Secret ways that millionaires build wealth


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“The Richest Man in Babylon” by George S. Clason is a fascinating lesson in personal finance written in short, easy-to-digest stories. It was first published in 1926, but the classic parable style and timeless concepts about how to build wealth continue to provide value as if it was written today.

Originally written as a series of pamphlets, the parables were eventually collected into a book. The book provides many timeless lessons about spending, saving and investing to build wealth that are as applicable today as when it was first written.

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“The Richest Man in Babylon” – Summary in 3 Sentences


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The book is set in ancient Babylon, and follows the story of Arkad, the richest man in all of Babylon, imparting his wisdom to a younger man, Bansir, who wishes to become wealthy.

It lays out the basics of personal finance – spend less than you earn, save 10% of your income, and invest wisely – in an engaging parable format (stories told to teach a lesson). The book teaches that if you follows these basic lessons, work hard, and continue improving your skills, you can build future wealth through passive streams of income.

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7 Lessons from “The Richest Man in Babylon”

The book is divided into three sections. The first seven lessons are the “cures for a lean purse” that Arkad (the richest man in Babylon) shares with Bansir, and then there are two other related parables that impart the last two bits of wisdom. This article will cover the overarching lessons in the book.

Here is a summary of the main lessons from “The Richest Man in Babylon.”

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Lesson 1 – Pay Yourself First

“This, my students, was the first cure I did discover for my lean purse: For each ten coins I put in, to spend but nine.”

The first lesson given by the wealthy Arkad to his students was to pay yourself first. This may be the most basic maxim in all of personal finance, but if you don’t follow it, you will never escape the paycheck to paycheck cycle.

So what does it mean to pay yourself first? There are two ways to look at savings, and mathematically they are identical.

  1. Savings = Income – Expenses
  2. Expenses = Income – Savings

I will spare you the mathematical proof, but those two statements are equal. However, the psychology behind them are vastly different. If you follow the first equation, you are saving whatever is left over after you pay your expenses.

You are following the path of the average American – almost 80% live paycheck to paycheck. Unless you have an unusual amount of willpower, it is difficult to spend less than you earn if you don’t specifically prioritize savings as a line item in your budget.

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Lesson 2 – Live Within Your Means

“This, then, is the second cure for a lean purse. Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings.”

If you are like Arkad’s students in the parable, you are probably thinking that there is no way you can pay yourself first and save a portion of your income because your income doesn’t even cover your expenses now!

The book rightly points out that most people confuse necessary expenses with discretionary ones. Much like keeping up with the Joneses, your desires will always increase to consume whatever money you have and then some. This is also why keeping a budget is so important, so that you know where your money is going.

This desire to live beyond your means is true regardless of your income level. Even if you make $200,000 a year or $1,000,000 a year, there will always be things you desire that are slightly out of reach, whether it be a nice vacation or a luxury yacht.

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Lesson 3 – Put Your Money to Work

“This, then, is the third cure for a lean purse: to put each coin to laboring that it may reproduce its kind even as the flocks of the field and help bring to thee income, a stream of wealth that shall flow constantly into thy purse.”

Once you have mastered your spending and are consistently saving money every month, the next step is to put your savings to work earning their keep.

I like to think of each dollar as an employee. I want my employees to work hard for me, and earn as much money as they can. This is the concept of investing.

Instead of spending your money on things that lose value and will eventually end up in a landfill like cars, electronics, or designer clothing, invest your money in things that will earn more money like stocks, real estate, or even a side hustle business.

Through the power of compound interest, your assets will provide a steady stream of income, and by investing that income will produce even more income. These passive income streams will eventually be bringing in enough money for you to live off of without having to work for an hourly wage!

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Lesson 4 – Keep Your Money Safe

“Consult with wise men. Secure the advice of those experienced in the
profitable handling of gold. Let their wisdom protect thy treasure from
unsafe investments.”

Warren Buffett is famous for his 2 rules of investing:

  1. Never lose money.
  2. Never forget rule #1.

Buffett’s discipline has made him one of the wealthiest men in the world. Despite the popular opinion of the day, he invests only in what he knows and understands. While everyone is running to invest in Apple, Google, Facebook and the latest big tech IPO, Buffett is slowly and methodically building wealth investing in more traditional companies he understands.

