4 lessons on getting rich from the richest man in Babylon

Arkad, the richest man in Babylon (excerpt from the book "The Richest Man in Babylon" by George Samuel Clason - an American businessman and writer) gave many lessons to guide his students about investing. - save. Below are his advice summarized in his famous book.

Lesson #1: Pay yourself first

For every 10 coins I earn, I only spend 9 coins. The first lesson that Arkad gives his students is to pay yourself first. This may be the most basic maxim in all of personal finance, but if you don't follow it, you'll never escape the vicious cycle of spending frugally at the end of the month.

So what is "pay yourself first"? There are two ways to look at saving, and mathematically they are identical.

Savings = Income – Spending

Spending = Income – Savings

Mathematically, those two equations are equal. However, the psychology behind them is very different. If you follow the first equation, you are saving the money left over after spending. You're following the path of the average American - nearly 80% live on a budget until the end of the month. Unless you have exceptional willpower, it's very difficult to spend less than you earn if you don't specifically prioritize saving.

The second equation is a subtle but meaningful shift in thinking. You're making a conscious decision to "pay yourself first" – that is, save a certain percentage of your income before deciding on monthly expenses. Instead of saving what's left, you're spending what's left. Although this may be a difficult change at first, once you get used to it, you won't even feel it affecting your lifestyle.

Think about the last time you got a raise. Where did the increased money go? Perhaps the answer would be don't know. So what if the next time you get a raise, you decide to put the entire difference into a savings account? Your lifestyle will still be unaffected and you won't notice a difference, but your savings and liquid net worth will start to increase.

Now you're paying yourself first and living off the rest, instead of hoping you have money left over at the end of the month to save for the future.

Lesson #2: Live within your means

This is the second cure for tight budgets. Budget your expenses so that you can pay for your necessities, pay for your hobbies, and satisfy your worthy desires without spending more than nine-tenths of your budget. earn.

You might say that you can't pay yourself first or save some of your income because your current income doesn't even cover your expenses!

In fact, most people confuse necessary expenses with impulsive expenses. We all always want this or that, and it is a fact that the more money we have, the more our desires will increase, which is why maintaining a budget is very important, to you know where your money is going.

Desire to exceed one's means regardless of income level is a common phenomenon. Even if you earn 500 million or 1 billion a year, there will always be things you want that are out of your reach.

By adjusting your thinking, saving a portion of your income first (the richest man in Babylon used 10%), you will find that you can still fully satisfy some personal desires and live well. with your current income.

Lesson #3: Keep your money safe

Consult wise people. Let their wisdom protect your treasure from unsafe investments.

Warren Buffett is famous for his 2 investment rules:

·       Never lose money.
·       Never forget rule number 1.

Buffett's discipline has made him one of the wealthiest men in the world. Despite the popular opinion of the time, he only invested in what he knew and understood. While everyone is racing to invest in Apple, Google, Facebook and the latest big tech IPOs, Buffett has been building his fortune slowly and methodically by investing in innovative companies. more traditional company that he understood well.

That's not to say there's anything wrong with buying tech stocks, but it's not Buffett's area of expertise, so he'll only invest in what he knows.

The dream of becoming a millionaire overnight rarely has a good ending. The process of getting truly rich usually happens slowly and steadily.

Personally, I decided to invest my time, energy and research to invest in real estate. I learned from people with more experience (not the get-rich-quick gurus), and was determined to become an expert in that field. That doesn't mean I haven't made mistakes along the way, but by focusing on one area of expertise and working hard, I've been able to safely increase my net worth. Much better than trying dozens of different things that I don't know much about.

Lesson #4: Learning how to get rich is more important than becoming rich

Imagine two people with equal assets - say $100 million. One person got rich over 20 years through building a successful business, while investing his profits wisely. The other person won the lottery a few weeks ago.

If both of these people suddenly lost all their money, who do you think would become rich again faster?

I would bet on someone who gets rich through hard work and discipline. He lives within his means, uses his skills to increase his earning potential, and takes advantage of available opportunities to get rich.

The other person doesn't have to learn the skills of delayed gratification, wealth building, or the ups and downs necessary to run a successful business. If he is left to become independent, he does not have the knowledge and skills to get rich. Is it any wonder that nearly a third of lottery winners declare bankruptcy (much higher than the average bankruptcy rate)?

Learning wealth-building habits is a skill that will continue to pay dividends no matter how much money you have. But without money management lessons on your way to wealth, it's nearly impossible to keep your money, even if you're the "luckiest" lottery winner in the world.