Book Summary of The Richest Man in Babylon by George S. Clason
Introduction of The Book Summary of The Richest Man in Babylon
Learn how you can get more "Luck" in your life.
This book summary of the Richest Man in Babylon is about a fictional man named Arkad. Arkad was a wealthy man in ancient Babylon. He was the richest man in the land. When his childhood friends saw this, they approached him and asked how he had become so wealthy while they had worked very hard and could barely feed their families.
Arkad smiled and told them that another rich man once told him the secret to wealth in exchange for his services as a scribe. “A portion of everything you earn is yours to keep,” was the secret. In other words, you should not spend all of your money, but rather invest it wisely. Arkad had started by saving enough money to lend to a shield maker, who then paid interest on the loan, increasing Arkad’s wealth.
Read on and learn more of Arkad’s philosophy of how you can gain wealth.
Book Summary of The Richest Man in Babylon Main Idea 1
The Key to Accumulating Wealth is to Save and Invest Wisely
Have you ever wondered why some people are more successful at accumulating wealth than others? Is it because they are frugal and stuff every penny they save into their mattress, whereas others squander their earnings on various trinkets?
In fact, the secret to becoming wealthy lies somewhere in the middle: to become wealthy, you must not only hoard money, but also understand how to use it wisely. Of course, the first step is to start saving money.
Obviously, you can’t spend everything you earn so you have to live slightly below your means. Perhaps you can cut back on those little luxuries in life that over time add up to significant amounts of money.
However, saving money in this manner will not enable you to become wealthy. You should also look for investment opportunities. This is due to the fact that the money in your mattress will not appreciate in value. Even putting it in a bank will only yield a pittance of interest.
Instead, you must invest your savings in something that will increase your wealth, such as stocks, government bonds, or startup funding. If you do this correctly, your savings will grow in value without any additional effort on your part. When you do make an investment, however, make it wisely: only entrust your savings to people who know how to invest them. Giving your money to a hedge fund to invest wisely, on the other hand, can make sense; they probably know the market better than you.
Book Summary of The Richest Man in Babylon Main Idea 2
The Key to Financial Success is to Always Admit To How Little You Know.
Do you consider yourself to be knowledgeable? Even wise? If so, you’re in for a surprise.
True wisdom is recognizing and admitting how little you actually know. Socrates, the ancient philosopher, thought himself wise for admitting, “I know that I know nothing.” This philosophy should also apply when learning new things: don’t delude yourself into thinking you suddenly know a lot of things, but instead take a moment to look around.
It is a fact of life that gaining new knowledge simultaneously illuminates additional areas of ignorance, if we choose to notice them.
For example, once you’ve learned the fundamentals of relativity theory, you can’t help but run into its more complicated and sophisticated areas, which make you realize there’s a lot more you don’t yet understand. In fact, you now feel even more ignorant than before due to increased knowledge.
Book Summary of The Richest Man in Babylon Main Idea 3
Wealth Accumulates Gradually Through Experience and Trial and Error.
Many people fantasize about becoming wealthy overnight. But, aside from winning the lottery, there is a very slim chance of this happening. Gaining wealth is a long process that involves countless small steps forward and frequently more than a few setbacks. But why is this the case? Why does accumulating wealth take so long?
Simply because the world, particularly the financial world, is constantly changing. This means you can’t just pick one wealth-building strategy, such as investing in a specific stock, and sit back and watch the money roll in. Because the financial system – and life itself – is highly uncertain, something catastrophic, such as the stock market collapsing, will occur sooner or later. This means you’ll have to adjust to your new circumstances and learn about new wealth-building strategies, experimenting with them and likely failing at a few. And just as you think you’ve found your next winning strategy, something huge happens again.
However, as you gain more knowledge and gain more experience, you will improve your overall ability to invest wisely. In fact, this trial-and-error process is similar to how scientific progress is made: failed experiments can be just as useful as successful ones. So, if you make a bad investment, say in subprime mortgages, you may learn so much that you can then make a good investment in the same field.
But don’t forget that trial and error, by definition, involves making mistakes. This means you should make small mistakes and not invest money you can’t afford to lose in an area where you’re unsure of.
Book Summary of The Richest Man in Babylon Main Idea 4
Make Investments so Your Money Works For You
What do you think the distinction between making money and acquiring wealth is? If you’re like the majority of people, you probably had no idea there was one! There is, however, an important distinction:
“Making money” refers to the process of working for money, whereas “achieving wealth” refers to being in a position where money works for you. To better understand this, imagine you are the manager of a profitable factory, and you earn a very good wage every month. Obviously, you’re making money, but are you wealthy? No, not always.
You will need to save money and invest some of it in order to accomplish this. For example, if you saved a portion of your income and invested it in real estate, you would be wealthy because your money would be working for you rather than against you. Making money is usually done to achieve short-term financial success: you only care about what you can buy with your next paycheck, and the future is unimportant. However, there is a risk in this way of thinking: what if the next paycheck never arrives?
Obtaining wealth, on the other hand, entails longer-term objectives. For example, the real estate you purchased will not provide you with immediate wealth; instead, you must first pay off the investment or wait for its value to increase. This may take some time, but once the investment begins to pay off, it will most likely continue to do so for the duration of your ownership.
This type of long-term planning can help provide security in the event of an unexpected event, such as losing your job.
Book Summary of The Richest Man in Babylon Main Idea 5
Investments That Repay With Interest Are Profitable.
