Gabriel B. Ajak | December 25, 2024

9 Money Lessons from The Richest Man in Babylon

"The key to building wealth is investing in personal growth, starting a business, and making wise investments."

Despite the technological advances and societal changes over centuries, the fundamental principles of personal finance remain unchanged. The Richest Man in Babylon by George S. Clason is a timeless classic that shares profound financial wisdom through engaging parables set in ancient Babylon. These lessons, wrapped in memorable stories, provide a practical framework for saving, spending, investing, and protecting wealth—concepts just as relevant today as they were thousands of years ago.

This article examines nine critical lessons I learned from one of my favorite financial education books. I detailed each lesson for you and how you applied it in the modern world. Whether you’re just starting your financial journey or looking to refine your habits, these lessons offer practical financial guidance to help you build wealth, success, and stability on your own accord. I broke down the book into three parts: spending, making, and protecting money.

The story starts with an ancient illustration of the time, the wealthiest man in ancient Babylon; there was a wealthy man named Arkad. Arkad was the richest man in the world, or he would be Elon Musk of our world. Seeing this, two of his childhood friends approached him to ask how he had become so wealthy while they had worked very hard yet could barely feed their families. Arkad smiled and told them that in exchange for his services as a scribe, he had once been told the secret to wealth by another rich man.

Save a portion of your income before spending it. The secret was a part of all you earn is yours to keep. In other words, you must not spend all you earn but invest it wisely. This is what Arkad had done to get started. He saved enough money to lend to a shield maker, who then paid interest on the loan, thus growing Arkad's wealth. The Richest Man in Babylon consists of parables like this one, and in these lessons, you will find advice that can be distilled from them and translated into a modern-day setting.

Lesson 1: Start Thy Purse to Fattening. 

Thy purse to Fattening means saving a portion of your income before spending it. The Rich Man in Babylon, Arad, advises that some of your earnings should be kept for yourself. Unfortunately, many of us often treat our paychecks as if they belong to everyone else. We hand over money to landlords, grocery stores, electric companies, and more. At the end of the month, we realize we’ve spent it all. Arad says some of that money belongs to you. So, you should always pay yourself first.

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 thrifty and stuff every penny they save into their mattress while others squander what they earn on all kinds of trinkets? The secret of becoming wealthy lies somewhere in between these two extremes. To become rich, you must hoard money and know how to use it wisely.

The secret to building financial success is admitting how little you know about investment and financial literacy.

Of course, the first thing you must do is save up money. This means you can't spend everything you earn and must live slightly below your means. You can, for example, cut back on those little luxuries in life, like the city weekend in Paris you had planned or the quilted luxury toilet paper you buy. The regular stuff will get the job done just as well. But saving up money this way is insufficient 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 measly interest. Instead, you have to invest your savings in something that will create more wealth, like stocks, government bonds, or funding startups. If you do this right, your savings will grow with no extra effort. When you 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 shouldn't give a lumberjack your money because he says he will set up a business buying and selling diamonds. On the other hand, giving your money to a hedge fund manager to invest wisely can make sense. They probably know the market better than you do.

Application

• Prioritize paying yourself first by saving at least 10% of your earnings before addressing other expenses.
• Automate this process—set up a recurring transfer to a high-yield savings or investment account.
• Over time, increase this percentage as your income grows.

Example

• Imagine someone earning $50,000 a year. By saving 10% ($5,000), they would build a $50,000 nest egg in ten years—without accounting for investment growth.

Key Takeaways

• Consistent saving ensures financial growth and lays the foundation for wealth. As Arkad, the richest man in Babylon, said, “A part of all you earn is yours to keep.”

Lesson 2: Control Thy Expenditures

The secret to success is always admitting how little you know. True wisdom lies in realizing how very little you know and admitting it. The ancient philosopher Socrates considered himself wise for accepting, I know that I know nothing. This philosophy should also apply when you learn new things. Don’t fool yourself into thinking you now suddenly know a lot; instead, pause for a second to look around. It is a fact of life that the acquisition of new knowledge simultaneously illuminates further areas of ignorance if we choose to observe them.

For example, once you learn about the fundamental basics of the theory of relativity, you cannot help but encounter its more complicated and sophisticated areas, which make you realize that there's a lot more you don't yet understand. If anything, you now feel yourself more ignorant than before. Unfortunately, most people fail to realize how little they know, especially in finance. Various studies have shown that most adults struggle to use basic financial formulas. For example, calculating compound interest. Moreover, they also tend to charge ahead with their tiny knowledge base without pausing to consider all the areas in which they are ignorant.

