Seven Rules for Generating Wealth From Book - "The Richest Man In Babylon"

From ancient times, man had the desire and ambition to acquire wealth and maintain it. It has been observed that those who became successful in earning money developed certain sound financial principles with their experience. These principles are universal and unchanging. Still we have very few rich people. Majority of population in most of the countries is either poor or middle class. The reason is simple. People who understand these financial principles are very few and out of these who actually apply these principles in their real life are even fewer.

Today we are going to discuss Seven Rules that are a sure key to a fatter purse, larger bank balances and

gratifying financial progress from the modern inspirational classic book “The Richest Man In Babylon” by George S Classon.

Babylon was one of the most glorious cities of ancient times. It was famous for its wealth and splendour. Its treasures of gold and jewels were fabulous. This city had no forests, no mines – not even stone for building. It was not even located upon a natural trade-route. The rainfall was insufficient to raise crops.

Babylon is an outstanding example of man’s ability to achieve great objectives using whatever means he has at his disposal. All of the resources supporting this large city were man-developed. All of its riches were man-made. Babylon possessed just two natural resources – a fertile soil and water in the river.

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So let’s move on to understand Seven Rules of Financial Wisdom that people living in this glorious city followed for ages and that made them rich and prosperous.

Rule one: Start the purse to fattening

We all possess different means to earn our living. Some of us opt for a job for living, others prefer charging for their professional services and lot of us start businesses either big or small to earn money. All these are great streams to earn money.

But money can be accumulated only when we save sufficient money out of money earned. Suppose an auto driver earns Rs. 500 per day. If he starts saving Rs. 100 per day after spending Rs. 400 on his daily needs, he would have saved Rs. 3,000/- by the end of first month itself.

You will be thinking, what’s so unique about this rule. Everybody knows it. Agreed but my friend truth is always simple. Now tell me how many of us actually follow it. If we were following this rule, then what is the role of credit cards and loans for purchasing costly mobiles, luxury cars, gadgets, and luxury villas in our life?

Is it not correct that as our income increases, knowingly unknowingly our standard of living increases automatically? And then we always have an excuse, that we are hardly able to cope up with expenses that are necessities of life and we are left with very little to save.

Rule two: Control the expenditures

It’s a common perception that when the money earned is not even sufficient to pay the necessary expenditure, then how can one control expenditure.

You will be surprised to know that though different people have different earnings, still they all face a common problem of empty purse. If earnings are different and they all are spending only on necessary expenditures, then the accumulated savings should be different for all of them. But it is not so because definition of necessary expenditure changes from person to person.

All men are burdened with more desires than they can gratify. The moment they have surplus money, their desire lures them to spend money giving mind the logic that money is being spent on necessities of life.

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We need to have a check on our desires. The first step after earning money should be to keep aside pre-decided proportion of money as savings. Only money left after saving should be spent on necessary expenditures and partial fulfillment of our desires and enjoyments.

Rule three: Make the gold multiply

The habit of savings will fatten the purse. Gold in a purse is gratifying to own and satisfy a miserly soul but earns nothing. So the next step is to consider means to put the treasure to labour and earn. The gold we retain from our earnings is but the start. The earnings it will make shall build our fortunes.

We have various asset classes to invest in through which we can earn income on our accumulated wealth. Some of these investment options are fixed deposits in banks and corporate, mutual funds, tax free bonds, investment in equity markets, rental income from residential and commercial properties etc.

I am sure many of you would be having lacs of rupees in your savings bank account which are lying idle for months and you will be earning only 4-5 percent interest on the same. We may not be checking our bank balances resulting in the same. Had we invested this money in a fixed deposit in the same bank for a year, we could be earning interest in the range of 8-9 percent. It’s just one example of our casual approach to our finances for your reference.

Rule four: Guard the treasures from loss

“It’s important to prevent the purse from being emptied once it has become well filled. Guard the treasure from loss by investing only where principal is safe, where it may be reclaimed if desirable, and where you will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect the treasure from unsafe investments.”

This reminds me of the losses my father suffered by losing his retirement income by investing in fixed deposits of a company. In 1998, interest rates were as high as 15 percent and you could earn another 4-5 percent as pass back from sub broker. High return means high risk. Everything was fine for couple of years. Suddenly the company’s repayment of principal and interest cheques bounced. We were shocked. There was news about liquidity crises in company. But later the cheques got cleared. We were relieved. But the temptation to earn higher income made us again invest in fixed deposits in same company. But this time when the fixed deposits matured, the company didn’t pay the principal and interest. And my father lost his hard earned money.

Rule five: Make of the dwelling a profitable investment

Owning a house to live in is everybody’s big dream. Still majority of us spend a major part of life living in rented apartments. Payment of rentals forms a major portion of monthly expenditure for many households.

It is advisable to take home loan, pay EMI (Equated monthly installment) and purchase own house than to pay monthly rentals where ever possible. Hence one should purchase a house to live in at a young age.

This will help him create an asset in the form of house property out of his essential monthly expenditure itself. It will also greatly reduce his cost of living, making available more of his earnings for pleasures and the gratification of his desires.

Rule six: Insure a future income

We all need to make preparation for a suitable income in the days to come, when we are no longer young, and to make preparations for our family should we be no longer with them to comfort and support them.

One should take the help of financial planners to opt for suitable life insurance policies (term plans), family floater health insurance policies and pension plans to handle tough times intelligently.

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One needs to invest in assets where safety of principal is ensured and which generate income at regular intervals. This will help in meeting monthly expenses in your old age and also be of help to family members after your death.

Rule seven: Increase the ability to earn

The last principle for a fat purse is “to cultivate the own powers, to study and become wiser, to become more skillful, to so act to respect yourself.”

“Preceding accomplishments must be a desire. The desires must be strong and definite. General desires are but weak longings. For a man to wish to be rich is of little purpose. For a man to desire five pieces of gold is a tangible desire which he can press to fulfillment. Desires must be simple and definite. They defeat their own purpose should they be too many, too confusing, or beyond a man’s training to accomplish.”

One should keep increasing his skill sets throughout his life. Those who are intelligent and skillful will always remain in demand. Hence whosoever keeps following this principle will always have the capability to earn wealth.

I hope these simple rules for accumulating wealth and keeping it safely will help us in living a successful, happy and fulfilling life.

Photo Credit : Google images

Source : Book "The Richest Man In Babylon"