Author: George Samuel Clason
_George Samuel Clason_
Reading time: 22 minutes
Synopsis
In his classic book, The Richest Man in Babylon, George Samuel Clason explains basic rules for managing your money. These rules have not changed since ancient Babylon. Why do some people become rich and others do not? How can we make our money work for us? Clason shares rules and ideas for building wealth. They are still very useful today.
What’s inside for you: A classic about money plans and building wealth.
In the rich city of Babylon, there lives a man named Arkad. He is known as the richest man in the city. One day, two friends from his childhood meet him on the street. They ask him a question they have had for years: Why do some people get very rich, while others, who grew up in the same way, barely have enough money to live?
The ideas in The Richest Man in Babylon are still very important today. This is true almost 90 years after Clason’s book first came out, and about 3000 years after Arkad lived. As the gap between rich and poor grows, many people want a fast and easy way to get wealthy.
The ideas you will find here are very simple. But they are also very strong. That is why they have worked for thousands of years. They have worked in many different societies and money systems. Sadly, getting rich usually does not happen fast. It was the same in old Babylon.
These summaries from the book explain all you need to know about debt, earning money, getting rich, saving, and most importantly, investing. At the end, you will also find a short lesson about good and bad luck. You will also learn that you were right to try things yourself instead of just reading books or manuals.
Blink 1 – Downward Spiral: What we can’t pay for can ruin us.
Before we look at how to get rich, we must first look at the dark side of money. Some of us have surely seen it: debt. We often get into financial trouble when we spend too much money. We may find it hard to pay our credit card bills. This often happens because we make bad choices about what we truly need and what is just a luxury.
To avoid debt, we should always make smart choices about what we buy. Imagine you really want that beautiful horse for your stable in Babylon. Or, for today, a fancy sports car. You do not truly need it. You would have to borrow money to buy it. You think you can easily pay back the loan from your earnings. So, you buy your new nice transport with borrowed money. But before you pay back the loan, you lose your job at the pottery shop.
What can you do to keep paying the loan? You have to take out a new loan. The rules for this new loan will be worse because you have no job. This is the start of a dangerous downward spiral. It is very hard to get out of it.
So, it is very important that both sides – the borrower and the lender – make sure a loan can truly be paid back. It is even better, of course, not to live beyond your means from the start.
The next points will explain why it is good to learn when you can go without something. Another big problem with loans is that they stop us from investing our money. The next points will show that it is better to use our money to build wealth than to give it to lenders.
Blink 2 – Make Your Money Grow: If we make our money work for us, we will get rich.
In everyday talk, “earning money” and “getting rich” often sound the same. But there is a key difference: A person who earns money works for it. A person who gets rich makes their money work for them.
When we understand this difference, we see money in a new way. Who wants to keep just earning money when they can get rich?
Arkad, who later became the richest man in Babylon, did not want to just earn money. So, he decided to make his money work for him. He just watched it grow.
Earning money mostly focuses on right now. Imagine you still had your job as a potter. You would ask: What do I want to buy this month? How much do I need to earn for it? When you groom your new horse or clean your sports car, you probably do not think much about the near future. Even if you did not get into debt when you bought it. What if your business does not make enough money after a few months because fewer people want pottery? Then your regular income, which seemed safe, suddenly disappears. Your horse still needs food. Your sports car insurance still needs paying. You have a problem.
We avoid this problem if we want to get rich instead of just earning money. Getting rich needs long-term planning. This kind of planning is ready for changes in the pottery market. It saves enough money so your horse does not go hungry.
The richest man in Babylon tells us how to get enough money and even grow it more. You just need to do some first steps and then relax. Of course, this does not mean everyone should quit their job. But it can help to think carefully about your goals. Try not to work hard for your money all the time. Instead, make your money work hard for you.
But to make our money work, we first need to have some. What we need: starting money!
Blink 3 – For a Strong Start: Save one-tenth of all you earn.
Why do some people get rich and others do not? Is it because some save their money and hide it under their mattress or in the bank, while others just throw it away? The secret to building your wealth is not in either extreme. As often happens, it is in the middle.
It is not just about earning money and keeping it. Knowing how to use your hard-earned money in the best way also matters a lot.