Some people, for example, learn the basics of investing in risky subprime mortgages and think they know enough to attain wealth through them. Still, they failed spectacularly in 2008 because they did not pause to learn more about their investments. They forget to ask questions about the sustainability and riskiness of the investments. If you go that extra step and study finance, you can take advantage of the ignorance of others who didn't bother. This could help you spot investment opportunities before others or make lucrative trades with them.

Application

• Differentiate between needs and wants to curb lifestyle inflation. Ask yourself: Is this expense essential, or is it a fleeting desire?
• Review your spending habits monthly. Tools like budgeting apps or spreadsheets can help you track and adjust.
• Use the 50/30/20 rule: allocate 50% of your income to needs, 30% to wants, and 20% to savings or debt repayment.

Example

• Instead of upgrading to the latest phone every year, consider waiting until it doesn’t turn on or when a new phone is necessary. The $1,000 saved annually could grow significantly if invested.

Key Takeaways

• Identify and control unnecessary expenses.
• Controlling expenses prevents paycheck-to-paycheck living and builds financial discipline. 

Lesson 3: Enjoy Life While You Can

The purpose of wealth is to enhance life, not diminish it. While the book emphasizes saving and wealth accumulation, Arad, the Richest Man in Babylon, reminds us that life is meant to be enjoyed. Aligning wealth building with the philosophy espoused in “Die with Zero,” which advocates for utilizing money to cultivate a fulfilling and prosperous life, this paradigm shift has profoundly transformed my approach to financial management.

I now deliberately allocate funds for monthly recreational activities, recognizing that these pursuits contribute to personal growth and development. For instance, my gym membership or Amazon Audible subscriptions are not solely for entertainment but integral to my overall well-being, education, and personal enrichment. However, it is equally important to set aside a specific budget for activities that bring you genuine joy, such as travel, dining out, or other hobbies of your choice.

You can only accumulate wealth slowly by learning through 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 of countless tiny steps forward and often more than a few steps back.

But why is this so? Why does acquiring wealth take such a long time? Quite simply, because the world is constantly changing, especially financially. This means you can never pick one wealth-building strategy, like investing in a particular stock, and sit back to watch the money come in. The financial system and life are very uncertain. Often, the market crashes due to uncertain economic circumstances. This means you must adapt to the new situation and learn about new wealth-building strategies, experimenting with them and probably failing in a few.

And just as 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. The trial and error method is analogous to how scientific progress is made. Failed experiments can be just as valuable as successful ones.

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. Yet, beware of forgetting that trial and error involves making mistakes by its very nature. That means you need to ensure these mistakes are small, so don't invest money you can't afford to lose in an area you are not sure about. In the next lesson, you'll understand the difference between making money and attaining wealth.

Application

• Budget for experiences and activities that bring joy—travel, hobbies, or dining out—but do so responsibly within your means.
• Balance short-term pleasures with long-term goals to avoid burnout.

Example

• Set aside a “fun fund” each month. If your income allows, reserve 5-10% for entertainment or hobbies, guilt-free.

Key Takeaways

• True financial planning improves your quality of life without sacrificing your future. As Clason reminds us, money is a tool for living—not a burden to hoard.

Lesson 4: Make Thy Gold Multiply

Investment opportunities vary globally—from stocks and bonds in developed economies to microfinance and cooperative ventures in emerging markets. 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're like most people, you probably didn't 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 an excellent wage. Clearly, you're making money, but are you attaining wealth? Not necessarily. For that, you need to go through the process of saving and investing some of that money.

For example, if you save part of your income and invest it in real estate, you will attain wealth because your money would work for you and not vice versa. Making money is usually done to achieve short-term financial success. You usually only care about what you can buy with that next paycheck, while the future is of little concern. However, there is an inherent danger in this kind of thinking. What if the next paycheck never arrives? Attaining wealth, on the other hand, involves longer-term goals.

For example, the real estate you bought won't bring you immediate wealth. Instead, you must 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 for as long as you own it. This kind of long-term planning can help provide security for unexpected events like losing your job.

Application

• Move beyond saving alone. Invest your money in opportunities that generate returns, such as stocks, index funds, or real estate.
• Harness the power of compound interest: reinvest your earnings to grow your wealth exponentially.

Example

• Investing $10,000 in an index fund earning 8% annually, your investment would grow to over $146,464.83 in just 10 years.

Key Takeaways

• Money grows when it’s actively invested, turning modest savings into significant wealth over time.

