Book and Lessons: The Richest Man in Babylon

(To purchase: hardcover or paperback)

When it comes to financial advice or investment books, most of you would probably think of Rich Dad, Poor Dad right? Sure it’s still one of the best these days, but to me personally, the first book that I ever read about money is The Richest Man in Babylon and I would recommend it to anyone who’s struggling with money.

Rich Dad, Poor Dad offers excellent advices for investment, but before you even think about investing you should learn how to manage your money, and that’s where this book really shines. Though set in the context of “Babylon”, the lessons hold true no matter what century you live in. It really opened my eyes and helped me spend my money more wisely which ultimately led to the purchase of my first investment property a year later.

I strongly believe that no matter what job or position you are, CEO or graduate, business owner or employee, there are money management rules that you should always stick to. What I like about this book is that it doesn’t rely on financial jargons and yet still delivers pratical lessons that apply in the modern world. You will find yourself in the main character, for sure.

I won’t go into details of the character’s story, but it is quite similar to Rich Dad, Poor Dad that he got financial advices from a wealthy man who acts as his mentor figure. In this article, I’m going to share with you how I applied the lessons that I learned from the book.

Lesson 1: The 10% saving rule

For every ten coins thou placest within thy purse take out for use but nine.

If you earn $1000/month then you should put aside at least $100, if you earn $3000 then save $300. Sounds simple right? Unfortunately a lot of people with good income still fail to do this, especially young people. I’ve seen my friends and colleague who spend most of (if not all of) their income on shopping and travel. One of them even used up all the money he had on clubs and parties and had to borrow friends to pay for his basic expenses despite him being a manager at a big company.

Everytime I receive my salary I instantly transfer 10% of it to my saving account, sometimes I made it more if I don’t have much stuff to pay for that month. As I got my pay rise or promotion, I increased it to 20~30%. You can set automatic transfer between your accounts.

Lesson 2: Control your desire, live below your means

What each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary

You have to differentiate “what you need” from “what you desire”. Things like food, toilet paper, shampoo..etc. are essentials that you use daily, but things like restaurant, luxurious items, travel…etc. are just occasional activities that you can do once a few months or once a year. If you turn “what you desire” into a monthly expense then it will definitely drain money from your wallet.

Try to live below your means, and by that I’m not telling you to live like a homeless person. Start shopping at wholesale market to buy things in bulk and you will save in the long run. Invest in books to gain more knowledge, and invest in courses to gain more professional skills which will help you earn more money.

If you want more tips for managing money, you can find it here.

Lesson 3: Invest and compound the investment return

The earnings it will make shall build our fortunes … Learn to make your treasure work for you. Make it your slave

This is only possible once you have applied Lesson 1 and 2, you put aside a portion of your earning and you live below your means. My simple formular: 10% for saving and 10% for investment. Don’t just invest all the money you have but also don’t just let all of it sit there in your bank account. You can either save until you have enough to deposit for an investment property, or you can start investing in stock market.

Whatever type of investment you choose, do your research properly and always aim for long-term results

Lesson 4: Avoid get-rich-quick schemes

You would see on the Internet hundreds of wealth building courses, and believe me not all of them are for you. Sure, it’s good to gain more knowledge by going to networking events to meet experienced investors, I still do that a lot. But avoid anything that says “grow your investment portfolio within 2 years”, “buy 10 property in 5 years” or “retire before 30”, to be frank, those are possible, only if you have a lot of money to invest or you are super lucky.

I still strongly believe in the traditional model of “slow but steady” investment. Keep learning and never stop improving your professional skills, you have to have a good income to pay your bills and save for your investments. But at the same time, invest in what will grow in value and one day you will be able to retire sooner that most people.

Lesson 5: Rent to live, buy to invest

If you are young and you just start saving, then don’t rush into buying a house to live in. You have to differentiate between an asset, which generates money for you, and a liability, which takes money from you. When you rent a house, you only pay the rent and the bills, but when you buy a house to live in, you pay mortgage (which is a lot more than rent), bills, rates, taxes, insurance.

If you buy a house to invest, you have rental income and all the expenses listed above are tax deductible. Furthermore, the house will grow in value and then you can either sell it or draw equity to invest in something else.

Lesson 6: Ensure a future income

Therefore do I say that it behooves a man to make preparations for a suitable income in the days to come, when he is no longer young

Thesedays, every job comes with pension (or super in Australia), when you receive salary your employer takes a portion out of it and contribute it to your pension account. When you are retired that would be your main source of income, or should I say, one of the main sources of income.

If you strictly follow the plan to save and acquire assets over the years, eventually they won’t just grow in value but also provide you with generous passive income, the kind of income that you don’t have to work to earn.

Lesson 7: Keep increasing your income

The more of wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded

As long as you can still earn money, keep earning money, and as long as you can still create asset, keep creating asset. Never stop learning to improve your skill and gain more wisdom. Read books, join courses, attend networking events, aim for higher salary, run your own business, keep saving and keep investing. I believe that the road to financial freedom is a combination of personal growth, endless learning and wise investments.

Enough talking, let’s start reading the book. It’s a small book but it never gets old, I can’t remember how many times I read it over and over again. You can purchase it from Amazon with hardcover or paperback. I hope you enjoy it!

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