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Today’s episode is on money, moo-lah, ca-ching.
We’ll look at how to manage money through the Richest Man in Babylon, one of the most famous and favorite books among the banking and finance elite. Although the book was published in 1926, its lessons hold true almost a century later.
The reason I made this episode is because I feel like there is a lack of information on money. The educational system does a really bad job when it comes to financial literacy. There are all types of classes on Economics, Finance, Accounting, Business Management, Marketing and so on.
Endless money-related classes and not a single class taught us how to actually manage our finances.
What do I do when I get my salary?
How much of it should I save?
How do I invest it to make more?
How do I accumulate wealth?
All questions that the educational system refuses to answer. Could be that this is done on purpose so people do not think for themselves and remain poor? It’s possible.
Financial literacy skills are indispensable.
We live on an economic planet. And we are reminded of that fact every single second of every single day. Every time you go to the supermarket, gas station, shoe store, hospital (God forbid), school, restaurant, you are reminded of that fact. Money matters. In fact, it is super important. But despite all this, as Grant Cardone says, people don’t know how to make it, how to save it or how to multiply it.
To this day, it baffles me how many friends, do not know how to manage their money.
They spend recklessly on stuff they don’t need to impress people who don’t matter.
They get their salary and within a few weeks they are back to being broke and penniless yet again, just like they were the previous month…and the month before that.. and the month before that.
And they have to resort to borrowing money not because they are unemployed and living off savings (or ran out of them. I’ve been there before), but because they are recklessly spending money. They max out their credit cards and borrow money yet again to pay off their debt, creating a vicious cycle, where every cent earned is spent on repaying last month’s debt.
What can you learn from the richest man in Babylon?
8,000 years ago, Babylon was one of the richest civilizations on the planet and with this book you’ll learn the basics of saving, managing and multiplying money through a collection of parables, set in ancient Mesopotamian kingdom of Babylon through the Orientalist worldview of an American guy.
Orientalism:
According to Edward Said, who coined the term in his book of the same name “Orientalism”, it is the idea that Western identity, culture and society is superior to Eastern identity, culture and society. It also highlights the notion that the West (referred to as the Occident) forms its own identity in stark contrast to the East (referred to as the Orient). The Occident is basically everything that the Orient is not, which is not white, Christian or superior. It involves exotifying the Orient and at the same time labeling it as backwards, uncivilized and dangerous. Orientalism provided a convenient rationalization of European colonization conquests based on a self-serving idea in which the East is inferior and therefore in need of Western intervention or rescue.
Example sentence: The Richest Man in Babylon is one of the most Orientalist books ever written. But it is a great book to start off your financial literacy journey.
Speaking of, Edward Said’s book Orientalism is a very fascinating book. And I am gonna let you in on something.
You can get an Audiobook version for free using this exclusive audible link. Audibletrial.com/Samotivation
Just make sure to select the US site. Remember this is our little secret. Don’t tell anyone. Actually tell everyone, this is an affiliate link and it helps support the podcast.
And now back to the Richest Man in Babylon!
The book is set in Babylon, a kingdom in ancient Mesopotamia lying on the Euphrates River, which lasted from the 18th to 6th century BC, in what is now modern-day Iraq. Babylon was a bustling, rich, powerful and influential city.
It is also the birthplace of the world’s earliest and most complete written legal codes, known as the Code of Hammurabi, which was carved onto a massive, finger-shaped black stone stele. The original is in the Louvre in Paris, with replicas in the US, Russia and Turkey among others.
Interesting fact: In 1978, under Saddam Hussein, the Ba’athist government of Iraq began the “Archaeological Restoration of Babylon Project”. As part of the project, Saddam Hussein, installed a portrait of himself and the Babylonian King Nebuchadnezzar at the entrance of the Babylonian ruins. Saddam even had his name inscribed on many of the bricks, in imitation of Nebuchadnezzar. One inscription reads “This was built by Saddam Hussein, son of Nebuchadnezzar, to glorify Iraq.”
So as you can see.. Babylon is kind of a big deal.