Lesson 5: Ensure a Future Income

Plan for retirement and unexpected situations. In countries with limited social security, this lesson highlights the importance of personal retirement planning. It’s a universal reminder to prepare for life’s uncertainties. For example, a camel trader’s comfortable life with a large herd vanished due to a lack of savings. As he aged and his business failed, he became poor and reliant on others. A book story illustrates the importance of planning seeds that will grow and yield while you are aging.

Making investments that get paid back with interest can be highly lucrative. When you borrow money, for example, by taking out a student loan, chances are you have to pay interest on it. Conversely, when you loan someone money, you can expect them to pay interest. This is one of the key takeaways from which those with money can attain more wealth.

To understand why paying interest is a fact of life, you must first grasp that money is a resource, just like employees or raw materials. Imagine you want to start a factory. What do you need? Naturally, you need raw materials and manpower to create your products. And, of course, you will have to pay for these resources. But you also need capital, money with which to build the factory.

In this sense, capital is a resource just like any other and, as such, must be paid for. To attract employees, you need to offer a salary. And in the same way, to attract capital, you need to provide the investor with something. Interest As an investor, interest is an attractive way of building wealth because of its compound nature. You can get your interest earnings to increase over time because you will also be earning interest on top of interest. For example, imagine you invest $100,000 in a new business.

And on the due date, the owner duly pays you back the original sum plus 10% interest, amounting to $110,000. You then decide to reinvest the whole amount into another business with the same terms. This time, when you get back the sum plus 10% interest, you'll receive $121,000. Your interest earnings have increased.

You can continue this process indefinitely, consistently earning more and more interest. As you can see, your money not only works tirelessly for you, but it also becomes increasingly effective at what it does over time. Next, you'll discover how good luck and hard work are related.

Application

• Begin retirement planning early to maximize the benefits of compounding. Contribute to accounts like a 401(k), IRA, or similar investment vehicle.
• Build an emergency fund to cover 3-6 months of living expenses.

Example

• If you saved $750 per month in a retirement account with an 8% annual return, you’d accumulate nearly $441,789.78 in 20 years.

Key Takeaways

• Early preparation creates a safety net and ensures a financially secure future.

Lesson 6: Increase Thy Ability to Earn

Access to education and skills training differs worldwide, but the principle of self-improvement is universal. Online learning platforms have made it easier for most people to enhance their skills today.

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, serendipitous events. But is this always accurate?

Say you're playing in a tennis tournament. You've practiced hard for months and prepared thoroughly. Ultimately, you win the final by clipping the top of the net, so the ball bounces just out of your opponent's reach. Was this pure coincidental luck? Of course not! You had earned that luck through your hard practice.

When people talk about random luck, they're talking about chance. Chance implies something random and non-influenceable is 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 interested in consumer technology and spending daily reading trend reports, examining the global financial situation, and reaching out to innovators in her network. One day, she read that 3D televisions are expected to be the latest trend. Later that same day, here's 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. Her hard work, vigilance, and willingness to seize opportunities produced this stroke of luck.

Application

• Invest in education, certifications, or training relevant to your career.
• Explore side hustles or passive income streams to diversify earnings.
• Develop high-demand skills like coding, communication, or leadership to enhance your professional value.

Example

• An online course for $500 that leads to a $5,000 salary increase is an incredible return on investment.

Key Takeaways

• Your earning potential is limitless when you commit to lifelong learning.

Lesson 7: Guard Thy Treasures from Loss

Economic volatility impacts every nation, making this lesson vital. Whether in stable economies or regions facing inflation, the importance of safeguarding wealth through diversification is universally applicable.

Work hard to spot opportunities and seize them without procrastination. You probably know the motto of the Boy Scouts: Be Prepared. You, too, should adhere to it to find new opportunities to increase your wealth. In the previous lesson, you saw 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's because they procrastinate. For example, if the entrepreneur in the previous lesson had decided not to invest in the new 3D television technology and instead waited for it to prove itself adequately and become more established, the inventor would have 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 you see, you must work hard. Study and investigate the areas you're interested in and build a network so you'll be better able to spot and appreciate opportunities when they do come around. Remember that golden opportunities are rare, even if you work hard. This means you might have to wait a while, which can be discouraging because your hard work isn't producing results. But your endurance will pay off eventually when an opportunity does become apparent.

For example, imagine an entrepreneur who has invented a radio that requires no electricity at all. She works hard to perfect her product and then pitch it to investors. Every potential investor rejects it for a year, saying, "Who listens to the radio nowadays?” Though disappointed, she keeps at it until an investor realizes the product is perfect for developing countries with poor power grids.

