The Richest Man in Babylon: 7 Rules for Acquiring Gold
Bernard Arnault, Elon Musk, Jeff Bezos. Today’s top three richest men in the world.
In history, there have been many incredibly wealthy men. I believe Solomon to be the richest man of all time, followed by Mansa Musa, and some of our modern capitalists such as Carnegie, Rockefeller, and J.P. Morgan.
But there is one particular man deemed “The Richest Man in Babylon” - Arkad.
The book, The Richest Man in Babylon, was published in separate pamphlets and distributed to some of the top bankers and influential people on Wall Street (and in other banking institutions around the US). Written by George S. Clason, the book gained popularity over time and is now a published and well-known book able to be purchased by anyone who desires to learn basic tenets regarding the acquisition of wealth.
The book states seven rules for the accretion of gold. Explained below, the seven rules of gold are:
Start thy purse to fattening
Control thy expenditures
Make thy gold multiply
Guard thy treasures from loss
Make of thy dwelling a profitable investment
Insure a future income
Increase thy ability to earn
George S. Clason’s
The Richest Man in Babylon
1) Start Thy Purse to Fattening
The book begins by recommending that you begin with your current income. If you are already making money at anything, you possess the potential to create wealth. If you aren’t already making money, do something. Even a minimum wage job has the potential to eventually increase into something bigger.
“For every ten coins thou places within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul” (Clason, 20).
Take out a tenth of your income. This may seem incredibly difficult at first (especially if you are earning a low income), but it is very important. For the great majority of people, it is within limits to live based on 90% of your take-home pay, with small sacrifices.
The question is: what do you desire most? Fancy cars, clothes, or concerts; or wealth, income-producing assets, and financial security.
2) Control Thy Expenditures
The great majority of individuals are riddled with debt - car payments, house payments, credit card bills, and any other form of debt you can name (some people even take out financing to pay for furniture).
What is funny about this, however, is that people have varying levels of income. Those who bring in $120,000 per year and those who have an income of $60,000 per year have the same problem, namely, having a large amount of debt hanging over their heads.
For the majority of the population, “necessary expenses” equals income. What I mean by that is people deem different things as necessary based on what they can afford.
Wants are not the same as needs - desires not the same as necessities. Creating wealth is a long-term process, not some get-rich-quick plan.
For most Americans, it is feasible to, “Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for they enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings” (Clason, 23).
Modern American culture has a heavy focus on consumerism and the appearance of being affluent. In the recent pandemic, Bernard Arnault rose to his status as the richest man in the world because Americans (and many others around the world) took stimulus checks and other saved money and spent it on luxury items like Christian Dior clothing (a brand owned by Arnault).
There is a very basic economic principle - SP=Y. Spending equals Income.
No matter which way you look at it, you are going to spend whatever income you have. Everything is spending - buying a Birken Bag, investing in stocks, or saving cash in a box in the backyard. The income you are collecting has to go somewhere.
But, the question is: where should that income go? Almost everyone agrees that buying a $70,000 pick-up truck with all of the upgrades (while having to finance it and pay for full coverage insurance) is ridiculous, but somehow I don’t see any shortage of new car dealerships, or $70,000 pick-up trucks.
Control your expenditures so that your wealth can expand, not be thrown away on depreciating assets.
3) Make Thy Gold Multiply
I don’t believe in passive income - every form of income has some sort of work associated with it. The modern-day constant search for passive income is a result of the inherent laziness of people. However, there are ways to make money work for you while you sleep.
Investments are about the most passive income option you will find, but you do have to make sure that you are making profitable investments. Investing can be incredibly profitable, and it is absolutely imperative that you put saved money to use.
Saving is not a good method on its own - the 9.1% inflation rate last year ought to give an indication of this. Saving alone doesn’t work. If you want to increase your wealth, you have to make sure your money is working for you while you sleep.
“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 continuously into thy purse” (Clason, 24).
4) Guard Thy Treasures From Loss
This has a lot to do with the third rule - putting money to use. However, a paramount step to putting money to use is to make sure that it will bring a positive Return On Investment (ROI).
Here is one core rule of investing: Invest in places that you know have the best chance of making you money.
This sounds ridiculous. Obviously, everyone knows to invest in places that are going to bring about a good ROI. Yet, people still make risky investments or fail to make any investments at all.