First, we must save some money. This means you must spend less than you earn. It also means you might need to cut back a little at first. You can go without many different things without truly losing quality of life. From an expensive short trip to Paris to very costly toilet paper, there are chances to save money everywhere and in many different amounts.
The richest man in Babylon knew this too. He told his listeners this: If you put ten eggs from your chicken coop into a basket in the morning, but only take nine out in the evening, you will soon have a very full basket. And you will not go hungry.
This idea works even better with money, because money does not go bad. We do not have to cut back too much if we take a tenth of our salary each month and put it aside. This way, we can save a good amount of money over time.
Saving ten percent regularly is a good start. This is especially true for those who have never thought of this before. But this amount alone does not yet make you rich. If the money just sits under the mattress, it is safe. But it does not grow. So why let our money rest there when it can work for us?
Blink 4 – Don’t Be Ashamed of Not Knowing: If you admit you don’t know, you can learn.
We can make each of our banknotes a worker if we invest it wisely. Investments are often what make rich people rich. But to avoid ending up poor on the street after some bad tries, we need some basic knowledge.
Strangely, the first step is to realize what Socrates, and perhaps Arkad at the same time, knew thousands of years ago: “I know that I know nothing.” Today, we have more and more knowledge, and it is easy to find. But this idea is sadly not very common. That is a shame, because it stops us from being too proud.
New knowledge always creates new things we do not know. When we learn something new, we also find out about many things we do not yet understand. For example, if you can understand the basics of the theory of relativity, you will then see how much knowledge is still unknown. Or, how big our “not knowing” is compared to what we think we know.
Many of us simply do not realize how little we truly know about money. And this pride makes us likely to make mistakes. First, it is not a shame to know little about money. It is not taught in schools in our society, nor is it made clear to most people in other ways. Studies show that many adults have trouble with even simple money calculations, like compound interest.
This is not bad in itself, but it can be dangerous. This happens if we are too proud to say we do not know, but we still invest our money in stocks and bonds. Instead, it is much better to get over our shyness and learn more about the topic. This is what Arkad’s two friends did when they asked him for advice. We do not only learn from books and magazines. Someone who has become rich himself can also give us good advice about our money.
Blink 5 – Learning by Doing: Mistakes give us experience.
If you felt in the last point that getting rich is a very slow process, get ready for another slowdown. The next thing we need for our homemade wealth is a lot of patience. Apart from winning the lottery, there is almost no chance to get rich quickly.
To build wealth, we must go a long way. This means taking many small steps and often facing setbacks. We must be ready for these setbacks and not lose sight of our long-term goal. For others, it often looks like they got rich overnight. But what is it really like?
One reason why the path to wealth can feel like a never-ending hard time is the always-changing situations around us. There is no single solution for everything in life: What was right last time might be wrong next time. It pays to accept this and stay flexible, especially with money matters.
Today, more than ever, we must remember this: The money system is not safe. It is hard to guess how things will change. The only way to help ourselves is to keep learning and try to stay up to date. This way, we can change with new situations.
The best learning does not always come from books or from reading the Financial Times. When the risk is manageable – we also want to avoid risking everything we have – trying things out is truly better than just studying. People who like to act can be happy about this. Sadly, we learn much better from our mistakes than from our successes. And it is normal that we lose some money with this method. But if we only invest an amount that we can handle losing completely, then this can be seen as money spent to learn. So, it is a win-win situation: If we make a profit, we earn money. If we lose money, we learn from it.
So, we can feel good about trying out our finances in practice. With patience and openness to new experiences, a small fortune might grow over time. Even if some of it leaves us in return for more knowledge.
Blink 6 – Upward Spiral: Interest makes investing worthwhile.
Anyone who has wanted to start a business knows that you need some starting money. Most business starters get this as a loan. And for this loan, they must pay a certain percentage in interest. Interest is a way to make more money from money. It also gives money to those who need it.
The richest man in Babylon learned early in his life to get on the right side of this money relationship. He had saved a certain amount of money. From this, he could give loans. A shield maker named Aggar received one of these loans.
Money is a resource, just like workers or materials. Aggar, like any business owner, needed all these things to keep his business running well. He used bronze and leather to make his shields. He hired workers to help him. But most importantly, he needed money to pay for all these things. When the bronze delivery from overseas arrived at Aggar’s door, Arkad was at the right time in the right place with his savings. He lent Aggar the money needed to cover the costs. Aggar paid him back after selling his shields – plus interest.