That’s not to say there’s anything wrong with buying tech stocks, but it’s not Buffett’s area of expertise, so he invests in what he knows.

Getting caught up in the latest fad (*cough*…Bitcoin…*cough*), with visions of becoming an overnight millionaire, rarely ends well. Building true wealth is usually a slow, steady process.

Personally, I decided to invest my time, energy, and research into learning to invest in real estate. I made sure to learn from people with more experience and me (and not the get-rich-quick gurus), and was dedicated to becoming an expert in it.

That’s not to say I didn’t make mistakes along the way, but by focusing on one area of expertise and working hard, I was able to increase our net worth much more safely than if I had tried my hand at a dozen different things I didn’t know much about.

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Lesson 5 – Be a Homeowner

“Thus come many blessings to the man who owneth his own house. And
greatly will it reduce his cost of living, making available more of his earnings
for pleasures and the gratification of his desires.”

That said, when you look at the financial statistics, on average homeowners accumulate more wealth over their lifetime than renters. In my opinion, the greatest value in homeownership is that it is a basically a forced savings account.

Similar to the rule of paying yourself first, if you have a house with a mortgage, each month when you send your payment in you are contributing a little bit to the principal of your loan and building equity in an asset that will hold its value – your home.

So in 30 years when the mortgage is paid off, you own an asset worth at least a few hundred thousand dollars that you wouldn’t have if you had been renting that whole time.

However, I have written before that the true cost of homeownership is higher than you think, and renting is not just “throwing away money” like many people believe.

But if you are a renter, to build the same level of wealth as a homeowner, you have to be disciplined in saving and investing the money you would otherwise have put into a house downpayment, maintenance, and repairs.

If you don’t have that kind of discipline, then owning a home can be a great (albeit inefficient) way to ensure you are saving money and building equity every month.

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Lesson 6 – Insure Your Future Income

“This, then, is the sixth cure for a lean purse. Provide in advance for the needs of thy growing age and the protection of thy family.”

This lesson can be summarized as this: Be prepared for the unexpected. You may be making a good income now, and even saving for the future. But if you were to get sick and could no longer work, how would you survive? Or if you are the sole breadwinner for your family and through some tragic circumstances died, your family would be left without a way to pay the bills.

Thinking through some of these unpleasant possibilities and making a plan for the future is a part of responsible adulthood. While insurance is a complicated topic, and there are a lot of less-than-honest sales tactics out there to promote various products, that doesn’t mean you shouldn’t do your homework and be prepared in case of an emergency.

Some of the different types of insurance you should at least consider would be:

  • health insurance
  • life insurance
  • disability insurance
  • homeowner’s insurance (if you own a home)
  • long term care insurance

All of these cost money every month in anticipation of a future tragedy that may never happen, but you owe it to yourself and your family to think through these possibilities and have a plan should the worst case scenario come to fruition.

Image Credit: Depositphotos.

Lesson 7 – Improve Your Skills to Earn More Income

“Thus the seventh…remedy for a lean purse is to cultivate thy ownpowers, to study and become wiser, to become more skillful, to so act as to respect thyself.”

In the personal finance equation, there are two ways to come out ahead – spend less, or earn more. There is a reason this lesson is toward the end of the book. If you don’t learn the basics of how to control your spending, live within your means, and invest wisely, then earning more income will do you no good. You will just adjust your desires to match your new, higher income and still be stuck in the paycheck-to-paycheck cycle.

But once you have learned the basics of personal finance and have a handle on your budget, then earning income can be a powerful tool to build wealth. There is no denying that it is much easier to become wealthy making $500,000 per year than $50,000. But if you haven’t learned the discipline of saving and investing, earning 10 times as much will do you no good in the long run, and is no guarantee of building real wealth.

There are many ways to earn more income, but it all comes down to increasing your skills – whether that be in your current career, or a side hustle to make some extra cash by using your knowledge and skills. In my own life I decided to invest my time in learning how to invest in real estate and built a steady stream of passive income over the last several years.

But you could choose to grow your career and increase your income that way, or turn your hobby into a business to make money on the side. The possibilities are endless!

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