debt and other bills.
The book recommends a minimum savings of 10 percent of income, which is in alignment with modern experts’ advice.
The book emphasizes that 10 percent will make no considerable impact on the saver’s daily life, but can add up quickly as a saving.
Of course, it is a little easier to save 10 percent of income these days, with the conveniences on modern banking.
Now, you can deposit 10 percent of earnings into a separate bank account automatically, without even seeing the money.
Like other finance books we’ve looked at such as the Barefoot Investor and I Will Teach You To Be Rich, the more you put on auto-pilot, the better.
Lesson Two: It is important to invest
While it all starts with savings, your money must not only be saved; it must be invested.
Investments generate income, whereas savings that sit untouched are a wasted opportunity.
As Investopedia states, your static savings tend to depreciate over time. This depreciation is due to economic inflation, which is when prices for goods and services increase.
Basically, the value of a unit of a dollar will lessen over time, so inflation can eat away at your savings.
It is kinda like how you’ll hear stories of what a dollar used to get you, now you can hardly buy milk for under $2.99.
Indeed, investments always introduce some amount of financial risk.
However, inflation in America has been at around the 2% mark. Even a low-risk investment should aim for a return that’s higher than 2 percent.
People with little savings tend to stick to more low-risk investments, whereas those with more savings spread their wings a little bit.
The stock market, on the other hand, is much more volatile, but it can yield higher returns.
Lesson Three: Budgets are an important financial planning tool
The use of a budget is a crucial lesson throughout the book.
Budgets can help people identify unnecessary spending to cut and other opportunities to better manage finances.
While I’m sure you’re aware of all this, in the United States, less than half of people use a budget.
So, even though we all know budgeting is important, not enough of us do it.
However, a simple budget isn’t hard to do.
To start, divide all expenses into wants and needs.
Wants are considered discretionary spending, whereas needs are considered fixed expenses.
You should try to dedicate only about 50 percent of your income to fixed expenses like mortgage payments or insurance.
The remainder can be dedicated to your ‘wants’ and savings.
In creating a budget, it’s essential to consider not just daily or monthly expenses, but also less frequent expenses like car repairs, taxes, and holiday gifts.
The Richest Man In Babylon Quotes
The following are a few of the quotes from the book
- “Advice is one thing that is freely given away, but watch that you only take what is worth having.”
- “Our acts can be no wiser than our thoughts.”
- “It costs nothing to ask for wise advice from a good friend.”
- “Learning was of two kinds: the one being the things we learned and knew, and the other being the training that taught us how to find out what we did not know?”
- “As for time, all men have it in abundance.”
- When no buyers were near, he talked to me earnestly to impress upon me how valuable work would be to me in the future: ‘Some men hate it. They make it their enemy. Better to treat it like a friend, make thyself like it. Don’t mind because it is hard. If thou thinkest about what good house thou build, then who cares if the beams are heavy and it is far from the well to carry the water for the plaster. Promise me, boy, if thou get a master, work for him as hard as thou canst. If he does not appreciate all thou do, never mind. Remember, work, well-done, does good to the man who does it. It makes him a better man.”
- “Learning was of two kinds: the one being the things we learned and knew, and the other being the training that taught us how to find out what we did not know?”
- “Men of action are favored by the Goddess of good luck.”
- “My admiration stranger within our gates, who hesitates not to speak the truth.”
- “Never mind though our purses are as empty as the falcon’s nest of a year ago. Let that not detain us. We are weary of being without gold in the midst of plenty. We wish to become men of means. Come, let us go to Arkad and ask how we, also, may acquire incomes for ourselves.”
Put The Book Into Action
It is essential to start thinking about your finances.
Start by writing a budget. What percentage of your income is dedicated to costs and what is assigned to fixed costs and see how you can bring that closer to 50%
From there, start to create a ‘wants and needs’ budget.
My Personal Takeaway
While the book is an old one, there is still so much which you can take away from The Richest Man In Babylon.
While it may not be possible to put away 10 percent of your income straight away, it is the process that is important.
Perhaps you can only put away five percent, or maybe even two… It doesn’t matter. What matters is that you start.
The book is required reading for anyone as far as I’m concerned.
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a Swedish university student, marketing professional, and life-long learner. Here at BookSummaryClub I summarize my favorite non-fiction books into easily digested posts. Hope you like what you’re reading!
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