THE RICHEST MAN IN BABYLON - GEORGE SAMUEL CLASON

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Today we will read about the secrets shared by the Arkad, the richest man of Babylon.

Key message or the secret (as called in the book):

A part of all you earn, is yours to keep.

In other words, you must not spend all you earn, but rather invest it, and invest it wisely.

THE SECRET TO BUILDING WEALTH IS TO SAVE AND INVEST WISELY:

Have you ever wondered why some people are better at acquiring wealth than others?

Is it because they are pennywise and stuff every penny they save into their mattress, while others waste what they earn on all kinds of trinkets?

In fact, the secret of becoming wealthy lies somewhere in between these two extremes: to become wealthy, you must not just hoard money, but also know how to use it wisely.

Of course, the first thing you must do is save up money.

Obviously, this means you cannot spend everything you earn, and must therefore live slightly below your means.

For example, cut back on those little luxuries in life, like the city-weekend in Paris you had planned, a local trip might give you the break required.

But saving up money in this way is not sufficient for you to become wealthy. You must also seek investment opportunities.

This is because the money in your mattress won’t increase in value. Even putting it into a bank will only generate a small interest. 

Instead, you have to invest your savings in something that will generate more wealth, like stocks, government bonds, or funding start-ups.

Whenever you do make an investment though, be sure to do so wisely: only entrust your savings to people who know how to use them.

For example, you should not give a lumberjack your money because he says he is going to set up a business buying and selling diamonds.

On the other hand, giving your money to a hedge fund to invest wisely can make sense; they probably know the market better than you.

Are you a smart reader?

YOU CAN ONLY ACCUMULATE WEALTH SLOWLY BY LEARNING THROUGH A PROCESS OF TRIAL AND ERROR.

Many people dream of becoming rich overnight.

But other than winning the lottery, there is very little chance of this happening.

Gaining wealth is a long process made up of countless tiny steps forward and often more than a few setbacks.

But why is this so? Why does acquiring wealth take such a long time?

Quite simple, because the world is constantly changing, especially financially.

This means that you can never just pick one wealth-building strategy, like investing in a certain stock, sit back and watch the money come in.

The financial system – and life itself – is very uncertain, so sooner or later something massive will happen like the stock market collapsing.

This means you have to adapt to the new situation and learn about new wealth-building strategies, experimenting with them and probably failing in a few.

Once you find your next winning strategy, something huge will happen again.

But through this process of experience and adaptation you will increase your overall ability to invest wisely as you accumulate more knowledge.

In fact, this process of trial and error is analogous to the way scientific progress is made: failed experiments can be just as useful as successful ones.

So if you make a failed investment, for example, subprime mortgages, you might learn so much that you can then make successful investments in that same field.

Never forget, trial and error involve making mistakes. This means you need to ensure these mistakes are small, so don’t invest money you can’t afford to lose in an area in which you are not certain.

Now let’s understand the difference between making money and attaining wealth.

DON’T JUST WORK FOR MONEY TO AFFORD THE THINGS YOU WANT TODAY, MAKE LONG-TERM INVESTMENTS WHERE YOUR MONEY WORKS FOR YOU.

What do you think is the difference between making money and attaining wealth?

If you are like most people, you probably did not even realize there was one!

But there is an important distinction:

“MAKING MONEY” describes a process where you work for money, but “ATTAINING WEALTH” means being in circumstances where money works for you.

To better understand this, imagine that you work as the manager of a profitable factory, and every month you take home a very good wage.

Clearly, you are making money, but are you attaining wealth? Not necessarily.

For that, you need to go through the process of saving up and investing some of that money.

For example, if you were to save part of your income and invest it in real estate, you would be attaining wealth, because your money would be working for you and not the another way round.

Making money is usually done to achieve short-term financial success. You usually only care about the things you can buy with that next paycheck, while the future is of little concern.

But there is an inherent danger in this kind of thinking: what if the next paycheck never arrives?

Attaining wealth, on the other hand, involves long-term goals.

For example, the real estate that you bought won’t bring you immediate wealth; rather, you have to first pay off the investment or wait for its value to increase.

This can take a while, but once the investment starts paying off, it will most likely keep doing so, as long as you own it.

This kind of long-term planning can help provide security for unexpected events like losing your job.

OPPORTUNITY IS A SOURCE OF GOOD LUCK WHICH – UNLIKE CHANCE – MAY BE PUSHED TO OCCUR MORE FREQUENTLY.

How would you define luck?

Many people think luck constitutes random, unexpected events. But is this really always accurate?

Say you are playing in a tennis tournament. You have practised hard for months and prepared thoroughly.

In the end, you win the final by clipping the top of the net so the ball bounces just out of the reach of your opponent.