So let’s delve into the Richest Man of Babylon. The book talks about 7 Rules to cure a lean purse:
These ideas form the basis of this book:
- Money is the medium by which earthly success is measured.
- Money makes possible the best that which the earth affords.
- Money is plentiful for those who understand the simple laws which govern its acquisition
- Money is governed today by the same laws which controlled it when prosperous men thronged the streets of Babylon, 6000 years ago.
The book starts off with the story of 2 friends, who live in the richest city (Babylon), and yet are poor.
“We do not wish to go on year after year living slavish lives, working, working, working! Getting nowhere. A fat purse quickly empties if there is no golden stream to refill it. It costs nothing to ask wise advice from good friend.”
Realizing that they are slaving away and getting nowhere financially and realizing that it costs nothing to ask wise advice from the successful, they go for advice to the richest man in Babylon, Archad, whom they grew up with.
This is what Archad tells them.
“If you have not acquired more than a bare existence; it is because you have failed to learn the laws that govern the building of wealth, or else you do not observe them.
Decide that if you want to achieve what you desire, time and study would be required. Learning is of two kinds: the one kind being the things we learn and know, and the other being the training that taught us how to find out what we did not know.
Be unafraid and ask wise people for advice on becoming rich, those people who are rich and have made it.
The thoughts of youth are bright lights that shine forth like the meteors that oft make (oft is an archaic term for often. Thank you, Google) brilliant the sky, but the wisdom of age is like the fixed stars that shine so unchanged that the sailor may depend upon them to steer his course.”
Lesson 1 – Start Thy Purse to Fattening.
Arkad was not always rich. He was once a poor scribe, who made a deal with a rich man to find out the secret to wealth in exchange for his work on a clay inscription.
The rich man told Arkad, “I found the road to wealth, when I decided that a part of all I earned was mine to keep. And so will you.”
Basically, break the paycheck to paycheck cycle by paying yourself first. Whenever we get a salary, we begin paying off our expenses, rent, loans, car, credit card whatever..and save the rest (if we are wise), if we are not then we spend it on useless things. It should be the other way around, you pay yourself first and then begin paying your landlord, bank and everyone else that is a part of the amazing exploitative capitalist system.
The book recommends that we pay ourselves 10% of all that we learn. If you can save more than 10% go for it.
Did you know that 58% of Americans have less than a $1,000 in savings?
82% of those people have $0 in savings, which is pretty concerning, given that unexpected economic changes (like recessions), expenses (medical, car breakdown) and other situations can pop up at any time. This shows the extent to which people lack basic financial literacy skills.
This is the main difference between rich and poor people. They pay themselves first, before paying anyone else.
After, we have paid ourselves at least 10% of what we earn, we are left with 90% or less of our income, so.. What do we do then?
Lesson 2 – Control Thy Expenditures
Samotivation version of above lesson: Control thy expenditures, so they don’t control you.
Basically, stop spending every single cent you earn. This is often the result of confusing necessities with ones that are not-so-necessary and indispensable. The more our income rises, the more we begin to confuse necessities with things that are not so necessary.
We spend money on things that we do not really need. I am not endorsing the idea of living like a miser, nor is the book. An occasional fancy dinner, designer clothing, watches or (fill in the blank with your favorite sad consumerist item that you don’t really need but somehow find a way to justify) is more than okay, money is earned to be spent at the end of the day, but should be done so wisely.
As Arkad says: “What each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary. Confuse not the necessary expenses with thy desires.”
No matter at what income level you are at, most people’s unhealthy spending habits are the same.
– “How can a man keep one-tenth of all he earns in his purse when all the coins he earns are not enough for his necessary expenses?”
– “Yesterday how many of thee carried lean purses?”
– “All of us.”
– “Yet, thou do not all earn the same. At the same time, all purses were equally lean.”
Lesson 3 – Make Thy Gold Multiply
“Gold in a purse is gratifying to own and satisfieth a miserly soul but earns nothing. A man’s wealth is not in the coins he carries in his purse; it is the income he buildeth, the golden stream that continually floweth into his purse and keepeth it always bulging.”
