I just finished reading The Richest Man in Babylon for the third time. One of my more affluent clients told me to read it while working at a bank. He specifically told me, "You need to read this book." So I did.
Above photo from: https://www.bankrate.com/investing/women-and-investing/
No sooner then when I first picked it up did I realize how valuable the information in the book was. If you know me, you know I hate fluffy books. You know, the books that make you feel like you wasted your precious time and life by even opening up the first page. This book was not that. It divided its chapters into principles, which they call The Six Laws of Wealth. I fervently believe that if more people adopted these principles, our economy and world would be much better off. If I were to teach a personal finance course, I would make sure to have this book as required reading.
Hmm.. maybe I should make a personal finance school. Could you imagine what that would look like - excellent books like this to educate growing minds?
But I digress…
The Six Laws of Wealth were potent and powerful. This article will dissect each law and its practical applications to our daily existence. Stay tuned for a TikTok or Reel to accompany this information.
Law #1: Keep a part of all you earn. Save at least 10% of your income
This is the most foundational principle in finance. Before you do anything, you must learn how to save money. The book recommends you repeat to yourself the affirmation, 'A Part of all I earn is mine to keep,'
But many modern-day financial experts tell you to follow the habit of saving 10% of your income. Interestingly enough, the book even mentions the 70-30 rule, which I've discussed many times on my Instagram Lives and videos. If you don't know how to save money, you won't be able to get anywhere. Do not pass go. Do not try to invest. Don't do anything if you can't at least learn how to save what you have.
Law #2: put your savings to work for you. Invest it so that it will multiply.
"A part of all you earn is yours to keep," He repeated. "As much as you can afford to save, but no less than a 10th. This secret turned me from a sheep herder into a money lender. Great wealth, like a mighty oak, starts with a tiny seed. The first coin you save is the seed from which your wealth will grow. The sooner you plant the seed, the sooner your tree will mature. And the more you feed and water the tree, by saving and investing, the sooner you'll ask for contentment beneath its shade." - The Richest Man in Babylon
After we start saving, the next step is to ensure we invest. I've written multiple articles about simplistic investing and will keep the same tone here. Invest in the general stock market through a mutual fund or index fund that tracks the S500 to ensure your investments grow from 8% to 12% over time. The compound interest will have your money working on top of itself to ensure that your money grows exponentially over time. To learn more about this, please reference my article from October 2021 titled "Using Index Funds to Diversify Our Portfolio."
Law #3: avoid debt. The poor pay interest, while the rich earn interest.
Do this.
No, but seriously, stay away from high-interest credit cards or anything that charges you more than 5% interest. If you Have accumulated debt, use Dave Ramsey's debt snowball or avalanche method to get rid of it as quickly as possible so you can earn interest rather than pay interest.
"Moreover, by paying back creditors without fail, I earned a good reputation around Babylon as an honest and reliable person to do business with." - The Richest Man in Babylon
The feeling you get when you see your credit score start going up, and credit card companies begin to approach you for great cards is riveting and addicting. Plus, when you have an excellent reputation with creditors, you can use their financial institutions as leverage for furthering your education or acquiring properties that will generate even more income. It all starts by avoiding debt.
Law #4: Don’t speculate in get-rich-quick schemes. Invest in solid businesses you understand.
As I said on my Instagram Reel and TikTok, this one gets a lot of people. When was the last time you were approached by someone trying to recruit you into a Multilevel Marketing Scheme? It’s the worst!
That'll show 'em, Mr. Washington. You were awesome in Training Day.
It’s even worse when it’s your friend, and they get mad whenever you tell them they’re inside a multi-level marketing cult. Yes, it is possible to become wealthy through businesses like that, but that wealth is reserved for the top 1 to 5%, and they make their money from people buying their products. Their product is a fee or barrier to entry into the multi-level marketing scheme. These businesses are usually commission-based, which means that if you don’t sell and if you don’t recruit, you won’t earn that money. If you suck ar selling, please don't do it. There’s a reason why these businesses are spoken of so disparagingly.
That’s not all. If you have been online within the last 10 years, you have most likely been inundated with an endless number of ads that will tell you how people made a mountain of money from flipping houses, joining a crypto course, or doing affiliate marketing. My rule of thumb is that when it comes to these ads if their first message leads to money and how fast you can make that money, be cautious.
Money follows people who are good at things (i.e., High-level skills like leadership, playing a sport, surgical skills) and know how to market well to the masses (i.e. Entertainment stars like Professional Wrestling, Kim Kardashian or Drake -should I have said Kendrick instead? )
If it’s too good to be true, it probably is. At the very least, do your due diligence.
Law #5: Invest in yourself. Gain knowledge and skills to increase your earning power
This is probably my favorite one because it’s just so darn practical. It’s like the real-world version of Law #4. If you want to earn more money, you have to do good things, solve problems on a large scale, or entertain many people. To do that, you can always work on your abilities to get there. One of my favorite quotes by Jim Rohn goes:
You have to learn to work harder on yourself than on your job.
Money and wealth are attracted to those who add value. If you look in your bank account and aren’t happy with what you see, #1 Thank God there’s anything in there in the first place,
#2 Ask yourself how you could add more value.
#3 Do the things that come up as answers
And then, of course, you have to assess your results, but the main thing is that you have to take personal inventory. As a human being, we all wish that life could get you exactly what you want just by wishing for it. But in all actuality, we exist in a reality where we have to earn what we seek—enough about this. Go for what you want, and don't try to seek a free ride.
#6: Safeguard your growing fortune with diversification and insurance
This section will benefit those who have read the book because I will contextualize it to our opportunities as modern-day financial markets. As you may know, diversification means not putting all your eggs in one basket. You can lose that basket, so you spread your risk around to mitigate loss. The book doesn't go into it much, but diversification from an investment standpoint means using several investments or, more simply, using index investments to ensure you're not choosing one specific investment, which may have serious volatility.
Again, to learn more about this, please refer to my article from October 2021, "Using Index Funds to Diversify Our Portfolio."
But diversification, from an income standpoint, means creating different income sources. Very simply, create different businesses, but of course, reference law number five to ensure you're not getting to businesses you don't understand.
I would think of these different businesses as areas of interest. Perhaps you like writing so you can write a book. Maybe you like real estate, so you can purchase property. Possibly, you're a foodie, So you can own a franchise. The opportunities are endless. The main thing is to find the expertise in one area and then parlay the income generated from that area into other areas of interest. Then, if one business or income source becomes unprofitable, you can rely on your others to keep you afloat.
Lastly, insurance.
Oh, wow. The freaking insurance industry. Don't get me wrong. I love insurance. I just hate What has become of the industry where people say salesmen say insurance is THE way to become wealthy. The purpose of insurance is to protect your loved ones. The purpose of insurance is not to invest. That is merely a secondary or tertiary purpose. If you want to invest, invest. If you want to insure yourself, insure yourself. But when you cross over the purposes, you dilute the potency of each purpose.
In the most practical terms, get term insurance unless you unequivocally know what you're doing with insurance as an investment. You will dilute the power of your investments by using insurance vehicles. It is so crazy how many insurance agents say that insurance is used to force savings to indicate that you, as a financial professional, cannot instill proper saving or investing habits into your clients.
Okay, obviously, there's a lot to be said here, but for the reader, keep things simple. Take care of your family through low-cost insurance and protect the rest of your money through multiple businesses and diversified investments like index funds.
And that's it!!
Thank you for reading! If you have any questions, please let me know. I fervently want to give people in my community the information they need to make the right financial choices. That's what I care about. I love you guys. Talk to you soon.
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