Was this pure, coincidental luck?

Of course not, you had earned that luck through your hard practice.

When people talk about random luck, they are really talking about chance.

Chance implies something random and non-influence able happening, like winning the lottery or being struck by lightning.

Actual luck needs to be distinguished from chance because luck is not truly random. Instead, people work hard for it and earn it.

So how can you work to make yourself “luckier”?

Simply by being constantly on the lookout for opportunities to increase your wealth.

For example, imagine an entrepreneur who is interested in consumer technology, and therefore spends time every day reading trend reports, examining the global financial situation and reaching out to innovators in her network.

One day she reads that 3D televisions are expected to be the latest trend, and later that same day hears from an inventor in her network who has discovered a method for producing 3D televisions at half the conventional price.

Naturally she seizes the opportunity and starts producing the televisions, becoming very successful.

Clearly her hard work, vigilance and willingness to seize the opportunity were what produced this “stroke of luck.”

WORK HARD TO SPOT OPPORTUNITIES AND SEIZE THEM WITHOUT PROCRASTINATION.

You probably know the motto of the Boy Scouts: “BE PREPARED.”

To find new opportunities to increase your wealth, you, too, should adhere to it.

Above we read how looking for and seizing opportunities can produce good luck, but the other side of the coin is that letting opportunities slip through your fingers produces bad luck, missed opportunities and “If only I had. . .” stories.

So why do people forego opportunities?

Far too often it is because they procrastinate.

Make an Investment on yourself today.

 

For example, if the entrepreneur in the previous point had decided not to invest in the new 3D television technology and had instead waited for it to prove itself properly and become more established, the inventor would have surely found someone else to invest in their product.

You can’t wait for opportunities to be handed to you on a silver platter; you must be proactive and seize them or you’ll miss out.

If you want to increase the flow of opportunities that you see, you simply have to work hard.

Study and investigate the areas you are interested in and build a network, so you will be better able to spot and appreciate opportunities when they do come around.

Remember though that golden opportunities really are rare, even if you work hard.

This means you might have to wait a while and this can be discouraging because it seems your hard work isn’t producing any results.

But your endurance will pay off eventually when an opportunity does become apparent.

Now, let’s discover what actions lead to financial ruin – and how to avoid them.

MAKE RATIONAL CHOICES ABOUT YOUR EXPENSES AND DON’T TAKE ON DEBT.

Have you ever wondered how some people wind up in financial ruin?

Usually, it's because they make irrational financial decisions.

So how can you avoid this?

First of all, you need to make all decisions about expenses and costs using a realistic assessment of your personal needs and your financial circumstances.

For example, say you desperately want a new flashy car.   You don’t really need it and buying it would require taking out a big loan on very unfavourable terms.

Clearly you should not get it, but let’s say you do anyway.

Now you are using most of your income to pay off the interest, and eventually, you hit the point when you should pay back the actual debt. You can’t afford it, so you take another loan just to pay off this one.

Just like that you have ended up in a debt spiral and had better hope that the flash car is also comfortable to sleep in.

In fact, taking on debt, in general, is a bad idea, because you won’t be able to save up money to invest and accumulate wealth. Instead, you will be spending your income on paying back the debt.

This makes them financially unstable, which can lead to them defaulting on the debt entirely – every creditor’s worst nightmare.

For example, in the recent Eurozone crisis, Greece was deeply indebted to the European Central Bank.

The country had to make payments on that debt, so it could not invest in areas like schools, infrastructure, transport and so forth, which would be beneficial for the economy in the long term.

Without these investments, the country would never attain the wealth to pay back the debts fully. This could lead to defaults that leave both parties worse off.

Thus in some cases it may be wise for creditors to suspend debt payments to let their debtors get back on their feet.

I hope you loved reading this summary! 

Please Note: I have omitted many key points and examples from the book, if you have liked the summary I am sure you will love the book. 

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Summary of Summary:

The secret to becoming wealthy is living below your means to save up money, and investing part of it in a way that generates interest for you.

You must also understand that you can earn yourself luck by working hard and seizing opportunities bravely.

Never take on debt to buy some luxury item, because once you find yourself in such unnecessary debt, it is very hard to get out of it.

If you desperately want the item in question, but cannot afford it, save up to buy it.

Invest part of what you earn – wisely.

Whatever you earn, always ensure you do not spend all of it on things you want.

Save part of it and invest it into, stocks or bonds, as this way the money will begin working for you, earning you interest.

However, be sure to make this investment wisely. Don’t trust a novice or an amateur with your hard-earned savings.

No matter how attractive an opportunity seems, if the person you are entrusting with your money is inexperienced in the field, chances are they will fail. Therefore you should only invest with people who have proven they know what they are doing.