A lottery ticket is not a good investment. But still, millions and millions of people play the lottery every day while knowing what a ridiculous waste of money it is. Or, they go to the casino, where they know they will lose in the long run. Think about it: how in the world could casinos afford their grandiose buildings with all of the flashy lights and fancy decor without reaping a very good profit?
More “intelligent” people attempt to invest in Real Estate (with little to no understanding of how real estate works) or play the stock market without a thorough understanding of the inner workings of the market (while many advanced investors still can’t outperform the S& P 500).
There are very simple investments that are good ways of having an almost-for-sure positive ROI - Vanguard Index funds, REITs, Tax-Lien Certificates, etc.
Most purchases are “investments” in a way. While food and some other categories of purchases don’t apply, most other things you purchase are some sort of asset. You can buy appreciating assets or you can buy depreciating assets. A car is a depreciating asset. The moment you drive it off the lot, it decreases in value. If you want to achieve financial freedom (instead of trying to impress your neighbors), buy appreciating assets that have the greatest chance of appreciating in value.
“Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where it will not fail to collect a fair rental” (Clason, 25).
There is no shame in paying an investment banker to invest for you. There is no shame in using a Realtor to make a purchase or having the proper insurance. Making the proper investments is the key to growing your wealth portfolio. There is only so much work you can do personally, but your money’s work capability is unlimited.
5) Make of Thy Dwelling a Profitable Investment
As a general rule, one of the best investments is owning a home. You have to live somewhere. Your house is almost guaranteed to appreciate over time, and by owning the place you live, you get to live in your own investment.
Owning other real estate can be very profitable as well if done correctly, but owning your home is an excellent place to start.
A common myth that I would like to dispel (though it is not discussed in The Richest Man in Babylon) is the idea that your home has to be paid off. It is nice to not have any debt, however, it is not imperative with regard to real estate.
Debt is not a bad thing when debt is used to purchase appreciating assets. The biggest REITs in the world use loans to leverage debt to buy more properties than they could if they were to fully pay off each piece of real estate. Instead, they use money from banks to finance their investments.
On a smaller scale, this is what you are doing when you are taking out a mortgage - using a bank or a mortgage company’s cash to buy an appreciating asset. It isn’t necessarily a bad thing to own your home “free and clear,” but leveraging debt is almost always a better option.
“This, then, is the fifth cure for a lean purse: Own thy own home” (Clason, 26).
6) Insure a Future Income
With modern advancements in the medical field, people are outliving their capacity to work. The idea of “retirement” is actually a recent concept, and so is financing your own well-being in your final years.
Years ago, people didn’t live as long, and those who did either didn’t stop working or were taken care of by their children. Growing up, I knew Amish people who lived near me, and they have a more traditional system where children take care of their parents in their parent’s old age. Parents will often live in “Dawdyhauses” attached to their children’s houses in their last years.
“Provide in advance for the needs of thy growing age and the protection of thy family” (Clason, 28).
Today, there are many ways to prepare for the future. Pension plans (which are on their last legs in most organizations), Social Security, 401k plans, and even saving cash in a shoebox (though this is generally not the best route). There are also different forms of insurance that can be beneficial as well.
It is imperative to properly prepare for your dying (sorry, “retirement”) years by providing money for your own well-being, as well as the well-being of your family.
7) Increase Thy Ability to Earn
Recently in my school, there has been somewhat of a push toward trades and away from the traditional route of secondary education. This is a great opportunity for many of the people in my school, although it’s not the route I am going to take.
There are two main things you can do to automatically increase base pay: (1) Develop skills, or (2) increase education.
Beyond this, there are many things you can do to increase your earning potential, such as increasing work ethic, staying longer at work, or demonstrating a positive attitude.
But beyond simply the motif of increasing income are specific goals for increasing wealth. Everyone wants to become “rich,” but they have no definite metric to quantifiably measure the states of “richness.”
Start with the goal of producing an extra $50 per week, and then build up from there. If you learn to make an extra $50, you can then expand to make $100 per week, and so on from there.
The last rule of the acquisition of gold is this: “... cultivate thy own powers, to study and become wiser, to become more skillful, and to so act as to respect thyself” (Clason, 30).
Though these tenets were created by George Clason nearly a century ago, they still hold true today in the modern world. There are many different methods of creating wealth online in the contemporary period, but the basics of money and finance still stand firm.
The richest men and women in the world have learned techniques to acquire and manage money. These 7 rules from The Richest Man in Babylon are a great place to start, and I think you’ll find that they’ll serve you throughout your entire journey of acquiring wealth.
