9 Essential Money Lessons from "The Richest Man in Babylon"

For more than a hundred years, George S. Clason’s "The Richest Man in Babylon" has shared valuable financial advice through stories set in ancient Mesopotamia. The book’s insights on saving, investing, and building wealth are still highly relevant today. Here are nine important lessons from the book, along with practical strategies to improve your finances, as well as tips to sidestep common mistakes.

Part 1: Managing Money

Pay Yourself First: Start Saving Before Anything Else

The book's key principle is to treat savings as a must-have expense. The main character, Arkad, stresses that "a part of all you earn is yours to keep." Most people pay their bills first, spend on what they want, and then save whatever is left. Instead, flip this order: Save before you spend.

Actionable Steps:

Automate savings: Set up direct deposits to different accounts, like 10% for savings and 5% for investments.

Use “bucket” accounts: Designate savings for emergencies, goals like travel, and retirement.

Start small: Even saving 5% of your income can create momentum. Aim to increase it by 1-2% every year.

Modern Approach: Use apps like Digit or YNAB to automatically save based on your spending habits.

Control Lifestyle Inflation: Keep Expenses in Check

As income rises, expenses tend to increase too. Arkad warns that our view of what is "necessary" grows just as our earnings do. To counter this, clearly distinguish between needs (like rent and groceries) and wants (like fancy clothes and dining out).

Actionable Steps:

Follow the 50/30/20 rule: Allocate 50% to needs, 30% to wants, and 20% to savings or debt repayment.

Monitor spending: Use apps like Mint or PocketGuard to spot unnecessary expenses.

Conduct an annual review: Examine subscriptions and recurring charges, and cancel anything not used.

Pitfall Warning: Lifestyle inflation can sneak up on you. For example, five daily coffees can add up to $150 a month—enough to contribute to an IRA.

Find the Right Mix of Enjoyment and Discipline: Enjoy Life While You Can

Building wealth doesn't mean you have to give up enjoyment. Arkad emphasizes that life is full of wonderful experiences. Align your spending with your values to prevent feeling overwhelmed.

Actionable Steps:

• Set up a “joy budget”: Dedicate 5-10% of your income for hobbies, travel, or experiences.

• Plan for guilt-free treats: Save towards a specific goal, like attending a concert or a weekend trip.

• Spend mindfully: Consider whether a purchase will bring lasting happiness or just momentary pleasure.

Modern Insight: The Die With Zero idea suggests that wealth should enhance life, not be hoarded.

2 Making Money

4. Invest to Grow Your Wealth: Make Thy Gold Multiply

Money doesn't grow when it just sits in savings; investing is what makes it grow. Arkad points out that while money in hand can feel good, money that's actively used earns more.

Actionable Steps:

• Start with low-cost index funds, such as S&P 500 ETFs, for steady growth.

• Look into real estate investments through platforms like Fundrise for passive income.

• Reinvest dividends to take advantage of compound returns.

Example: Investing $500 monthly can grow to $466,000 in 25 years.

Plan for Future Income: Ensure a Future Income

A character in the story loses everything because he didn’t plan for retirement. Arkad advises to prepare in advance for future needs.

Actionable Steps:

• Maximize tax-advantaged accounts: Contribute to 401(k)s, especially if your employer matches, and IRAs.

• Create passive income sources: Consider rental properties, dividend stocks, or a side business.

• Determine your Financial Independence number: Aim for 25 times your annual expenses for financial independence.

Stat: Starting to save at 25 rather than 35 could result in double the retirement savings due to compounding.

Increase Your Earning Potential: Increase Thy Ability to Earn

Simply saving money has its limits. Arkad encourages continuous self-improvement and learning.

Actionable Steps:

• Invest in your education: Pursue certifications, take courses, or attend workshops.

• Negotiate pay raises: Use resources like Glassdoor to understand market rates and frame your requests around your contributions.

• Turn skills into income: Consider freelancing, teaching, or developing digital products.

Pro Tip: Dedicate two hours each week for skill development.

Part 3: Protecting Money

7. Steer Clear of Risky Investments: Guard Thy Treasures from Loss

Arkad's story about losing money on fake jewels highlights the need for caution.

Actionable Steps:

• Diversify: Limit high-risk investments to 5-10% of your portfolio.

• Research investments: Use reliable tools like SEC’s EDGAR database for stocks or read reviews on platforms like BiggerPockets for real estate.

• Build a six-month emergency fund: This will protect you against job loss or market drops.

Modern Example: Many lost money in the 2022 crypto crash due to risky investments.

Seek Professional Guidance: Consult Wise Men

The book cautions against following trends without thought. Trusting someone knowledgeable in their field is wiser.

Actionable Steps:

• Hire a fee-only financial advisor who prioritizes your interests.

• Join supportive communities: Engage in groups like Reddit’s r/personalfinance for shared insights.

• Read expert advice: Follow thought leaders for balanced financial perspectives.

Pitfall Alert: Steer clear of “get-rich-quick” schemes that lack proven methods.

Create Your Own Opportunities: Cultivate Luck Through Action

Arkad indicates that luck benefits those who take action.

Actionable Steps:

• Network effectively: Attend industry events or join LinkedIn groups.

• Take smart risks: Start a side business, apply for a desired job, or pitch your ideas.

• Be ready for unexpected chances: Have an emergency fund to act quickly when opportunities arise.

Case Study: Sara Blakely turned $5,000 into Spanx by spotting a market gap, demonstrating how luck comes from effort and insight.

Modern Challenges and Solutions

Digital Temptations: Avoid impulse buying by removing shopping apps or using tools to block websites.

Inflation: Protect your money with investments like real estate or Treasury Inflation-Protected Securities (TIPS).

Analysis Paralysis: Take small steps. Start a Roth IRA with just $50—progress is more important than perfection.

Final Call to Action: The 30-Day Wealth Challenge

Week 1: Set up automatic savings and keep track of all spending.

Week 2: Invest $100 in an index fund and read one financial book.

Week 3: Negotiate one bill, such as cable or insurance, and cancel one subscription.

Week 4: Meet someone in your desired field and create a 5-year goal.

By the end of the month, you will develop habits to create lasting wealth. Keep in mind that the Babylonians thrived without modern tools; their focus on behavior matters more than just numbers. Wealth increases where effort is combined with wisdom. Start now, and let your efforts lead the way.