Ahem Ahem. Passive income streams, so that you have cash coming in even while you sleep, like rent, setting up an online course, e-book, stocks, bank cash deposits etc. Very few people get rich from a salary on its own.
Lesson 4 – Guard Thy Treasures from Loss
Basically make calculated financial decisions. Avoid the stupid decisions made by the herd. There is a reason that the majority of people on the planet live paycheck-to-paycheck while the select few live a life of financial abundance. And that reason does not necessarily have to be nepotism, corruption or exploitation. It could be that some are more financially literate and therefore make better financial decisions.
The book says:
“Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where thou 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 thy treasure from unsafe investments.”
If you look at some of the world’s most successful people, in the very beginning of their careers, they turned down many opportunities offering them easy money. Instead they chose to focus on and master their craft at a lower income, understanding that, in the process, a much bigger and better opportunity would come along long-term.
Quick money-making schemes are usually a scam. Wealth is a long-term game, requiring long-term outlook and decisions.
Wealth is Chess. Not Checkers.
If you do not know much about finance and investing, admit, put your ego to the side and go to someone who does. People who have the knowledge and experience that you lack, will always be willing to share it with you, if you have the courage to ask for it.
Lesson 5 – Make of Thy Dwelling a Profitable Investment
From the book: “Thus come many blessings to the man who owneth his own house. And greatly will it reduce his cost of living, making available more of his earnings for pleasures and the gratification of his desires.”
There are 2 schools of thought on this.
The first school (like the book) says that owning a home is a profitable investment and asset. This conventional thinking on a mass scale.The problem with this is that it assumes that the value of the home will go up over time, but this is not always guaranteed as the 2008 housing bubble shows. Now the other thing is, a home is illiquid meaning and cannot easily be exchanged for cash, unlike gold or stocks.
Furthermore, an asset is defined as something that brings in income, a home does not do that unless it is being rented out.
Unless you own homes to rent them out, they are not really profitable investments or assets, because a home does not provide any income and the only possible return is on appreciation, which is not always guaranteed as the 2008 US housing bubble pop shows.
The second school says that a home is not an investment, but is rather a liability, as it does not provide any income.
According to Kiyosaki, an asset is something that puts money in your pocket and a liability is something that takes money out of your pocket. He emphasises that homes should be considered a liability, as they’re expensive and don’t always go up in value.
Grant Cardone says that if he could give his younger self one piece of advice it would be to not buy a house.
According to Grant, houses are “traps that prevent people from ever having enough. Sold as the American dream it’s more like the American nightmare where people can’t move, don’t ever truly own and must continue to spend to keep.”
Young people are more likely to move around frequently, so perhaps owning a home might not be the best financial decision at that point in time. Unless, they buy a piece of property and rent it out. Rates of return on real estate are frequently better than bank interest rates.
I do not necessarily agree with this point. Let’s move on to the next one.
Lesson 6 – Insure a Future Income
“The life of every man proceedeth from his childhood to his old age. This is the path of life and no man may deviate from it unless the Gods call him prematurely to the world beyond. Therefore do I say that it behooves a man to make preparation fro a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them… This, then, is the sixth cure for a lean purse. Provide in advance for the needs of thy growing age and the protection of thy family.”
This part of the book basically talks about retirement, but Clayson doesn’t go into detail because I do not think that they had retirement plans in Babylon at that time. The US equivalent would be a 401k plan. According to the Wall Street Journal, it’s a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
For others, insuring a future income involves setting up businesses or buying and renting out real estate that will secure multiple streams of income.
Lesson 7 – Increase Thy Ability to Earn
Improve yourself and your skills by constantly learning. You are already doing that by listening to the Samotivation go-to-bed-better-than-you-woke-up podcast! A thicker wallet and a room full of cash like the ones you see in the rap videos, starts with continuous self-improvement and upping your skillset. Whatever that skillset may be.
If you’d like to get a free Audiobook version of the book, just click here and select the US site.