When you borrow money, such as a student loan, you almost certainly have to pay interest on it. In contrast, when you lend someone money, you can expect them to pay interest on it, and this is one of the primary ways that those with money can increase their wealth.
To understand why paying interest is a fact of life, you must first recognize that money, like employees or raw materials, is a resource. Assume you want to start a factory. What do you require?
Naturally, raw materials and labor are required to manufacture your products. You will, of course, have to pay for these resources. But you’ll also need capital: money to build the factory. In this sense, capital is a resource like any other, and it must be paid for as such. To attract employees, you must offer a salary, and to attract capital, you must offer the investors something: interest.
Interest is an appealing way to build wealth as an investor because of its compound nature: you can increase your interest earnings over time by earning interest on top of interest. Assume you invest $100,000 in a new business, and the owner repays you the original amount plus ten percent interest, totaling $110,000, on the due date.
You then decide to reinvest the entire amount in another business under the same conditions. When you receive the sum plus ten percent interest this time, you will receive $121,000 – your interest earnings have increased. You can keep doing this indefinitely, earning more and more interest.
As you can see, your money not only works tirelessly for you, but it also becomes more effective over time. Then you’ll discover the connection between good fortune and hard work.
Book Summary of The Richest Man in Babylon Main Idea 6
Opportunity Can be Encouraged
What is your definition of luck?
Many people believe that luck consists of random, serendipitous events. Is this, however, always true? Assume you’re competing in a tennis tournament. You’ve been practicing for months and have thoroughly prepared. Finally, you win the championship by clipping the top of the net, causing the ball to bounce just out of reach of your opponent.
Was this just a stroke of luck? Of course not, you had earned that good fortune through your hard work.
When people talk about random luck, they really mean chance. Chance implies something uncontrollable and random happening, such as winning the lottery or being struck by lightning. Because luck is not truly random, it must be distinguished from chance. People instead work hard for it and earn it.
So, what steps can you take to make yourself “luckier”? Simply by looking for ways to increase your wealth on a regular basis. Consider an entrepreneur who is interested in cryptocurrency and spends time every day reading trend reports, researching the global financial situation, and connecting with innovators in the field.
He reads one day about a new crypto that is expected to be the latest trend, and the next day he hears from an inventor in his network who has discovered a method for mining crypto at half the conventional price.
Naturally, he seizes the opportunity and begins mining this new crypto, becoming extremely successful. This “stroke of luck” was clearly the result of his hard work, vigilance, and willingness to seize the opportunity.
Book Summary of The Richest Man in Babylon Main Idea 7
Work Hard To Identify and Seize Opportunity
You’ve probably heard of the motto, “Be Prepared.” You should follow it as well if you want to find new ways to increase your wealth.
You should always be on the lookout for new opportunities and be quick to act because letting opportunities slip through your fingers produces bad luck, missed opportunities, and “If only I had…” stories.
So, why do people miss out on opportunities? It is far too often because they procrastinate. You can’t sit back and wait for opportunities to come to you; you have to be proactive and seize them or you’ll miss out.
You simply have to work hard if you want to increase the flow of opportunities that you see. Study and investigate your interests, and build a network, so you’ll be better able to recognize and appreciate opportunities when they arise. Remember, even if you work hard, golden opportunities are extremely rare. This means you may have to wait a while, which can be discouraging because your efforts appear to be futile. However, your perseverance will pay off when an opportunity presents itself.
Book Summary of The Richest Man in Babylon Main Idea 8
Avoid Debt by Making Wise Decisions
Have you ever wondered how some people end up bankrupt? Usually, this is due to their irrational financial decisions. So, how do you avoid it?
First and foremost, you must base all expenditure and cost decisions on a realistic assessment of your personal needs and financial situation. Assume you desperately want a new extravagant mansion. You don’t really need it, and purchasing it would necessitate taking out a large loan with very unfavorable terms.
Obviously, you should not get it, but let’s pretend you do. You’re now devoting the majority of your income to paying off the interest, and you’ll eventually reach the point where you should repay the principal. You can’t afford it, so you take out another loan to pay off the first.
You’ve found yourself in a debt spiral, and you’d better hope that the flash car is also comfortable to sleep in. In fact, taking on debt in general is a bad idea because it prevents you from saving money to invest and accumulate wealth. Instead, you’ll spend your money on debt repayment.
Surprisingly, this can also be bad for creditors because it deprives debtors of the opportunity to increase their wealth. This causes them to be financially unstable, which can lead to them completely defaulting on the debt – every creditor’s worst nightmare.
Final Summary
This book’s main message is:
- The key to becoming wealthy is to live below your means in order to save money and invest a portion of it in a way that generates interest for you.
- You must also understand that you can make your own luck by working hard and taking risks.
- Live within your means.
- Never go into debt to purchase a luxury item because it is extremely difficult to get out of such unnecessary debt.
- If you desperately want the item but cannot afford it, save up for it.
- Invest a portion of your earnings wisely.
- Whatever you earn, make sure you don’t blow it all on things you want.
- Save some of it and invest it in, say, stocks or bonds, and the money will start working for you, earning you interest.
- Make sure, however, that you make this investment wisely.
- Don’t put your hard-earned money in the hands of a novice or an amateur. No matter how appealing an opportunity appears, if the person you are entrusting your money to is inexperienced in the field, they will most likely fail. As a result, you should only invest with people who have demonstrated that they know what they are doing.