If we do like Arkad and invest our savings in loans that give us interest, we benefit. The money from interest can add up and make our income better. The more we invest, the more we get out of it in the end. It is actually quite simple: We find a promising business and give it a loan. After some time, the business makes money and pays us back the loan with interest.
Now, of course, we have more money than before. We can then invest this into another promising business. This is how an upward spiral slowly begins. All we have to do is find such investment chances and judge wisely how likely they are to pay off. Then we just decide how much money we want to invest.
By now, it should be clear to everyone that investing money is a better plan than trying to get as much as possible from your own work. We ourselves need to rest sometimes. But our money can work all night long.
Blink 7 – Not Just Good Luck: Good chances come to those who work hard.
What is luck? It is probably mostly chance. But imagine you win some money from an investment you worked hard on. Is that still good luck? No, you earned it. You saw a good chance and took it.
Luck itself is mostly chance: like a good hand in a card game or the right lottery numbers, luck cannot be predicted. It is like bad luck: we can do nothing if it happens to us. You might win a million in the lottery, and then a plane part might fall on your head from a clear sky. The chance of that happening is very small, but it is the same for everyone. If money success were just pure chance, we should all have the same chances, right?
But here, we must separate luck and chance from opportunities. Someone who has built wealth has usually done so by using good opportunities. But such good opportunities do not appear by chance or on their own. They are often the result of hard work. If we always keep our eyes open, we can help our luck in the form of good opportunities. Then, by its very meaning, it is no longer just luck.
When Arkad lent money to the shield maker and grew his wealth with the interest, there was surely some luck involved. But people sometimes say someone has a “talent” for being in the right place at the right time. This takes more than just chance. If Arkad had not built good relationships with people, if he had not listened to their interests, he might have missed this chance. He would not have even known about the opportunity.
Also, he had already saved the money he could invest. If he had not done that, no profit would have come from it. The right time and the right place might be a matter of luck in the end. But if we spend more time in different places and at different times with interesting people, we might invite luck. This can make more opportunities appear.
Blink 8 – Don’t Wait, Grab the Chance: We have our luck in our hands if we just reach for it.
An old saying from Babylon goes: “You can throw a man blessed by the goddess of luck into the Euphrates River, and he would still come out with a pearl in his hand.” Here, luck might be why the man finds a pearl. But he still has to grab it to bring the pearl ashore. And that happens less often than we think.
One of the most common reasons why good chances are missed is hesitation. How many stories do we know where an investor with money in hand waited until the chance was given to him easily? Very few. Just as Arkad did not wait long when he lent Aggar his money, we, as investors, must not be too careful. If we are, someone else will take the chance.
We can know all the right people and still fail. If we want to make our pottery business bigger and are looking for another shop, we might get three great offers in good places. If we are bothered by too many choices, we might hesitate in making a decision. Then, all three chances are gone. This is because no seller wanted to wait, and all three gave them to others instead.
Just as we can help our luck, we can also bring bad luck. This happens when we wait too long.
So, it is clear that luck likes those of us who are always ready to see the good things and chances in an investment. And then grab it quickly – but not without thinking. This is why many success stories start with something nobody waited for, but everyone was ready for.
Summary
Everyone should rather get rich than just earn money. After we have saved some starting money for this, we invest it. It is important that we stay patient, not be too proud, and admit when we do not know something. We can always learn more. If we also see good chances and grab them, our path to wealth is clear.
What you can do:
Save part of your income. To build wealth, you need some starting money. You should save this from your income. Do not live beyond your means. There are many things you can save money on. Just think about what you really need and what is only a luxury. If you often go without luxuries and live with less instead, it is not difficult to put aside one-tenth of your income.
Always be ready for new investment chances. Try to learn as much as possible about markets and industries. If a good chance comes your way, check it carefully, but do not be too slow to act. If you are not sure if an investment will make money, invest only a small amount.
Do not get into debt. It is very easy to get into debt problems, but very hard to get out of them. If you want something, save from your income until you can afford it. Try not to take out a loan. Maybe lend money yourself instead.
Source: https://www.blinkist.com/https://www.blinkist.com/de/books/der-reichste-mann-von-babylon-de