The product eventually became a great success, and her patience paid off. In the final lesson, you'll discover what actions lead to financial ruin and how to avoid them.

Application

• Avoid speculative ventures or “get-rich-quick” schemes. If it sounds too good to be true, it probably is.
• Diversify your portfolio to minimize risks. Don’t put all your money into a single stock or asset.

Example

• Imagine investing $10,000 in a single cryptocurrency that drops 80%—you’d lose $8,000. A diversified portfolio would limit such losses.

Key Takeaways

• Careful, well-researched investments safeguard your wealth and ensure steady growth.

Lesson 8: Seek the Counsel of Wise Men

Financial advisors are available in various ways, but wisdom can also come from community elders or online resources. The principle of learning from experienced individuals applies across cultural contexts. Make rational choices about your expenses and avoid taking on debt. Have you ever wondered how some people wind up in financial ruin? Usually, it's simply because they make irrational financial decisions.

So how can you avoid this? First, you need to make all decisions about expenses and costs using a realistic assessment of your personal needs and financial circumstances. For example, say you desperately want a new flashy car. You don't need it, and buying it would require taking out a big loan on very unfavorable terms. You should not get it, but let's say you do anyway. Now, you're 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 out another loan to pay off this one. Just like that, you've ended up in a debt spiral and had better hope that the flashy car is also comfortable to sleep in. Taking on debt, in general, is a bad idea because you won't be able to save money to invest and accumulate wealth. Instead, you'll be spending your income on paying back the debt. Perhaps somewhat surprisingly, this can also be bad for the creditors because it deprives the debtors of the chance to increase their wealth. This makes them financially unstable, which can lead to them defaulting entirely on debt, which is every creditor's worst nightmare.

For example, Greece was deeply indebted to the European Central Bank in the recent eurozone crisis. 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 benefit the economy in the long term. Without these investments, the country would never have the wealth to fully repay its debts. 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.

Application

• Surround yourself with financially literate people who can offer guidance and encouragement.
• Consult financial advisors or mentors before making significant decisions.

Example

• Before buying a home, consulting a real estate expert can save you from overpaying or missing out on better opportunities.

Key Takeaways

• Trusted advice mitigates risks and helps you make informed decisions.

Lesson 9: Cultivate Good Luck Through Action

Opportunity looks different in every part of the world. Still, taking proactive steps—whether starting a small business in a developing country or pursuing entrepreneurship in a developed one—creates pathways to success. Studies show that successful people don’t just get lucky; they take action. We assume there’s a secret formula or magic trick that made them wealthy, but that’s not the case.

People attribute their successes to their actions but blame external factors for their failures due to self-serving bias. Arad emphasizes that luck is actually the result of preparation and opportunity. Those who take calculated risks, jump on opportunities and act purposefully seem the luckiest. So, take action, apply for jobs, start businesses, or learn new skills. The more proactive you are, the more lucky breaks you’ll create. These are the nine lessons I’ve learned from this book. If you enjoy book reviews, check out this video for more.

Luck in professional growth is often the result of consistent preparation, bold action, and strategic networking. By embracing this proactive approach, you can position yourself to seize opportunities and achieve success.

While financial systems and opportunities differ globally, the foundational principles of managing money remain constant. These lessons adapt to varied circumstances, empowering individuals worldwide to achieve financial independence.

Application

• Actively seek opportunities that align with your goals, whether applying for a new job, starting a business, or investing.
• Overcome fear and procrastination by taking the first step toward your dreams.

Example

• A professional who takes a leap to start a side business often creates new income streams they wouldn’t have discovered by staying passive.

Key Takeaways

• Luck often favors those who prepare and act with purpose.

Let’s piece it all together. The lessons from The Richest Man in Babylon remain a timeless guide to achieving financial freedom. They emphasize the importance of saving, controlling expenses, investing wisely, and continuously improving yourself. Remember, the road to wealth must be consistent with deliberate action.

Start small, stay disciplined, and remember to enjoy the fruits of your labor along the way. As George S. Clason reminds us, “Wealth that comes quickly goes the same way. wealth that stays to give enjoyment and satisfaction to its owner must be built on a foundation of hard work and self-discipline.” With these lessons, you’re well on your way to building that foundation.

Disclaimer: This article is for educational and entertainment purposes only. I don’t provide investment advice. Investing involves risk, including the possible loss of the entire investment principal.